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Here are the facts: First, anxiety about finances is real. Since 2008, the American Psychological Association has reported that money is the number one source of stress. In fact, findings from their Stress in America survey suggest that 72% of adults "feel stressed about money at least some of the time."
Second, stress can have not only psychological effects, but can also be expressed through physical symptoms. Your clients literally have physical responses to any discussions about money (and investing). The better you understand how each of your clients thinks, feels and acts about money and financial issues, the more likely you'll have long-lasting relationships with all of them. The better you can read their physical responses, like those mood rings from the 1970s, the more successful you'll be in getting your clients to develop financial plans.
Let's examine some of the science behind this:
A recent study published in the Journal of Financial Therapy by Grable, Heo, and Rabbani from the University of Georgia examined the relationship between how anxious people say they feel about money and how they physically react when they talk about money and financial issues. While only a preliminary study, Grable and his colleagues found evidence that those with the highest likelihood to seek out a financial planner exhibit relatively low levels of stated financial anxiety and yet at the same time also showed increased physiological response.
It's like seventh grade all over again: "NO, I do NOT like Joey. He's just a friend." "But why does the mood ring tell us you're in love with Joey?"
Potential clients may tell you one thing while they feel something else altogether.
What do the results of this research mean? Clearly, seeking the help of a financial planner is not straightforward. Potential clients may tell you one thing while they feel something else altogether. The best prospect for financial planning is the client who says they are not that anxious or stressed about money, but in reality, would score above average in terms of physiological response. They have what you might call a healthy anxiety about money that a solid financial plan might help to mitigate.
The Financial Anxiety Scale
Along with colleagues, I developed the Financial Anxiety Scale (FAS) to identify financial anxiety symptoms. Although it cannot be used as a diagnostic tool, the scale does use Generalized Anxiety Disorder (GAD) symptoms as they relate to money in order to help assess whether o e is experiencing anxiety-related symptoms around money. The FAS uses a system where each item below is assessed on a scale from 1 (never) to 7 (always). The score for each item is summed. The following are the indicators the FAS uses to help identify financial anxiety:
A higher total score indicates higher anxiety. Planners may find the FAS measurement useful in gauging clients' financial anxiety over time. In fact, those who score on the higher end of this scale are more likely not going to be responsive to planning until they become less anxious – at least in the short term.
Practical Tips For Planners
Grable and colleagues referred to several practical tips that may be helpful to financial planners to promote help-seeking intention. First, they suggested that financial therapy may be needed if clients experience high levels of financial anxiety. High levels may signal that there is an underlying psychological problem that may need to be addressed before proceeding with the planning process. Second, those with low anxiety might need to be reminded of some of the negative consequences of failing to plan, which might increase their physical response and shift them closer to feeling like a plan is needed.
Of course, when your client is a couple, reading the "mood" is even more difficult. When one partner experiences heightened levels of anxiety, in general, the other partner may also experience distress, and partners may engage in behaviors that hinder communication and support in the relationship. However, financial anxiety is often not stagnant and can change over time in response to the market, job, family support, etc. Financial planners who recognize that one or both partners may be experiencing an unhealthy level of money-related anxiety that is causing increased conflict or hostility may want to refer either or both partners to a marital or financial therapist.
The views and opinions expressed herein are those of the author, who is not affiliated with Hartford Funds. The information contained herein should not be construed as investment advice or a recommendation of any product or service nor should it be relied upon to, replace the advice of an investor's own professional legal, tax and financial advisors. Hartford Funds Distributors, LLC.