Amanda in the New York Times: A New Model for Financial Planning

My involvement in this article started when the writer, M.P. Dunleavey, shared with me something she had noticed over the years. In social situations, when she meets women and tells them she is a financial writer they often respond with almost dismissive disdain about taking responsibility for their financial lives. I reflected that that was interesting to hear, because I feel like I have the opposite experience. When I am in social situations, as soon as I describe what I do I am often deluged with women telling me the most intimate and compelling details about their struggles with money.

We wondered what the difference was. My hypothesis is that women have a lot of anxiety about how they handle money, and would see M.P. as an “expert” who might judge them and tell them that they should or shouldn’t be doing. I, on the other hand, would be seen as someone who would be willing to hear about all of the concerns, difficulties, and failed attempts that might be part of that woman’s money story.

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.

So maybe it is time for a new model of financial planning.

The Road from Financial Infidelity to Financial Intimacy

The Spitzer Scandal has ignited a firestorm of discussion regarding the broader spectrum of what can be considered “infidelity.” Along with the marital betrayal and the criminal act, many people are also taking note of the breach of financial trust.

As New York relationship therapist Bonnie Eaker Weil notes “Everyone in my practice who is committing adultery is committing financial infidelity.”

While it is not always possible to protect yourself from this kind of event (it’s important in a healthy relationship for there to be trust and autonomy, which means you can’t always be trying to guard yourself from potential betrayal by your partner), you can reduce the chances that you will be blindsided by such an egregious act of deception.

Have a budget.

Have an agreed upon allocation for all family funds. If you have a plan for where your dollars should be directed, you won’t be confused about where your money is (or isn’t).

Each partner should share in the money management responsibilities.

If both partners are involved in executing the financial plan, there is less opportunity for sums of money to go missing or be diverted to unauthorized activities (be they extramarital or simply extra clearance shopping).

Review your credit reports together at least once a year.

Neither partner should ever open a new credit account without the other’s knowledge. Never, ever, ever. Jointly reviewing your credit reports also ensures that you are both aware of how each is managing credit and debt payments.

Financial infidelity is getting a lot of press these days but we should take a moment to consider the positive side of the couples and money issue, too. Financial intimacy calls for open, constructive discussion about how both partners want to use their money. As part of this process each person should feel heard by the other and should see their goals represented in the joint plan.

At its heart, financial intimacy addresses each person’s dearest hopes and darkest fears. It’s a great foundation for emotional intimacy in all areas of the relationship.

Amanda on MSN: Solutions for a Spender-Saver Marriage

Awhile back I wrote about how when two people plan a life together, "financial intimacy" is rarely a topic that is even on the radar. So what do you do when you find out that the person you're married to is your complete opposite in terms of spending and saving priorities? This MSN.com article explores how to tackle a difference in money dynamics.

Amanda on MSN: Does Money Trouble Come in Threes?

When it rains it pours, so the expression goes. But is this true when it comes to your money, or does it just seem that way?

Amanda on About.com: Artists and Money

It really is possible for artists to have a stable and healthy relationship with money! Truly it is!

Amanda in The New York Times: The Conflict of Spending and Candor

I am quoted in an article on communicating with your partner about spending behavior. My comments may surprise you!

Money Lessons for Kids (and Parents)

Kids today have a pretty challenging money legacy. From different kinds of student loans to exotic mortgages and default interest rates, the answer to the question “Can I afford this?” has taken a trip down the rabbit hole.

Parents are scrambling to prepare their children for this brave new reality. In an article for the WSJ (subscription required), Jonathan Clements lists four “financial tricks” to try with your children so that they’ll grow up to be money-smart adults:

Favoring Today

Offer your child his regular allowance, or a greater amount if he's willing to wait a week before getting it.

Slowing Spending

Give your child his money in the largest denomination rather than a combination of smaller denominations (a $5 bill instead of five $1 bills, for example).

Making a Wish List

When your child expresses desire for a particular toy or other expenditure, have her write it down on a list. Go back to the list later and ask which items she would like to use her own money to buy or would like to receive as a birthday or holiday gift.

Keeping the Change

See how your child makes purchasing decisions when he is given an amount of money and allowed to keep the change compared to when you ask for the change back.

As a clinician, I appreciate how these four activities really do open up the cognitive and emotional processes we use to make decisions about money.

Favoring Today
The “favoring today” experiment demonstrates your child’s time preference for delayed gratification. All of us have a time preference for delayed gratification**, which is basically the point at which it becomes worth it for us to trade the opportunity of the present for some potential future gain.

Many things influence a person’s particular time preference, age first and foremost. For a very young child the future is still a murky concept, and it’s unreasonable to expect a four-year-old to choose $7 next week over $5 this week even though it’s 40% more. A perfect time to start playing with the favoring today exercise is around age nine or 10, when the child develops the ability to conceptualize the future and to compare present gratification against future gain.

Besides age, the level of perceived deprivation in the child’s environment plays a key role in shaping time preference. Five dollars means more to a person who feels he has very little than it does to a person who feels he has much.

A person’s early experiences with trust also factor in. Children who are exposed to instability in their caregivers or environment are basically taught to devalue the potential over the concrete present. If a child has learned that a promise for $7 next week might go unfulfilled, he will always opt for the $5 today.

Slowing Spending
The “slowing spending” trick employs a person’s “bias for the whole.” In children and adults, bias for the whole refers to the tendency to hold a larger bill in higher regard than the equal amount in smaller bills. It’s easier for us to comprehend the value of $100 when we see a $100 bill. When we see ten $10 bills, we perceive a number of potential values based on combinations of the bills -- $20 here, $50 there – and it’s easier to part with the smaller amounts.

Using a debit or credit card totally circumvents this bias by taking away the perception that we are breaking any “whole” at all. Maybe we adults should play with this exercise a little more often, too!

Making a Wish List
Learning to modify impulses is a cornerstone of maturity. Making a wish list helps children to review their choices outside of the impulse of the moment. When children practice identifying, examining, and re-evaluating their wants it plants the seeds for self-aware purchasing in later life.

What this also does is start to organize wants for comparison with other wants. When working with clients around budgeting, I have found that this can be a revolutionary concept. Consider the difference between these two questions: “Do you want to go out to dinner?” vs. “Do you want to go out to dinner more than you want cable television?” Wants cannot be considered in the abstract, they must always be evaluated in comparison with the other available choices.

Keeping the Change
Some people have an innate preference for saving vs. spending even as children. Giving your child the opportunity to spend or keep the money given to her will show you where your child’s preference is – for that particular moment in time.

It is totally appropriate for children to experiment with decision-making behavior and for their choices to range all over the place. One week your son may blow every last cent you give him and have to borrow a dollar from his friend besides, another week he may be more penny-pinching than Ebenezer Scrooge.

Keeping the change is a great mini-lesson on budgeting. For what is a budget after all but a system of allocating amounts for expenses? Five dollars for souvenirs on a field trip is basically a $5 single-item budget. When sonny decides that he prefers some alternative use for the money, be it savings or a future spending opportunity, you are giving him a safe experience in financial autonomy.

The author of this article expressed it best when he suggested that parents “try these tricks on your kids, talk to them about the lessons to be learned – and then quietly muse about whether you, too, fall prey to these financial traps.” These activities are not lessons in and of themselves. They are a jumping off point for parents to engage their children in developing how money works for them.

** See Shlomo Maital's Money, Minds, and Markets. Ch. 3: From Pleasure to Reality, Learning to Wait Begins in Childhood. Basic Books 1981.