All across the country, people are sacrificing their lunch hours and rushing from work to make it to their therapist appointments. But in today's uncertain economic times, some of these sessions have taken on a decidedly unique focus: tackling financial baggage.
The licensed professionals who offer this type of counseling are known as financial therapists, and they're tasked with unearthing the emotional triggers and psychological underpinnings that can lead people to make bad—and often habitually so—money decisions.
If you haven't heard of this curious branch of therapy, you're not alone. The Financial Therapy Association was only established in 2010—yet it counted nearly 300 members by 2011.
We were intrigued by this fast-growing field of holistic treatment, so we took a seat at the couch of Amanda Clayman—a New York–based financial therapist who's spent the better part of the last 10 years unraveling the mysteries of financial psychology—to find out what the profession is all about.
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Get started with a free financial assessment.
LearnVest: So how is “financial therapy” different from regular therapy?
Financial therapy differs from general psychotherapy only in that it's focused on enhancing financial well-being through the study of the emotional, behavioral, cognitive, relational, economic and integrative aspects of financial health. In practice, it integrates financial counseling and planning with personal counseling, marriage and family therapy, sociology, social work, and, of course, psychology. Also, good financial therapy happens in collaboration with finance professionals, such as tax experts and investment advisers.
What types of financial-psychological problems do you typically encounter in your work?
With my clients, some of the most common issues that come up center around problems with managing cash flow and debt, chronic under-earning or overspending, making emotion- and anxiety-based financial choices, as well as allowing money to become a source of conflict in relationships.
The issues themselves are fairly classic in that whatever is happening inside a person will find expression in how they think about and use money. So my approach is to focus on behavioral change—actually altering what patients do with money, rather than just look at how they feel or think about it.
How can you tell if someone might need financial therapy? Are there certain red flags?
Warning signs occur with regularity and include committed relationships that routinely end due to money conflicts; talented individuals who are incapable of supporting themselves, despite all logical advantages; and people who diligently pay down debt—only to start incurring it again.
The manner in which someone approaches financial decisions can also be a warning sign. For example, is money management a consistent part of a person’s life—or does she only deal with money when a crisis arises? Is she able to tolerate the emotions that arise when she's trying to process options, make choices and follow through?
Financial literacy is helpful, but understanding compound interest will be of little help in treating a shopping addiction.
Are there any personality types that tend to be more susceptible to financial-psychological issues?
It’s important to note that no one is perfectly balanced or completely rational when it comes to money—and that isn’t unhealthy. However, highly anxious people often have a hard time building calm, deliberate money-management habits. To act reasonably, you must first neutralize the effects of stress—you can't work through money challenges in the throes of anxiety because you aren't thinking rationally.
That being said, people who have difficulty with self-regulation are also more prone to financial issues. Money can easily become one of the various tools—just like food, alcohol, drugs, sex and exercise—that enable dys-regulation. In the case of money, that can mean spending too much and saving too little. The difference with money is that there’s no such thing as total financial “abstinence," so these tendencies need to be treated much like any other process disorder to return to a healthy balance.
Is financial therapy recognized by the psychiatric establishment?
Currently, most financial issues in the DSM would go under Axis IV: Psychosocial and Environmental Problems. Issues with money aren't considered a discrete mental health disorder, so they're not subject to diagnosis and treatment—unless they are tied to another issue, like a mood disorder.
The field of financial therapy is still very much in its infancy, especially in terms of its relationship to other mental-health professions. And there's considerable debate within the field about who should be able to call themselves a financial therapist, and whether we need a separate credentialing process and code of ethics.
What about financial literacy education? Could that work as a substitute for financial therapy?
Financial literacy cannot be separated from financial therapy. Sound choices can only proceed from accurate information. However, financial literacy programs rarely focus on behavior, resistance to change or relationship issues.
Financial literacy is certainly helpful, but a thorough understanding of compound interest will be of little help in treating a compulsive shopping addiction—or in aiding a person who sabotages her financial security because she was raised to believe that wealth is evil. Financial behaviors tend to be more emotional than rational. So we need to be more emotionally literate in addition to being more financially literate.
Are there risks in allowing financial-psychological issues to go untreated?
Psychological problems often manifest in money: An issue with self-worth will often show up as under-earning. Someone with narcissistic tendencies might assume an unsupportable amount of debt—and then resent having to be responsible for it. Money’s prominence means that, in some form or another, financial behavior becomes an expression of our internal psychology.
And in much the same way that money problems arise from a series of small hurts and disappointments that accumulate over time, the consequences of these problems build in a similar way. One of particular note? Relationship issues.
A fair percentage of my practice is couples-based, and there's typically a clashing of viewpoints that they can’t resolve on their own. As a financial therapist, I seek to uncover underlying tensions. It’s in times of stress or conflict, when the couple isn’t sure how to use their strengths in better harmony, that the process of compromise breaks down.
Can you share an example of how you helped a patient overcome psychological issues related to money?
I worked with a client who struggled with anxiety and questions of self-worth. She felt deeply ashamed if she spent money on anything for herself—behavior that stemmed from issues related to her upbringing. So we worked on creating order and safety in her financial system by helping her to better manage cash-flow and debt obligations. Once we established stability, we adjusted her spending to include planned indulgences, which reinforced that it was OK to use money as a means of self-care.
Are there any strategies that people can use to strengthen their own financial psychology?
I'd recommend being attentive to your money-management practices and financial “hygiene.” In the same way that sleep can be improved with a consistent bedtime, you can decrease money anxieties by having a regular, orderly financial routine.
Also, try to create a framework for as many financial decisions as you can before you find yourself in a bad situation. If you have a friend who undermines your efforts to live on a budget, have a plan in place for what to say to that friend before the conflict occurs. If you’re expecting a tax refund, draft a plan for how to spend the refund before the money is in your hand. We all behave differently under pressure, so rehearsing a response can be extremely helpful in managing that situation.
What, to your mind, comprises a healthy approach to finances?
My goal is to promote a client’s financial wellness, which I define as understanding and accepting the role that money plays in everyday life. That includes feeling competent in making money decisions, having financial integrity when it comes to personal relationships, and, most important, possessing financial awareness. Ignoring or behaving impulsively with money is at the root of many financial issues. Sound financial health isn't about building wealth, per se, but about self-care and self-determination.
Upon further consideration, perhaps the reference note should read thusly:
For more information on the field of financial therapy, or to find a list of registered financial therapists in your area, visit the website of the Financial Therapy Association www.financialtherapyassociation.org (and click on the "FTA Network" tab).