© 2001, National Endowment for Financial Education. All rights reserved.

In October 2001, the National Endowment for Financial Education convened a

group of experts from the academic communities of psychology and financial

planning for the purpose of discussing how an individual's psychological issues

with money often affect his or her ability to make rational decisions during a

lifechanging event. The dialogue focused on four major life-altering experiences:

involuntary job loss, becoming suddenly single, inheriting a financial windfall,

and remarriage. Participants identified common mental and emotional

implications relevant to the life-altering event, critical financial decisions that

need to be made within the context of time, key action steps an individual should

or shouldn't take within the first year of the event, and resources and professional

assistance available for individuals seeking help. A report on the think tank

follows.

FINANCIAL PSYCHOLOGY AND LIFECHANGING EVENTS

A Meeting Sponsored by the

National Endowment for Financial Education (NEFE)

Denver, Colorado—October 3-5, 2001

A sudden death, an unexpected job loss, a surprise financial windfall, even a leap-of-faith

decision to remarry. What do these seemingly disparate situations have in common? They

each represent significant lifechanging events that can throw people into sometimes-

traumatic states of transition.

They’re also financial planning challenges—and they demand more than “financial

planning as usual.”

The client experiencing a lifechanging event represents as much a psychological

challenge as a financial planning challenge. Because major life changes can trigger deep,

unexpected, and profound emotions, an individual’s ability to actively participate in

decision-making—the cornerstone of a successful relationship between planner and

client—may be negatively affected. Worse, emotions and psychological reactions to

lifechanging events actually can become a barrier. In fact, people in these situations may

feel they need a shoulder to cry on more than they need financial advice. It can be

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disturbing, overwhelming, and even seem offensive to try to focus on money and

financial matters when a client is experiencing a personal crisis.

If financial planning for these clients could always be resolved by a “wait and see”

strategy, the challenge wouldn’t be as complex. However, the financial impact of a

lifechanging event can have both immediate and long-lasting repercussions—in some

cases, decisions made in the aftermath of a personal crisis are those that clients may be

unable to recover from. Unfortunately, many people who experience a lifechanging event

are the least prepared psychologically to work through financial issues and are most at

risk of making poor financial decisions—or of not making decisions at all.

How should financial planners help? How can psychologists and other mental health

professionals recognize the need for financial expertise? Can a holistic approach result in

a healthy and ultimately enriching transition for the client? What are the critical financial

decisions that need to be made in the context of the lifechanging event? What are the

benefits to clients of the two disciplines working together to assist clients during

lifechanging events?

In October 2001, the National Endowment for Financial Education® (NEFE

®), a

nonprofit organization headquartered near Denver, Colorado, held the “Financial

Psychology and Lifechanging Events Think Tank” to address these issues. A

groundbreaking forum for discussion, it was the first time that practitioners from the

fields of financial planning and psychology joined together to identify and understand the

common psychological implications of various lifechanging situations and explore how

psychological, emotional, and behavioral reactions may affect a client's ability to make a

successful transition. Twenty professionals from the psychology/counseling, financial

planning, and allied professional fields participated in the think tank, forming

multidisciplinary teams to examine four common lifechanging events:

• involuntary job loss

• suddenly single

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• financial windfall

• remarriage

The keynote speaker and facilitator for the think tank was Kathleen Gurney, Ph.D., CEO

of Financial Psychology Corporation of Sonoma, California. Dr. Gurney has spent the

last two decades helping financial advisors and financial services firms gain insight into

the psychology of money management and individuals’ financial behavior.

The multidisciplinary approach allowed the participants to address various issues, such as

• the relationship between psychology and financial planning, and how

incorporating both can meet the needs of individuals seeking advice and

planning

• ways to share knowledge about both the financial and psychological needs of

clients in transition

• the roles that different advisors can play in individuals’ well being

• guidelines for making referrals to professionals with specific expertise

The think tank provoked some intense and spirited discussion among the participants as

they challenged themselves and one another to broaden their thinking about how to

address the unique needs of clients experiencing lifechanging events. Despite differing

opinions in some areas, the participants agreed on the following key points.

1. Understanding the “self/social/financial dynamic” is imperative for both

planners and psychologists. People who are going through a lifechanging event

are likely to experience significant alterations to this dynamic, which violates and

threatens their established sense of “Who am I?” Their disorientation can even

result in a familiar client looking totally unfamiliar to an advisor.

