Do You Need Financial Therapy?

Do you need a financial therapist?

That may sound ridiculous, but it's a real thing, and Alison Southwick and Robert Brokamp dig into that question on this edition of Motley Fool Answers. Retail therapy is a growing field, and it's more than just lying down on a couch so someone can tell you to save for retirement and not buy things you can't afford.

Our hosts also discuss whether it's a good idea to invest in the company where you work. To help us answer that question, Motley Fool CFO Ollen Douglass provides the one question anyone should ask themselves before making that type of investment.

A full transcript follows the video.

This podcast was recorded on July 5, 2016.

Alison Southwick: This is Motley Fool Answers. I'm Alison Southwick and I'm joined, as always, by Robert Brokamp, personal finance expert here at The Motley Fool.

Robert Brokamp: It's such a pleasure to be with you again, Alison.

Alison: I love the enthusiasm this week.

Robert: Oh, yeah, yeah.

Alison: On today's episode, we're going to look into the emerging industry of financial therapy, and explore the concept of "money scripts," which some fancy-pants psychologist came up with to help us define our relationship with money. We're also going to answer your question on investing in the company where you work, and we'll end the show with a few thank you's and shout-outs to our fine listeners (that's you). All that, and more, on this week's episode of Motley Fool Answers.

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Alison: It's time for Answers, Answers, and today's question comes from Ryan. Ryan writes: "My dad is 56 and wants to retire at 60. He has been presented with an opportunity to buy a small ownership stake in his company ($25,000 for 10%). What top three questions does he need to ask himself before making any decision to invest? Thanks. Love the show. Ryan."

So Ryan, to get this answer we actually turned to Ollen Douglass, a friend of the show, and he's also The Motley Fool's CFO. He knows a thing or two about investing in companies. Here's what he had to say.

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Ollen Douglass: Hello, Alison. How are you, today?

Alison: I'm good, Ollen. How are you? Thank you for helping us answer this question today.

Ollen: No problem at all. Well, here we go. Normally, the first question I would ask would be, "Am I willing to lose 100% of this investment?" However, in this case, I would modify that to be, "Am I willing to lose 100% of this investment and, at the same time, lose my job?"

Assuming we get past No. 1 (which you can do and still be rational -- it's OK), No. 2 would be, "Can I wait for an undetermined length of time to get liquidity?" Then I would think about the business itself. How much do I know about the owner and health of the business? Am I an expert in this business? Is someone that I know and trust an expert that is also investing?

If you feel good about these first three answers, then a wrap-up question would be, "Do I think the potential reward is significantly higher than the risk that I've just stated above?" If you get through all those, and you get to a yes, then it sounds like you're ready.

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Alison: Joke time! How many psychotherapists does it take to change a light bulb, Bro?

Robert: Three, and I don't know why I'm saying that. It's just most things come in threes.

Alison: OK, well the answer is just one, so long as the light bulb wants to change.

Robert: Ah, yes. Of course.

Alison: These are the jokes! But seriously, your relationship with money is complex, rooted in emotions which are driven by your personal experiences. It's all so complicated! Maybe you should seek professional help, and by which we mean financial therapy!

Robert: Dun dun da!

Alison: Dun dun da! Bro, what is financial therapy?

Robert: Financial therapy is like traditional mental health therapy. You go to see someone. You have some sort of problem. They're going to take a look at your past, take a look at your behaviors, and come up with some ways to help you change whatever it is you need to change. And it's something I've come to over the last year because I have actually been in my financial services life for about 20 years now (in terms of when I was a financial advisor and now being at The Motley Fool) and over that time it has become very clear to me that essentially financial decisions are emotional decisions.

A lot of the stuff we sort of already know. Most people know you should be saving for retirement. You should spend less than you make. You should not have a lot of debt. But we also know that too many people have too much debt and are not saving enough for retirement. So I was just was very curious. Like why are people not doing the things they know they should do?

And this has become a more common question. The whole idea of behavioral finance has become a big thing. We've talked about it here on the radio show. Behavioral finance, though, generally tends to look at investing and often spends a lot of time identifying the mistakes people make, but doesn't really dig into why people make them and what you should do about that, and that's what led me to financial therapy. It is very new, but I'm now getting my graduate certificate in financial therapy from Kansas State and I think it's actually the only program available, so that's how new it is.

