There are very few things more stressful than money, whether you don’t have it or whether you do. Money problems destroy relationships every day, and I’m sure that all of my readers can think of quite a few people off the top of their heads who have an incredibly dysfunctional relationship with money and simply don’t or can’t think straight when dollars are involved.
The financial services industry generally does very well by such people. For one thing, they’re the biggest source of profit for consumer-credit companies in general and for credit-card companies in particular. Almost everybody carrying a significant balance on credit cards would be better off with some other kind of debt, and has ended up in their situation largely because they don’t or won’t address their financial problems directly.
With investments, there’s no shortage of brokerages falling over each other to encourage individuals to buy individual stocks, to buy way too many high-fee mutual funds, and to trade in and out of all these things whenever the fancy takes. Naturally, the big winner here, once again, is the financial-services industry rather than the individual in question.
And when it comes to estate planning, many people spend enormous amounts of money and effort desperately trying to structure their bequests so that some predictably profligate heir doesn’t just spend it all at once, with the effect that the inheritance ends up causing more harm than good.
All of these cases have one thing in common, and that’s what the financial services industry is not doing, when it comes to people being, well, human. Amanda Clayman has what she calls "a new model for financial planning":
In clinical work you’re trained never to attack a client’s defense mechanism until you understand what it’s defending. So if, for example, someone is in denial you don’t open with, “Hey! Looks like you’re in denial!” That wouldn’t change the defense and it would probably cost you the client.
In traditional financial planning there is an almost exclusive focus on problem solving. This makes sense – what you’re “buying” is the solution. But the problem solving approach is in some cases the equivalent of attacking the defense mechanism. For those whom financial responsibility is wrapped up in a complex cocoon of emotions, it is impossible to get to the solution until the issues have been unpacked and the resistance reduced.
It’s probably too much to hope that credit card companies will start teaching people how to get a grip on their spending. But I see a gap in the private-banking market, for starters, where one of the most common refrains that bankers hear is related to worries that one’s children will grow up spoiled by money.
Warren Buffett famously intends to leave his heirs "enough money so they can do anything but not enough to do nothing". Which sounds all well and good in theory, until you stop and try to work out exactly how much money that is. In the real world, adjusting the amount of money that you leave your heirs will have precious little effect on how they do or don’t let that money influence the way they live their lives. Rather than trying to precisely calibrate some optimal sum, it would be better to make sure they have a healthy attitude towards money – one in which money is respected, understood, and not feared, and one in which they have really internalized the concept of opportunity cost.
Clayman is writing a book which will help people develop that kind of healthy attitude to money; if people like her started getting jobs at private banks, and were made available to clients for consultations and financial-therapy sessions, that might well be a compelling selling point in what is now a very competitive marketplace for high net worth individuals. And once the rich started availing themselves of such services, perhaps more of the middle classes and the poor might follow suit, with or without the help of non-profits who work in such areas.
But I’m not holding my breath: the financial services industry as a whole has a lot to lose and little to gain from promoting such financial literacy. I’m mildly encouraged by the fact that Citi has hired Jonathan Clements to help educate its "emerging affluent" customers, but I fear he’ll mainly be preaching to the converted. It’s not easy for financial institutions to talk to people who don’t like to talk about money, and it’ll be interesting to see how hard Citi tries to do so.