2. Many people do not seek help from either a mental health counselor or a

financial planner early enough in the process. Individuals who get “stuck” in

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the transition, or who are unable to begin defining their new sense of self, can

inadvertently derail their financial situation. “And the worse the financial picture

is, the longer and more complicated the transition is,” said one psychologist. Both

planners and psychologists must look for the signals indicating that a client needs

specialized help. Planners should err on the side of caution, advised Dr. Gurney,

especially if they are uncomfortable with clients’ emotional issues. Similarly,

psychologists exposed to financial issues outside their comfort zone should urge

people to seek guidance from a financial advisor.

3. A psychologically based financial planning approach can have a tremendous

positive effect on helping clients work out their new sense of self, especially as

it relates to how money “serves” the new sense of self. Several participants said

that this can be particularly acute with the client who realizes a sudden financial

windfall. But for anybody going through a lifechanging event, the search for—and

definition of—the new self can result in a successful transition if he or she is

working with a financial advisor who is sensitive to the range of emotions that

may play out. If not recognized and respected, emotions are often “acted out” in

ways that can be financially harmful.

This gathering of planners and psychologists and their collaborative sharing to address

the needs of clients in transition may result in new ways of thinking about old situations.

As Dr. Gurney said, “We all have blind spots—reflexive parts of ourselves—that may

impede us from helping people. We can use this information to ‘step out of’ our own

realities. It may help us better answer the question: ‘What is expected of us during our

clients' lifechanging events?’”

Financial Psychology’s Role in Financial Planning

Financial planners have traditionally approached their work for clients in a rational,

analytical way that helps meet specific, concrete goals and objectives—a retirement nest

egg, a college savings fund, a long-term-care contingency plan, or an estate plan that

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takes maximum advantage of tax incentives. But clients in crisis are more focused on

their pain than their portfolio. People who experience an unexpected departure from life’s

“plan” are thrown off balance by new, unfamiliar, and often unwelcome emotions, which

can dramatically affect the nature of the planner-client relationship. As one financial

planner put it, “Many of us often feel like we’re therapists. Suddenly, it seems, clients

look to us for help with their emotional issues, as well as their financial ones.”

Feelings about money can either motivate people to make financial decisions that help

them reach their goals or impair them from doing so. Financial psychology attempts to

understand the role those emotions, and their corresponding behaviors, have on financial

decision-making. As summed up in one of Dr. Gurney's books, “In all forms of human

behavior, there is a relationship between how you think and feel about a situation and

how you act upon that situation. Money is no exception.”1 Because emotions are more

pronounced during lifechanging events, planners must be particularly sensitive to the

effects of these emotions on clients—and to their own ability to address them during the

relationship.

If money and emotions are at the root of financial psychology, understanding the role that

both of these play in financial planning is critical. Why do people have “issues” with

money? How are these altered during a lifechanging event? Money is not only a medium

of exchange, it is also a substitute for love, a symbol of power, a benchmark of success, a

tool for doing good deeds, a source of great anxiety, a scapegoat, a flash point in a

marriage, and an emotional force of its own. Clients facing an unexpected and traumatic

change in their lives may suddenly find themselves confronting new feelings about

money, as well as old or buried feelings, and intense manifestations of their current

feelings about it. Planners who can adapt their style and process to accommodate these

powerful emotions and their place in the planning process will be successful in building

better, more meaningful relationships and will inspire clients to have confidence and trust

in them.

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However, it’s not always easy, according to many of the think tank participants. As one

planner stated, “We really do need the ‘marriage’ of these two disciplines. The planner

has to look at how a client is going to get through a lifechanging event financially. But

we’re often at a loss as to how to deal with the emotions.”

Planners are not always comfortable with this “soft side” of financial planning. Nor do

they necessarily know how they should integrate it into their practices. During the

discussion at the think tank, one planner commented, “I think it’s fine to talk about

financial psychology and to ask clients the questions about feelings and values, but I’m

not always sure what to do with the information.”

Clearly, there are differences in both the approaches to and the outcomes of the

counseling provided by financial planners and that of psychologists. But there is also

common ground between the two, as shown in the following quote.

The work in both processes is personal and confidential, so the

tendency in the process is that there’s a risk for the client to feel

vulnerable . . . The client is going to be looking for—and the

therapist and the planner are going to be looking to establish—a

sense of trust and safety and comfort. But the distinctions between

the two are important because the expectations of both processes are

very different and the contact and the goals are very different. The

similarity is in the relational and personal and confidential process.

The result is that planners have the opportunity to hear emotional

issues . . . Emotional issues are going to impact how somebody

decides what to do with their money . . . and there are going to be

financial issues that are going to cause emotional problems. Because

of the degree of intimacy with the relationship, there can be a

blurring of the boundaries at times2 . . .