Alison: When does someone need a financial therapist? Versus a financial planner or all the other ones we know?

Robert: The typical financial planner will break things down, for the most part, into numbers. They'll say, "OK, you want to retire at this point. You make this much. You need to save this much. You need this much life insurance. You should be saving this much for college."

Alison: Now go do it.

Robert: Now go do it. And many financial planners will tell you that they'll create these big plans and people will not do them. Or they will come to the financial planner with all kinds of problems. Like, "I want to do all this, but I also have $50,000 in credit card debt." Or, it's a married couple that doesn't get along and they can't agree on things. There are more fundamental issues, here, that have to be dealt with before you can start figuring out how much you can put into the 401(k).

Alison: So going back to the original part of my two-part question, you need a financial therapist when there is a specific blocker that you can't get over and you need to talk it out?

Robert: Right. And it can be very difficult because, like I said, it's a new industry. And what people will do is they'll go to a financial planner, and they don't really have expertise in helping couples work out their financial issues, so they might go to a couples therapist. And the couples therapist might be able to help them work out some of those issues, but they have no financial expertise. A financial therapist is a way to join both of those.

Alison: It seems like a large component of financial therapy (because I've been reading up on this) is called money scripts. Paul Sullivan over at The New York Times did a big piece on this. He describes money scripts as "the stories we tell ourselves, true or not, about money."

Robert: Right. I don't know the exact reason why the term "scripts" was chosen...

Alison: I feel like "scripts" is a hard word to say.

Robert: Right. And from what I understand...

Alison: So bear with me, here, as we go through this episode talking about money scripts.

Robert: ...they're really money beliefs. The reason I think they use the term scripts is because all of us talk to ourselves. We all walk around, all day, with these interior monologues. We talk about how we feel about ourselves. About life. About the future. And we have beliefs about money that will affect the decisions that we make.

One of the first things that we did in my Intro to Financial Therapy class was to go through a study by Brad Klontz and Sonya Britt, who are considered two of the people who are the leading researchers in the field of financial therapy. And what they have come up with is an inventory that will determine where you fall along four major money scripts. And what's most important about that is the degree to which those predict future behavior.

Three of the four predict, or are at least correlated, to people with lower income and lower wealth. So if you identify that you have those beliefs, you try to change them. One is correlated to higher wealth and higher income, but it also has some drawbacks, so we could talk a little bit about those.

Alison: Oh, hey, let's talk a little bit about those.

Robert: Let's talk a little bit about those.

Alison: Let's talk about the first one. The first money script (and again, this is getting to the emotional underpinnings about your financial decisions and your beliefs) is money avoidance.

Robert: The beliefs that are often associated with this are money is evil, rich people are greedy, they must have gotten it in some way that was underhanded. For these people, having a lot of money may not be consistent with their values, so they will often do things to either avoid the issue or even do things to undermine having too much money, because if they all of a sudden had a lot of money, that would feel incongruent to their values.

I think back to when I was in the seminary studying to be a priest, and then when I was a teacher. I was definitely surrounded by people for whom making a lot of money was not a top priority. I could definitely see, being around some of those people, the belief that if you've got a lot of money (if you look at the people on Wall Street and the people in the big banks) they're doing it because they're greedy and might be slightly evil.

Alison: Right. It's often quoted as "money is the root of all evil," but I believe more accurately it's "the love of money is the root of all evil" in the Bible. Right?

Robert: I'm going to believe you on that one -- listening to you pulling out a good bible quote. Someone pull out their concordance.

Rick Engdahl: Who went to seminary?

Alison: One of us went to seminary and one of us went to church every week.

Robert: Both of us have very religious upbringings.

Alison: Hi, Mom. Yes, she listens to the show. Now the second money script is money worship.

Robert: People who have this belief are essentially convinced that more money will solve all their problems. Like if there's anything going in their life, they just need to make more money and that you could never have enough money. More money is always better. And also they equate money with power.

