When we think of money problems, we imagine people who are in debt or have a cash flow shortage each month. We don’t tend to associate them with high-net-worth individuals.
But wealthy individuals are not immune to money-related disorders – money problems that have a negative impact on one’s quality of life and relationships – and wealth can often mask and magnify the problem.
Money dysfunction can be a source of guilt and shame, and it can put a strain on relationships. It is often passed down to children as they inherit or rebel against the disorders of their parents. At their most severe, money issues can put even the wealthiest individuals and their families at risk financially.
Thankfully, a lot of research has been done on money dysfunction, and knowledgeable professionals can help improve your – or your clients’ – relationship with wealth once you know how to identify the issues.
First, money dysfunction is rarely about the money.
Money, originally intended simply to make life easier for people looking to trade goods and services, has become a proxy for power, security, self-worth, control, status and so much more. Money problems among the wealthy typically don’t stem from the amount of money they have (or don’t have), but rather from these associated meanings.
Money disorders occur when money beliefs and behaviours cause stress, relationship problems, financial strain or an inability to enjoy one’s money. They can occur regardless of, or because of, one’s elevated net worth.
Eight common money disorders
Drs. Ted and Brad Klontz are pioneers in the field of financial psychology, and they have identified eight common money behaviour disorders:
- Pathological gambling
- Overspending and compulsive buying
- Underspending and compulsive hoarding
- Workaholism
- Financial dependence
- Financial enabling
- Financial denial/rejection, and
- Financial enmeshment
Financial dependency, in which a person feels reliant on others for financial support, was found to be correlated with people who grew up in wealthy families. It’s the flip side of financial enabling, which is where a family member cannot say no to a request for money even if it’s detrimental to their own financial health.
HNW individuals dealing with money disorders are woefully underserved in a world where people generally think money makes one’s problems disappear.
In the case of high-net-worth individuals, the enablers are not typically putting themselves at financial risk, but the impact on the dependent person (often an adult child or a non-earning spouse) is the same. A key component of financial dependency is feeling that there are strings attached to receiving the money. Financial dependency can lead to lower self-esteem, a lack of financial agency and a sense of being controlled.
This can sometimes lead second-generation HNW individuals to reject their family’s money through financial rejection or financial denial as a way to gain a sense of independence. When HNW families and their advisors are aware of this dynamic, they can structure family offices, trusts and estates in a way that feels empowering.
Financial enmeshment, in which a parent involves minor-age children in money discussions, has a correlation with higher incomes. In HNW divorce, it’s common to see parents involving their children in settlement and support discussions, sometimes having them act as go-betweens. While it’s important for young children to have age-appropriate exposure to money – such as receiving an allowance or learning to save and share – children should never be involved in adult money discussions. HNW individuals and their advisors need to make plans to protect minors from financial stress.
Workaholism is correlated to people with higher incomes. Many HNW individuals have no boundaries between work and their personal lives, so it’s important to build down-time and rest into one’s schedule.
While pathological gambling is more strongly correlated with lower income individuals, the study found pathological gambling behaviours can manifest as day-trading, speculating in financial markets and making risky business decisions. HNW business owners or individuals in finance can often mask a gambling disorder as part of their job.
Other money dysfunctions
In addition to the classified money disorders, we see a number of other complexities associated with wealth:
Financial imbalance and relationships: When a financial imbalance exists in relationships, as there often is with HNW people, money can cause problems, ranging from always feeling the need to pick up the cheque for lunch with friends, to coercively controlling one’s partner or children through financial abuse. Any time money creates a power imbalance in an important relationship, it’s worth exploring the impact on all parties.
Sudden wealth: Self-made HNW individuals may have faced financial scarcity when they were younger, and sudden wealth, such as that through the sale of a business, can result in a number of issues. Some people who are new to wealth may face issues that are not always correlated with higher incomes or net worth, such as compulsive buying or hoarding.
Help for money dysfunction
As awareness of money disorders and dysfunctions grows, help has become available. Some financial psychologists specialize in helping with disordered money behaviours. For common money disorders such as pathological gambling and compulsive spending, addiction programs can deal with the root cause as well as the symptoms. Financial advisors and family office teams should have connections with a financial psychologist or a therapist who is experienced with money disorders.
Wealthy individuals and their advisors can also create a calm and supportive environment in which to have money discussions. People with money disorders or money trauma can be easily upset during meetings about their wealth. Advisors should make sure everyone is physically comfortable and nourished, keep acronyms and buzzwords to a minimum, and build in breaks. Financial advisors can educate themselves on systemic discrimination (Edgar Villanueva’s book Decolonizing Wealth is a great starting point). Bringing in a yoga teacher, somatic healer or meditation leader before major financial discussions or family office meetings can help ensure everyone’s central nervous systems are regulated, which will lead to more productive discussions.
HNW individuals dealing with money disorders are woefully underserved in a world where people generally think money makes one’s problems disappear. If you are a HNW individual or act as an advisor, the most important things you can do when money disorders arise are to show compassion and understanding and connect with an expert who can help.
Jen Lawrence, MBA, is a Certified Master Life Coach, Certified Divorce Coach, Trauma of Money Facilitator, and Certified Divorce Financial Analyst®. She draws on 30 years of experience in corporate training, investment banking and management consulting to help individuals facing change in midlife through vocational, money mindset, divorce and entrepreneurship coaching. She’s the author of The Designed Divorce, The Divorce Planner and Engage the Fox. She can be found at themidlifeedit.com.
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