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The “psychologically aware” financial advisor can build better rapport with clients and

develop better interviewing techniques as a way to break through some of the barriers

that keep clients from articulating their emotions. Active listening is part of most

planners’ training. However, asked Dr. Gurney, “What if the client isn’t talking? What if

they’re unable to explain how they’re feeling and what they want from their planning

relationship, especially during a crisis?”

In many cases, this inability to articulate is best served by advisors’ behavior, not their

words. During the think tank, Dr. Gurney led a discussion on how Americans are feeling

about and reacting to the tragic events of September 11, 2001. All of the professionals

attending the think tank admitted their own struggles with emotions that millions of

people experienced—guilt, anxiety, shock, fear, a period of uncertain adjustment,

concerns about personal safety, an attempt to reconnect with others. These emotions

mirror those of the person experiencing a lifechanging event.

Financial planners can adapt both their style and their process for helping clients in

transition by using the techniques that many planners used to reassure clients after

September 11—setting an example of stability, confidence, strength, and leadership;

showing genuine caring and support; reminding clients to try to relax to minimize the

impact that emotional stress can have on physical wellness; reassuring clients that not

making dramatic financial changes during a traumatic period can be a sign of patience

and prudence, not cowardice; and reminding them that the steadfast pursuit of their goal

of financial freedom—even in the face of personal crisis and seemingly insurmountable

obstacles—is the most courageous act they can perform3.

Perhaps the most important thing that advisors can provide to clients going through

lifechanging events is a sense of perspective and context. This context can include

helping individuals understand that transitioning is a multi-step process best taken a step

at a time, and that developing a keener sense of themselves—their weaknesses, strengths,

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perception of risk, need for people or privacy—will help them become better, more self-

confident people.

The Self/Social/Financial Dynamic

Emerging from the discussion was a realization that three essential identities of an

individual are affected when a lifechanging event occurs. The point at which the three

“identities”—self, social, and financial—overlap is key to both understanding and

successfully advising clients who are experiencing lifechanging events, according to Dr.

Gurney. During a traumatic and transitional period, it is important to acknowledge that

people are reevaluating and redefining their own sense of self. Money plays a central role

in this, and questions about it can create trauma. In other words, “Am I now defined—in

my own self-view and by the others in my life—by money? Am I a different person

because of it? Are expectations of myself and the expectations of others shaped by my

‘financial status’? Who am I because of, or in spite of, my financial situation in life?”

During a lifechanging event, people also are reevaluating their social self—their

relationships with others. The new social dynamic includes the need to set boundaries, to

“present” one’s self in a new way in a social context, and to either strengthen or sever old

social relationships.

The new financial self includes understanding and responding to financial issues such

that they are “reasonable, realistic, and rewarding for the individual,” said Dr. Gurney.

This recalibration of the self/social/financial dynamic may also pose a challenge in the

client's search for a financial advisor and in the client’s expectations of the relationship.

“People may go to an advisor and ask ‘What can you do for somebody like me?’ The

problem is that they’re still trying to figure out who ‘me’ is during their

self/social/financial re-evaluation,” said one participant.

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Dr. Gurney also noted that it is important to remember that feelings about money are not

static. They will change over time and are frequently subject to rapid change during times

of unexpected life changes. In psychological terms, what happens to people during these

times is social anomie. “It’s the sense of the old rules no longer working and the new

ones not yet put into place,” said one participant. “People are very vulnerable at these

times.”

In fact, they are not only vulnerable, they are frequently “unreachable,” said another

participant. This aspect of financial psychology requires a delicate balance on the part of

the financial advisor, who is trained to coach clients to take action toward a future goal.

“It’s important to remember that for most people going through a lifechanging event,

there is so much going on psychologically, and emotions are so powerful and often

conflicted, that everything is ‘noise’ to them,” said one participant. “It’s difficult for the

client to even hear what you have to say. Skillful listening and acknowledgment of the

client's feelings are probably the most important things a planner can do to establish the

credibility necessary to raise the appropriate financial questions, and at the right time.”

But incorporating an understanding of financial psychology into helping those who are

experiencing a lifechanging event goes beyond just active listening, said a participant. A

useful psychological tool is to put the “issues” into the hands of the individual by probing

with such questions as: “What are some things that you thought might help with your

situation?" "What are the areas of your financial life where you have decided you can

comfortably make some changes?”

The transition from the former self to a new, different self is an opportunity for positive

change. “While there is certainly anxiety over change in life,” Dr. Gurney noted,

“advisors can help enrich people’s lives with a successful transition.”