Alison: And where does this become a bad thing? What actions does it drive that are bad? That's probably a better way to put it. And what's wrong with worshiping money? Cool!

Robert: Everyone should be doing that.

Alison: What are some of the actions that come from this money script that are negative?

Robert: Well, to a certain degree, if you believe that you could never have enough money, you're always going to be unhappy. You could certainly be vulnerable to taking on roles and spending your time where essentially the only pursuit is to make more money to the exclusion of other things. To the exclusion of your family. To the exclusion of your health. Things like that. This one, as well as the other one and the next bad one we're going to talk about, are all correlated, also, to compulsive spending.

Alison: So the third one -- let's just get into the third one -- is called money status.

Robert: Right. And that's essentially equating your self-worth with your net worth. And a lot of these, by the way, start in your childhood. Some of the work on this has shown that, for example, people who have this belief (that are equating net worth to self-worth) tended to grow up in lower-income households. You tend to see people with more money as being more important. As better at life. That type of thing.

Again, it's very similar in that you are pursuing things, buying things to make you feel like you have a certain amount of status. You're the person who wants the bigger house because if you have a bigger house, that means you are more important. You are more accomplished. You've done more with your life.

Alison: So it's not necessarily about having a pile of money. It's what you do with your pile of money.

Robert: Right.

Alison: And then you don't have a pile of money anymore.

Robert: Exactly.

Alison: And the fourth one is, for the most part, the best of the four. Is that what we're calling it?

Robert: Yes.

Alison: Money vigilance.

Robert: Right. These are people who are essentially very alert about their money. They're on top of things. Having an emergency fund is important to them. Having a budget is important to them. Having savings is the thing that gives them more value and makes them feel better about themselves. The downside of it is, of course, you can go too far.

And there are people who have saved too much. You may have heard stories of people who die at the age of 90. The will gets read and it turns out that they're worth several million dollars even though they've been living in a small apartment their whole lives.

Alison: You talked a little bit about how experiences are what really drive your money scripts and what you experience, often, as a child is what influences it.

Robert: Right.

Alison: I think they talk about the more traumatic the experiences are, the more ingrained your money scripts become and harder to change.

Robert: Right. I listened to an interview with Brad Klontz who came up with this inventory, and he talked, as an example, of people who grew up in the Depression. He used the example of his grandfather. Once his grandfather went through the Depression, he never trusted banks again, so all his money was lying around his house instead of in a bank and certainly not in the stock market, either.

Another example that he gave is people who grow up in houses where the parents say things about wealthy people, or maybe something bad happened in their life that was the cause of someone who was wealthier. They grew up with the money script of "money is evil."

Another study that we read in the class showed that, on average, men or boys are introduced to financial topics earlier in life than girls, and also boys get the message that making a reliable income is more important than girls. That might explain something we know we have these days, and that is a gender gap in financial literacy. If you take literacy tests, on average men will score higher than women. So it's another example of how the way people grow up can affect their beliefs and what they know about money.

In terms of traumatic events, one study we read showed that basically, after the Great Recession in 2009, some financial advisors showed symptoms of post-traumatic stress disorder, and it turned them from being buy-and-hold advisors and investors to people who are trying to be what they call tactical, but that basically means trying to time the market. So this traumatic event of seeing their clients' money drop 50% forced them to not be able to be buy and hold, anymore. They tried to be tactical and that probably was a big mistake for them and for their clients. But it's hard to go through that and not have that change your beliefs about money.

Alison: So we actually took the quiz -- all three of us (Rick, too, in the control room). People can take this quiz online. Should they just Google search "Klontz money script?"

Robert: We took an abridged version that we took in the class, but if you Google the actual article that was in the Journal of Financial Planning that had the study, at the very end of it, it also has an inventory that you can take. I think that's the best way to do it, because you can take the inventory, but then you also have the explanation for the answers. The name of the article is "How Clients' Money Scripts Predict Their Financial Behaviors."

Alison: And the quiz is just a Likert scale of 1 to 6 (strongly disagree to strongly agree) and asks you questions like, "I do not deserve a lot of money when others have less than me," or, "it's hard to be poor and be happy," or, "money is power." Questions like this. Then you say strongly agree or strongly disagree.

