How does money mess us up? Lessons ‘caught rather than taught'

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Moira Somers is a clinical psychologist, professor, executive coach and a pioneer in the emerging field of financial psychology. She is the author of the international bestseller Advice That Sticks: How to Give Financial Advice That People Will Follow, and a family wealth consultant to financial services professionals.

Her consultation service, Money, Mind, and Meaning, is based in Winnipeg, where she is a member of the clinical health psychology faculty at the Max Rady College of Medicine at the University of Manitoba.

Canadian Family Offices spoke to Somers about the psychology of finance and the most common challenges to making sound financial decisions.

What is financial psychology?

It’s the study of people’s behaviors and emotions and decision-making around money.

How did you develop this unique expertise?

I’m a neuropsychologist by training, and I’ve always been interested in how people go about making decisions in general. What are the biases and the strengths that people might have when they are making financial decisions?

Certainly, as a clinician, I was acutely aware of how much financial well-being contributed to recovery from illness and injury. And the kinds of habits that people might have developed, the relationships that they might have directly with money themselves, or the way in which money issues in marriages affected people’s well-being.

Money affects well-being in all kinds of ways, and it became impossible as a clinician to ignore that.

What role does psychology play in financial decision-making?

When surveys are done in the North American population asking them about their biggest sources of stress, year after year people say that money is the biggest stressor. Occasionally, depending on how questions are worded or what else might be top of mind at the moment, that answer might get pushed into second or third spot. But it’s generally the one that really hits people where they live.

Wealth is one of the biggest determinants of health. That’s been known in health care for a long time. Or, put another way, poverty is the leading predictor of ill health.

So when the majority of the population is stressed out about money and without a good financial footing, not only is your mental health bound to suffer, but your physical health is, too. It seems really important that we help people get better across the wealth spectrum at having better conversations about money, and teach people how to make better financial decisions. We need to get better at financial literacy, and at educating kids not only around the amassing of money, but also around the emotions of money.

What are the financial issues you see repeated often?

Frequently people feel as though they are caught in the cycle of debt — the discouragement and the sense of being trapped. That’s certainly one, at one end of the wealth spectrum.

Within couples, there are often power struggles or conflicting values over how money should be spent or saved or invested; how it should be given, to whom, how much? And so often in couples, they face challenges in learning how to have money conversations.

And within couples they have different approaches on how time and energy and money should be spent. On how much assistance should be given to adult children or extended family members or friends, for example.

There’s no manual. There are a lot of things that tell you how to be successful in business, but they don’t really tell you how to handle that success when it comes. What I ended up doing, across the wealth spectrum, is having conversations with people about what matters to them, what to them constitutes a good life, and how money along with other resources play into that. And then figuring out what needs to come into alignment in order for those things to happen.

It’s quite emotional, because, you know, we started learning about money from the time we were born and those lessons were often ‘caught rather than taught,’ is the expression. Sometimes we learn things like ‘money doesn’t grow on trees,’ or ‘you need to save for a rainy day.’ Sometimes there are these explicit teachings about money that come from our parents. But sometimes what is caught is more the emotional underpinnings of money, like you can never have enough of it, or you must always strive to have more, or money causes problems.

And sometimes it’s those unspoken lessons that leave people feeling conflicted or uncertain about how to proceed now that perhaps their financial circumstances have changed.

What are the most important financial skills?

The foundational skills for modern families, across the wealth spectrum, include things like how to earn sufficiently, how to save, how to safeguard what matters to you. Also learning negotiation skills, learning how to have conversations about money that go somewhere and that strengthen relationships rather than strain them.
They’re things that combine emotional intelligence with skills. For example, to know how to earn sufficiently means that you’ve figured out in your own mind the meaning of ‘enough’ in life. That requires that you pay attention to your own experience of things.

There is a lot of good financial advice out there; you’ve written a book about it. What prevents people from following good advice?

Many of the same things that prevent people from acting on good medical advice are also at play when it comes to money. And some of it has to do with the fact that the professionals giving that advice do a really crappy job of it. They use too much jargon. They don’t take the time to understand the life circumstances into which that advice is landing. They don’t take the time to understand people’s history.

If you’ve been telling a client for 10 years to do a will or to get guardians in place for the children, and they haven’t, chances are they’re not doing it not because they’re stupid or haven’t heard you. It’s because there’s something getting in the way.

Try to understand what about this advice makes it difficult to act on.

How can advisors improve the likelihood clients will act?

In the end, it’s the personal side of money that drives decision-making. It’s people’s emotions, their motivations, their sense of priority.

If you haven’t been trained on how to uncover those things, or how to deal with them once they’re right out in the open, then you are not dealing with the major drivers of people’s behavior.

This interview has been edited and condensed.