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Financial Psychology and Four Lifechanging Events

In addressing four common lifechanging events—involuntary job loss, suddenly single,

financial windfall, and remarriage—NEFE think tank participants worked as

multidisciplinary teams to examine how the needs of people going through such events

can be addressed in a holistic way. Each team used role-playing exercises to facilitate the

discussion, with a psychologist/counselor assuming the role of the client. The teams

discussed the following issues:

• common psychological implications associated with each lifechanging event

and how these may affect the individual’s ability to deal with financial

decisions

• the critical financial decisions that need to be made within a context of time

• information or advice that can exacerbate psychological problems or financial

decision making

• areas of mutual concern and solutions from both planners’ and psychologists’

perspectives

The teams discovered that, although each type of lifechanging event carries unique

emotional, behavioral, and psychological considerations, many are common to all such

events. The most common manifestations among all lifechanging events are:

Emotions—conflicting feelings, anger, anxiety, insecurity, paralysis, uncertainty,

confusion, and the sense of being overwhelmed or out of control.

Psychological issues—distrust of others, the need to trust others, the need to set

boundaries, the need to stabilize, the need to feel “safe,” the desire to gain

something meaningful from the transition, social change, reevaluation of self, and

reevaluation of values.

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Understanding the emotions involved can help financial advisors frame a successful

transition “from the lifechanging event back to life,” said one participant. It requires

awareness, understanding, and a modified approach to traditional financial planning in

order to answer the question: “For the client going through a lifechanging event, what

does a successful transition look like?”

Following are the key findings and recommendations from the think tank teams for the

four common lifechanging events mentioned previously.

Involuntary Job Loss

During the full-employment, economic growth years of most of the 1990s, financial

advisors likely had few clients who suddenly found themselves in the lifechanging

situation of losing a job involuntarily. That has changed dramatically—currently, there

are just over 8 million Americans unemployed, with one million of them having lost their

jobs in 2001 alone4.

People who experience involuntary job loss face the financial concerns of supporting

themselves and their families, of financial security for the future, and of the effect on

their life-style. They typically expect a financial advisor to reaffirm their financial

strength and bring clarity to an otherwise unclear situation. Because of their uncertainty

and paralysis, clients may expect to be guided to financial services or products that are

best for them, rather than taking a more active role in the decision making, and to be

“walked” through the paperwork involved. Clients may also expect, or be willing to

consider, a financial advisor being empowered to serve in the role of “ad hoc” power of

attorney—seeking and acting on information about severance, health insurance, and other

financial benefits from the previous employer. In addition, because of the sense of panic

that can accompany job loss, they may be completely out of touch with what important

financial decisions need to be made and may be extremely defensive about preserving

their current life-style.

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The person who has suddenly lost a job may experience a range of emotions, including

anger, depression, shock, disbelief, self-doubt, fear, and helplessness, which can often

result in behaviors such as substance abuse, isolation at home, and family conflict. There

is often an overwhelming sense of loss—of the job itself, of their “office family,” of a

network, and of their daily routine.

Financial advisors working with these clients need to perform immediate financial

triage—identify spending patterns, analyze fixed and variable expenses, discuss life-style

changes, take an inventory of assets, develop a contingency plan during the job search,

and create an awareness of financial mistakes to be avoided, such as cashing out the

40l(k) or going on a spending binge. At the same time, the advisor must work through the

client's psychological barriers to moving forward financially. These barriers can include

the client’s inability (usually temporary) to adequately “process” information, the need to

reevaluate and reexamine values, the reframing of financial and life goals, and the need to

have closure with a former job and employer.

Although financial planning during an uncertain emotional and financial event such as

job loss may be viewed, by both planner and client, as “restrictive,” it can actually be

“liberating,” noted one participant. “The opportunity with these people is, above all, to

put them on a solution track,” said this participant. “And while it’s difficult to put the past

behind you, it is an opportunity to start over in a new direction.” At the same time, noted

another participant, it’s crucial for the advisor to recognize that, depending on the point at

which people seek help, they may not be receptive to this philosophy. As this participant

put it, “It’s tough to say to this person: ‘The financial planning process is going to make

you feel really good.’”

The participants agreed that an advisor’s critical listening skills are extremely important

to helping this type of client. “While clients may be talking about short-term financial

problems, there is always an ‘underneath’ agenda,” said one participant. “That agenda

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includes questions like: ‘What do I want to do with my life and my career?’ ‘How can I

take this loss experience and transform it into something better for me and my family?’”

