How can financial advisors ease ubiquitous money fears?

Financial advisors seeking to put clients on a path toward meeting their long-term goals must help them overcome the basic yet pressing fear that they just don't have enough money.

At least 88% of U.S. adults worry about money to some extent, including 86% of those with incomes over $100,000, according to a survey released last month by the FINRA Investor Education Foundation. Among a sampling of nearly 1,100 Americans aged 18 or over who were asked to pick the two items out of six that concerned them the most, 47% chose "money issues," which surpassed the "general direction of the world" at 46% as the most common worry. In terms of the specific financial issue causing the anxiety, the most popular responses were "setting aside money for unexpected expenses" (51%), "saving for long-term goals" (44%) and "making ends meet day to day" (31%).

These findings likely come as no surprise to most planners, considering the sheer amount of surveys and other research showing that many people struggle financially. Some of the data can lead to conclusions that may overstate the problem. However, many advisors and other innovators in disciplines such as behavioral finance and financial therapy are thinking deeply and practically about how money often relates to trauma from the country's history, abusive relationships with partners or simply the experience of growing up without having enough of it. Due to the myriad issues involved with personal finance, advisors like Stanley Funches of Birmingham, Alabama-based Intelus Wealth Management often "dig a little deeper and ask a lot of questions" about any prospective client's relationship with money, he said in an interview.

"This is where I think financial planning is just as much of an art as it is a science," Funches said. "Most financial planners are really good with numbers, but how do you deal with the actual people and get them through the process?"

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The FINRA Foundation and Fontes Research conducted the poll in September of a random sample of 1,095 adults. The vast majority of respondents said that money affects their capacity to make important changes in their lives (79%), their health (72%) and their relationships (69%). The key takeaway was "the universality of money worries" that are "top of mind for U.S adults across the age and income spectrums," FINRA Foundation President Gerri Walsh said on a podcast episode released this week by the regulatory organization.

"Money is emotional," Walsh said. "And whether it's the excitement of the prospect of having it, the excitement at the prospect of spending it, money is related to our emotions. But research shows that when you are in a heightened emotional state, whether it's positive or negative, you are less likely to make optimal decisions when it comes to your money. And so, being able to diffuse the emotion, to take people out of the ether of a fabulous pitch, to have people look at the hard reality of their financial situation, really requires getting away from that fight or flight element of the brain. And that's why it's really critical to understand emotional issues, because economists might think that something is logical and that there is the 'rational consumer.' But we know from our research consumers are not rational. That's not a good thing or a bad thing. It just is. And you have to meet people where they are."

FINRA's survey came just before online loan and banking company LendingClub and collaborator PYMNTS Intelligence unveiled analysis concluding that the average consumer depletes more than two-thirds of their savings accounts at least once every four years. An estimated 62% of Americans live paycheck to paycheck, and the average cost of emergencies has jumped 16% year over year to $1,700. Amid inflation, that amount rose even further above the $400 price of an emergency used by the Fed in its consumer survey. Like FINRA's research, LendingClub's survey displays that "Americans would need a significant income boost to be able to meet their savings goals," the firm's money expert, Alia Dudum, said in an email. 

"There are things we can control like financial knowledge which can help consumers make informed decisions about their finances, and plan ahead," Dudum said. "It's a key moment for financial firms to serve as a partner and advisor to guide their clients through their financial goals in today's economic climate. Financial firms can play a big role in providing counsel such as savings strategies to empower them in their financial decisions. In addition, financial firms can also educate their clients on what economic conditions to expect in the near future, any personal financial adjustments they should consider, and how they can maximize their money through a prolonged high-interest rate environment."

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At Funches' advisory practice, that translates into giving clients some "wins" in areas like cash flow and debt when starting the planning process, he said. For example, when trying to amass three months' worth of cash reserves for a worst-case scenario, advisors and clients might first begin with gathering enough savings for one month of expenses. If they have several different debts, they could pay off the smallest one first. For clients who may "have roadblocks or fears" about money, Funches likes to "just let them talk" about their experiences with wealth before getting into more common subjects like investment portfolios and tax strategy, he said.

"You would be surprised at how much you could draw out of a person, because their memory will actually color their behavior and thoughts about money," Funches said. "You may have to take a nontraditional planning approach."