Robert: Right. So looking at the results for all of us, it does not surprise me that for the three of us, we tend to be financially vigilant people.

Alison: We do host a podcast on personal finance.

Robert: We scored pretty high on that. So money vigilance, the scale of it was between 8 and 48. I scored the highest at 36.

Alison: I came close at 35.

Robert: You came close. And you were up there, as well. And the other thing I noticed, looking at these, in terms of money status, was the three of us, not so much, in terms of equating net worth to self-worth. The scale there was 8 to 48. I was a 12.

Alison: I was also a 12. I was surprised -- well, maybe I'm not surprised -- that my money-worship score was a little bit up. In general, though, it was kind of boring.

Robert: You're pretty solid along the way. My money worship was up there, a little, as well. The scale, there is 7 to 49. I think mine put me as "your response style suggests that you exhibit one or more styles of money worship." And the questions, there, were basically things like, "things would get better if I had more money," or, "money will make you happier," or, "it's hard to be poor and happy."

Certainly everyone agrees with that to a certain degree, and I think it, frankly, is also influenced by the fact that I'm looking for a house, now, and if I were able to afford a more expensive house, it'd be easier. But I had a little bit more of that belief than I probably would have thought I would have.

Alison: What was this other quiz that you had us take?

Robert: There are two things. These are the scripts, but then there is also the Klontz Behavior Inventory, and this is important in that you have the beliefs, but what's important is how those beliefs transfer into behaviors. And that inventory basically determines whether you're a compulsive spender, a compulsive gambler, workaholic, a financial enabler (meaning that you tend to give money to people even though you don't have it), or financially dependent, in that you expect other people to be giving you money.

That, to me, is the crux of everything because the problems that people have with financial stability often come down to these things like compulsive spending. And for that, I don't know how you guys scored. None of us are gamblers. None of us are compulsive spenders...

Alison: The one that I scored the highest on (and my husband's going to be like, "Yup!") is "compulsive hoarding."

Robert: Really!

Alison: "Your response styles indicate that you are at risk of developing a money status belief," so I scored not the highest for compulsive hoarding. I could game this if I wanted to.

Robert: Yes. I was very high on workaholism.

Alison: Hm.

Robert: Yeah, hm. That's often very tied to a money belief that is money vigilant. It's not surprising that those types of people also become workaholics, and the questions they asked about whether you're a workaholic or not are things like, "If you're not working, can you relax?" or, "Do you feel like you're getting enough done?"

Alison: You never feel like you're getting enough done.

Robert: I never feel like I'm getting enough done, and if I'm not working, I am not relaxed. And it's not good, because it does have an effect on your family.

Alison: Rick, what was the most surprising thing for you when you took the quiz?

Rick Engdahl: I'm relaxing right now.

Alison: At work.

Rick: No, on vacation.

Alison: Oh, that's true. As this is airing, Rick is on vacation.

Rick: And I'm not thinking about work, and I don't feel like I'm not getting enough done.

Robert: Good for you.

Alison: So future Rick says, "I'm feeling good."

Rick: My scores are pretty much perfect in every way, as far as I can tell. I didn't look real close. I squinted my eyes a little. But I think it pays to be on this side of the glass, is what I'm saying.

Alison: All right. We don't need to dig deep into it. So what should I do with this information? How seriously should I take it? Because you said this is a new sort of way of looking at money and financial therapy, in general, is young. So what should I do with all this?

Robert: There are a couple of things. First of all Brad and Ted Klontz, the father and son team that have been at the vanguard of a lot of this, wrote a good book called, Mind over Money. So if you want to learn more, that's a good place to start. Take the inventory. I think it's interesting. If you are someone who is struggling to get your finances in order, it is interesting to know why. It is interesting to look back on when you were growing up what kind of experiences affected you.

In an interview I heard with Brad Klontz, he said he went to his parents and his grandparents and talked to them about what their experiences were with money, because all of that does get transferred consciously or not.

And if you really are in a position that you cannot control your spending or gambling, or you and your spouse can't decide what to do, look for a financial therapist. And you can find one at the website of the Financial Therapy Association. Because it is relatively new, in some locations you won't find that many people, but I can say as the spouse of someone who is in the mental health industry, more and more people are doing things like this over Skype and email, so you should be able to find someone to help you.