The advisor who is tuned in to this hidden agenda can take the opportunity to refer the

client to a career counselor or “life coach.” In addition, advisors who observe physical

manifestations of anxiety or clinical depression—excessive sleep or insomnia,

psychomotor difficulties (such as speech changes), crying, or physical agitation—should

suggest that a client seek help from an experienced health professional. The advisor’s role

is to recognize the limits of his or her expertise and attempt to direct clients to

professionals with specialized training.

Because of the need to get another job—or, in other words, to take some action—this

client may move quite quickly through the paralysis stage. This is in contrast to the

person who has lost a spouse or has just received a financial windfall. With these

lifechanging events, some decisions can and even should be postponed.

The need to move ahead relatively quickly can help the planner create a new short-term

and long-term financial plan that the client can be engaged in. The suddenly unemployed

client also can be encouraged to decide how to reshape the budget, eliminating the

conflict that can result from the planner imposing cuts in spending. “We can tell clients:

the best cost-cutting tool is an open mind,” said one participant. “Ask them: ‘Which life-

style changes would enrich your life, reduce your stress, and save you money?’” The

direction of the discussion on budget should be placed in the hands of the client as much

as possible, which provides better motivation. By bringing psychological insight into the

planning process, planners are better able to connect with their clients and, more

importantly, to have their messages heard. “Action is energizing and empowering,” said

one participant, “even if it’s just maintaining a routine at home. It moves the rebuilding

process along.”

The financial planners on the Involuntary Job Loss team acknowledged that they are

more likely to have clients with upper-management or executive-level jobs, and job loss

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for these people is more likely to come with a bigger “cushion” and less-pronounced

long-term emotions. They were reminded, and humbled, they said, that in our current

economy, 40,000 people in the airline, service, or travel/tourism industry who have lost

their jobs are less likely to seek financial planners as a first line of help, or to be able to

afford financial planning. For these people, the primary channel is often a credit

counseling service. Some financial planners are offering pro bono advice to people of

lower financial means and, in these cases, emotions need to be thoughtfully and carefully

addressed. One planner commented, “There were many more nonfinancial issues and

emotions with the person who has lost a job than I had anticipated.”

Whatever the previous job or income level, participants agreed that it is important to

understand the person’s relationship to money and to help him or her redefine that: “The

money must do a ‘job’ for this person,” emphasized this participant.

Suddenly Single

People who are suddenly single may find themselves in this situation because of death or

divorce. Both situations can represent the death of a dream—“the death of an almost-

realized dream with a failed marriage, and the death of a realized dream with the

unexpected loss of a spouse,” noted one participant. While there are some discrete

differences in psychological and financial implications, there also are many common

threads in these two situations.

These clients face the financial concern of surviving on their own, are uncertain about the

financial resources that will be available, and may have little confidence in or ability to

seek qualified help with issues they feel they should know how to handle on their own.

Because of the often-devastating effect on most people of the death of their dream, they

may expect a professional to “fix” everything—to make it all okay. They may become

dependent on the professional, even seeking to be “parented” and looked after, yet at the

same time desiring self-sufficiency.

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Common emotions of people who find themselves suddenly single include grief, denial,

numbness, paralysis, inertia, anxiety, anger, and depression.

Initially, the person frequently experiences numbness and a paralyzing inability to make

decisions. The advisor must identify the immediate steps to be taken, such as locating

important information, initiating probate of the will, or insuring that beneficiary and

guardianship arrangements are in place for the suddenly single parent. Advisors may also

begin identifying and contacting the other professionals who will be involved and assure

the client that it’s acceptable, even preferable, to postpone major financial decisions. For

some people, the acts of gathering data and finding paperwork can actually be

therapeutic. “It starts a sense of normalcy,” one participant commented.

As clients progress further into their transition, they—and their advisor—may be

confronting a deep and complex set of emotions that can last for a year or longer. The

advisor needs to maintain a slow but steady pace on financial decisions, but will also

have to introduce, albeit slowly, what the client will need to deal with in a substantive

way in the months and year ahead.

People who are suddenly single also are vulnerable to opportunists and pressure from

financial “solicitors”—and even from their families. Plus, at some point, many will have

to deal with issues of work and will need to face questions such as: "For financial

reasons, do I need to begin or return to work?" "If so, what will I be happy doing?"

Conversely, in many situations, a financial settlement suddenly makes things

possible—such as leaving a job—that weren’t possible before.

As clients begin to accept their situation, begin to take control, prepare to make bigger or

longer-term decisions, and develop their new sense of self, they are able to dream again.

“That’s when we have to begin attaching costs to their dreams,” said one planner.

