True Confessions

Americans admit their relationship with money could be better

by Nela Richardson

Everyone has a litany of reasons to prioritize their finances – save more, spend less, pay down debt, check in on investments more often – but many Americans believe that their relationship with money could be improved. According to our ‘Relationship with Money’ survey, only 21% of Americans feel happy when thinking about saving money while another 16% feel overwhelmed, anxious, and, ironically, confident. Though a majority (81%) of Americans report feeling in control over their finances, there is clearly a mix of emotions associated with managing money.

There’s also a tension between the average American’s intention to save versus their tendency to spend. Our survey found that when asked what they would do if someone gave them $1,000, 72% of respondents would allocate the cash to short-term goals (those which can be accomplished in less than five years). Only one in four respondents (26%) reported that retirement was a top savings priority, let alone an active pursuit. Whether saving for a special purchase or investing for retirement making, tradeoffs between short and long-term goals can be challenging but it is necessary to reach financial milestones.

Age Doesn’t Really Matter

It’s also worth noting that, despite the unique spending obstacles facing each age group, sentiment towards money is relatively consistent across generations: 48% of millennials consider themselves to be savers versus spenders, not far from the identifications of Gen Xers (46%). (This seems to debunk the myth that millennials aren’t financially focused.) Additionally, 75% of all millennials reported having emergency savings, compared to only 66% of their Gen X peers. Nevertheless, nearly one-third (30%) of folks with emergency funds do not have enough saved to cover a month’s expenses. It doesn’t matter the age – everyone occasionally has difficulty managing finances.

To help your clients reach financial goals, it’s critical to understand their current relationship with money before establishing a better foundation in which to build a financial strategy. An astounding 92% of Americans believe that there is room for improvement in their finances and nearly one in four expect to reduce or improve their spending habits in the near future. So, when sitting down with a client, take stock of their money-related emotions, make a game plan, and help them find a partner to create success.

Step One: Recognize Emotional Responses to Money

Before developing a worthwhile financial strategy, it’s critical to locate the starting point. This will help both define a baseline and create a benchmark to measure progress down the road.

One potential method of assessment involves keeping a log – whether it’s a physical journal or digital resource that allows them to track expenditures. Every day for one week, have your client review their daily interactions with money and write down their feelings and reactions to it. Then, at the end of that month discuss how this may have impacted their financial picture, and whether they felt on track or wish they had saved more. This method not only avoids misjudgment, it also captures financial-mental wellbeing over time, painting a fuller picture.

Something to look out for during this exercise: does your client view money as a means or an end? Many of us fail to remember that money is a tool to foster a happier life, rather than the source of happiness in the first place. Emphasize that savings enable a longer, more secure life and retirement.

Step Two: Game Plan for a Better Financial Future

As a financial advisor, you’re likely already aware of client financial obligations and recurring expenses – these might include paying down debt or a mortgage, rent, utilities and internet bills, and subscriptions. It’s highly valuable to discuss priorities and use the information to create comprehensive strategies. Conversations that delve deeper into understanding their money needs help make sure you’re better equipped to help develop a personalized financial strategy. Financial success is achieved when people feel empowered with their money and when they feel in control of their spending and financial strategy.

Step Three: Consider the Benefits of an Accountability Partner

Finally, ask your client if they need an accountability partner who will keep them on track to reaching short- and long-term goals. The partner might be a family member, friend, or yourself, their financial advisor. Someone with whom they are comfortable being honest and are confident won’t pass judgement.

Open discussions with an accountability partner can relieve the negative emotions one may face with money, and advice will help to further fine tune a budget. And, let your client know that it’s okay to need help with accountability – there is no need to change habits alone. 74% of Americans are already having conversations about money with their families. It’s not as unusual as they might think.

Ultimately, there is a massive opportunity to help clients build healthier relationships with money and deploy new strategies that help them to reap the rewards of planning for both their short- and long-term financial goals.