Alison: Or just call you.

Robert: Or just call us. I'm not qualified. I'm not qualified at all. Yet.

Alison: Don't say that. People listen to our show expecting you to be an expert.

Robert: I am an expert, but I will say this. I've taken one class -- my Intro to Financial Therapy -- and I've read a lot.

Alison: Aced it, I'm sure.

Robert: Aced it, I'm sure, but I certainly would not qualify myself, legally, as a financial therapist. But I do find it fascinating, and I would not be surprised if down the road... I actually have a business plan for this where my wife and I would have a copractice. She would be handling the mental health issues. I would be handling more of the financial planning issues. Because if you talk to anyone in the industry, they'll say, "I encounter people with financial problems all the time." They don't know where to send them.

Alison: You could have one chair and just tag each other out. Once they start talking about money, it should be, "Hold that thought. Let me go get the other Brokamp." Brokamp & Brokamp. I think it will work.

Robert: I think it will work.

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Alison: Time for some housekeeping. Maybe I don't want to call it housekeeping, because that makes it sound really boring.

Robert: Fun keeping. Time for fun keeping.

Alison: Time for some fun keeping. I asked you, our dear listeners, to send in postcards so that I could post them on our wall, and one of you heard me. So I want to say thanks to [unintelligible] who's over in Montana. He sent not one, not two, but three postcards from Yellowstone. West Yellowstone. And not only did he share these postcards with us (which I need to put up on our wall), he also sent along a letter and had a really cool idea that I'm going to share with you guys now.

He writes: "I also wanted to pass along a travel tradition from our family. We have two kids (one is four and the other two). Each time we travel with them, either my wife or I write them a postcard describing what we did on that day as we traveled. We mail the postcard and when it arrives in the mailbox back home, we put it in a little box that contains all of their postcards. When they get older, we expect to give them a box full of postcards from all of our trips our family has taken."

Robert: What a great idea.

Alison: Isn't that an awesome idea?

Robert: I love that idea.

Alison: So I love that he heard my call for postcards and sent in some great postcards, and I love that he shared this idea, too. So if you want to go ahead and send us a postcard from where you live, that would be awesome, as well. Our address is 2000 Duke Street, 4th floor, Alexandria, Virginia 22314. And you can send it to my attention, if you want.

Robert: Dear Me.

Alison: Dear Me. Also, we wanted to thank Alan who works at The Pretzel Bakery in D.C. He dropped off a whole box of pretzels, but he didn't stay long enough to say, "Hi!" That's such a bummer.

Rick: He'll have to come back and bring more pretzels.

Alison: I know! That's what I was thinking! So Alan needs to come back, bring some pretzels. Maybe sit in on a taping of the show. Anyway, that was sweet of him.

Also, in our previous episode where we did a little tour of the United States, I accidentally said that on average, people in New Hampshire drink 4,600 gallons of alcohol a year.

Robert: How do they get any work done? They're always in the bathroom.

Alison: This is so ridiculously inaccurate. I can't believe it came out of my mouth.

Robert: I didn't say anything.

Alison: And nobody said anything. So it's not 4,600 gallons of alcohol.

Robert: How many is that a day?

Alison: I know! It's like over 10 gallons of alcohol a day. I don't know why it's so funny to me. It's actually 4.6!

Robert: Slightly different.

Alison: It is so funny to me that nobody caught that!

Robert: I'm sure I was looking at my notes and because I don't drink, I was probably zoned out the whole time.

Alison: I really have no idea how I messed that up so badly, but it's so funny. Anyway, sorry New Hampshire. You are not that drunk! OK, that's going to do it for today! I think that's enough. The show is edited soberly by Rick Engdahl. Our email is [email protected].

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I know we've asked you to do listener surveys before, but that was just for Motley Fool Answers, and this is a whole survey. Anyway, you guys don't need to know or care about that, but the point is please go to Podcast.Fool.com and take our survey. Whoo!

Robert: Whoo! Hic!

Alison: For Robert Brokamp, I'm Alison. Stay Foolish, everybody.