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Planners may find that these clients are resistant to or uncertain about replacing changes

from other advisors that the former or deceased spouse put into place. Or, they may be

interested in making those changes quickly. In either case, the planner must probe for the

emotions that are driving this decision. Like clients who are experiencing other

lifechanging events, those who are newly single must be allowed adequate “processing”

time and space, "and," as one participant said, "many clients who are suddenly widowed,

in particular, just aren’t in a processing mode.”

The cognitive dissonance associated with a lifechanging event such as divorce or being

widowed typically shuts people down. “How do we move people through this period

when they have to pay attention to the money?” asked one planner. “The most important

thing is to acknowledge their feelings and reassure them constantly: ‘Here’s where you

want to go and here’s how I’m going to help you get there.’ It’s really helping them be

good to themselves.”

People who become suddenly single often have money “issues” that have as much to do

with their new social dynamic as with their new financial dynamic. “It can be as simple

as who pays for dinner when the newly single person is out with couples,” said one

participant. “Along with that are the complexities of who’s threatened by who pays. This

is all part of the new boundaries on money within social contexts.”

Members of the Suddenly Single think tank group cautioned that an advisor who

“inherits” a client due to a spouse’s death may have to approach the relationship from a

“day-one” perspective. “In a perfect world, couples do their financial planning together,”

said one participant. “When they don’t, this person represents a truly ‘fresh’ client for the

advisor.”

The newly divorced person also presents complex challenges for an advisor, not the least

of which is that emotions often revolve around the fact that the ex-spouse may still be a

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part of this person’s life because of children and financial support. “The simple fact that

the ex-spouse is still ‘out there’ can be a barrier to moving ahead with major decisions,”

said one participant.

Recently divorced clients’ emotions frequently revolve around anger and betrayal, and

they may act out these emotions by making radical, even irrational, decisions — selling

the house to avoid memories of the failed marriage or making large, impulse purchases or

gifts to family members to “take control” or to “get back at” the former spouse. Planners

must help individuals get beyond the emotions that can inhibit rational decisions on

significant long-term concerns, such as the need for or ability to earn income and whether

the new financial situation is realistic to support future goals. In addition, planners

working with those who are separated and about to be divorced may be confronted with

the thorny situation of common, but incorrect, financial assumptions about divorce.

“There are lots of myths out there—such as ‘It’s the law that I’ll get half of our

assets’—that may need to be debunked by the financial advisor,” said one participant.

The psychologists on the think tank team recommended that, in working with clients who

are suddenly single through a death or divorce, planners consider the analogy of being a

physician dispensing medicine. Many times, physicians know that when patients leave the

office, they won’t take the medicine. “A ‘prescription’ is one thing; compliance is

another,” said this participant. “The way to get beyond the emotions and get clients to

actively participate in their financial decision making during this difficult transition is to

get them to tell you why they think the medicine isn’t right for them, so to speak. When

clients—or patients—express their concerns, it alleviates their ambiguities and helps

them do their part.”

Financial Windfall

Some participants on the Financial Windfall think tank team commented that, until

challenged to think about and discuss it, they hadn’t thought in terms of a person who

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receives a financial windfall feeling anger, fear, embarrassment, or bitterness. Sudden

money, however, is such a powerful event in people’s lives that it often brings a flood of

emotions.

“It’s unique,” said one planner. “The power is in the abundance of money, not the

scarcity of it. It carries many unexpected financial junctures for those who experience it.

It is, by definition, almost more a psychological event than a financial event.”

The client who's received a financial windfall has received a large sum of money either

unexpectedly or in a short period of time—a lottery win, a divorce or insurance

settlement, an inheritance, or a large stock option realization. The group further defined it

as “an amount of money that people would be hard-pressed to earn through their own

efforts.” While these individuals may not positively affect their financial well being

through personal effort, they certainly may negatively affect it after the arrival of sudden

money.) This aspect of receiving a windfall typically leads to loss of identity and an

intense seeking of “the new me.” Other common emotions include feelings of instability,

isolation, guilt, shame, elation, fear, being undeserving, or being out of control.

The fears of the client with new and sudden money can be numerous—whether old “ties”

will or should be severed, of being excessively stingy or generous, confusion on how to

“use” the money, and fear of responsibility and of making the wrong choices.

Psychological reactions to sudden wealth may include avoidance of others and the

money’s new “demands,” feeling frozen by indecision, going on uncontrolled spending

binges, or hoarding the money. It is critically important that financial advisors and

counselors recognize that people who experience a financial windfall suddenly fear that

their relationships with friends and family are defined by their money, not by who they

are. “Are they suddenly the person who always has to buy lunch? If people perceive

themselves that way, there’s a lot of self-doubt about how others view them. They don’t

know who they are anymore,” said one planner.

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The advisor counseling the recipient of a sudden windfall must recognize this person’s

needs: strengthened confidence about money and investments, a “reality check” on the

new financial situation, a sense of safety and security in dealing with an advisor, a period

of stabilization, a structured “sabbatical” to recalibrate the new self/social/financial

dynamic, and the ability to trust an advisor. The latter, a participant noted, is common

with people of previously modest means who have no experience with planners or

planning and now suddenly find themselves with more money than they could have

imagined.

Receiving money suddenly also forces people to confront their prejudices about money

and people with money, their own history, and their childhood-based beliefs about

money. Financial advisors working with these clients also must help them learn to make

the distinction between money and wealth. Said one participant: “Wealth is a variety of

things that can make a life rewarding. Sometimes money can do that, and sometimes it

can’t.”

Similar to other lifechanging events, these people go through various stages—from

innocence to denial to ignorant acceptance to personal growth, and ultimately, to control

over their financial resources and how those resources “serve” their new sense of self.

“It’s a continuum of emotions not unlike the stages of grief or sorrow after a death,”

noted one participant. A common, and difficult, emotion is related to the dramatic shift in

focus, said another participant. “If your focus has relentlessly been on who you are as

defined by your work, then who are you if you’re no longer working? Suddenly, there is

no concern about earning money, only about dealing with the money you got.” The

participant who had experienced a financial windfall added her own, personal experience:

“I had always felt like I would be successful, but suddenly I realized that nobody would

ever think I’d done it on my own. It would be because of what happened to me.” The

real, often deeply disturbing sense of loss that many people feel goes counter to the

common view of a financial windfall—that it is a gain. The new sense of self in the

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self/social/financial dynamic requires redefinition without work or a career if work is no

longer a necessity or is something the person chooses not to do.

The participants also pointed out that an actual loss often accompanies a financial

windfall—an inheritance because of a death, an insurance settlement because of an

accident or medical malpractice, even a windfall from the sale of an entrepreneur’s

business. “There’s an enormous amount of ambiguity and emotional conflict with any

type of financial windfall,” said one participant.

Counseling these clients also requires understanding their crisis of purpose, often

exhibited by the comment “nobody knows how I feel,” particularly as it relates to their

new sense of identity. “It’s not impossible, it’s not even that difficult—except that

nobody around them is in this situation, so being this new person who doesn’t have to

work, can spend money freely, or can dramatically change their life puts them in a

completely different position than everybody else they know,” said one participant.

“Clients with sudden money experience some very difficult emotions that we must be

cognizant of. For them, it’s not even about the money or what it can buy, it’s about who

they are as human beings.”

Both psychologists and financial advisors can allow, even encourage, “dreaming”

through the use of a decision-free zone, or sabbatical. A healthy and structured period of

time without the pressure of decisions allows the client to move beyond a sense of

responsibility and into one of permission, said one participant. “It also allows an

individual time to envision the person he or she wishes to become. It’s a time for

‘modeling’ the ideal life.” The sabbatical period also is a good time to permit clients to

indulge their thinking about a “wish list”—all of the things they want, without censoring

themselves, even if it’s only temporary. This exercise—committing to paper the

purchases they’d like to make or the gifts they’d like to give—has several advantages.

When it comes time to act, advisors can then guide people to pick their best ideas and

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make informed and realistic choices. As a result, clients will feel more in control of

spending, which is a key step toward coping effectively with wealth.

Perhaps most important is the advisor’s ability to allow individuals enough “space” to

make decisions without feeling targeted—by the advisor. “We may be one of the very

few people in their lives who know all the intimate details about the new money, and one

of the few they want to trust completely,” said one participant. “Pushing too hard for

decisions will violate that trust.”

Finally, advisors counseling clients with sudden money must honestly confront their own

feelings about money, particularly if they feel these feelings may get in the way of

offering clients objective advice.

Remarriage

Many people who plan to remarry, or have already remarried for the second time or

more, wrestle with difficult and competing emotions. On the one hand, there is

tremendous optimism about the future. On the other hand is the “train of responsibilities,”

with which people in a second marriage often walk down the aisle. Although there are

exceptions, people remarrying face issues relating to a meshing of values, including those

about money, differences in money “styles,” the need for financial self-disclosure, and

practical concerns—such as where to live and how to deal with children and stepchildren.

Frequently, the person remarrying is concerned with “protecting” himself or herself,

fearing another failed marriage. In addition, the new union may be of two people with

significant disparity in assets, debt, and earning potential, all of which can incite strong

feelings.

“There are significant unique emotions with this client,” said one participant on the

Remarriage think tank team. “Marriage is so much about ‘the heart,’ and financial

planning has tended to focus on ‘the head.’”

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The financial advisor working with an individual preparing to remarry will likely

confront emotions such as insecurity, mistrust of others (including, perhaps, the advisor),

wariness, optimism, and a variety of fears—of repeating the same mistakes, of losing

financial independence, and about how to handle obligations to support children and

other family members with fairness. Although many couples try to resolve their emotions

and fears through prenuptial agreements, not all the participants agreed on the need for

one, or on the planner’s role in creating one. (It was also noted that many family and

divorce lawyers are increasingly hesitant to prepare prenuptials because of the emergence

of malpractice suits.) A successful outcome for a prenuptial agreement is highly

dependent on the emotional stability of the couple while the agreement is being created,

the participants agreed. And while couples need to ask themselves and each other the

difficult questions about finances and their money styles before marriage, it also may take

a couple several years to seriously address the issues, said a participant. Often, these

discussions are precipitated by emotions being acted out—arguments over money or one

party becoming more withdrawn or secretive about money. Women may have found

themselves without any control, or even involvement, in financial matters in a first

marriage, followed by a period after the marriage ended of having to be in control. A

second marriage poses the challenge of maintaining this independence inside a new

emotional and financial union.

The couple that has already remarried may be experiencing money conflicts but may be

hesitant to air these issues because they do not want to jeopardize their new relationship.

Financial advisors can be a catalyst and positively influence this behavior; in fact, the

couple may expect their advisor to raise issues or questions they are unable or unwilling

to raise themselves. Whether the financial professional is working with a couple planning

to remarry or the couple who already has married, it is critically important for the advisor

to create a “safe” environment in which to discuss issues, which requires a probing, yet

nurturing, approach. The role-play exercise by participants on the think tank team

revealed that the financial advisors in the group often made the client feel “grilled,” did

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not adequately translate financial jargon, and did not thoroughly address the anxiety

exhibited by the client, as expressed in the role-playing exercise.

The group identified some key questions that financial advisors should include when

working with these clients. From a financial and a psychological perspective, advisors

should ask the following questions: "What caused you to seek financial advice?" "How

do you think I can help you?" "How are your money styles different?" "What’s important

to you about money and your relationship as a couple?" "Are you both sharing your

financial information with each other? If not, why not?" "Do you have the same financial

goals?" "Similar values?" Answers to these questions will help address the variety of

financial planning considerations for people remarrying, which include both the big

issues—such as child support and alimony to a former spouse—and the smaller issues,

such as decisions about equal allowances and gifts to children.

While an ideal situation for those planning to remarry is to begin financial counseling

prior to the marriage, there is some risk in that, noted one participant: “Would we create a

lot of uncertainty and anxiety at a time when the couple is trying to move forward and

connect their families?”

As with clients experiencing other lifechanging events, financial advisors working with

clients planning to marry again must place a high priority on knowing how to “frame” the

issues within a relevant context, which will help the client more easily understand the

planner's advice. For clients who have remarried and are experiencing emotional conflict,

either individually or as a couple, advisors can be particularly helpful by recognizing the

potential results of this conflict—such as making inappropriate or financially harmful

decisions. However, the planner shouldn't also try to assume the role of a trained

psychologist or counselor, who is more equipped to explore the “why’s” of clients’

emotions.

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Integrating Financial Psychology and Financial Planning

Why the sudden focus on getting into clients’ minds and hearts? According to Dr.

Gurney, much of it has to do with some major financial events during the last 20 years.

“After 1987, when the stock market crashed, financial advisors saw clients making a lot

of irrational decisions—because of their emotions. This was exacerbated, at the other

extreme, with the unprecedented bull market of the 1990s. People’s expectations got out

of line because of the emotions they had about their money, their investments, and the

market.”

Although the spotlight during the 1990s was often on the “numbers,” there also was an

increased interest in clients’ emotions and psychological behaviors. Life planning,

values-based planning, and stewardship-oriented planning became topics of discussion,

meetings, and articles. Behavioral finance became a hot topic as advisors sought to

understand how investor psychology affects the markets. (According to Dr. Gurney,

behavioral finance is related to financial psychology in the sense that both look at human

dynamics and how those shape behavior.) Clients’ needs began to be discussed by some

planners in terms of their life goals, not just their financial goals. As evidence, The

Journal of Financial Planning now features a “Money and Soul” column, Financial

Advisor magazine includes a “Psychology of Advice” column, and there are now life-

planning tools for advisors to use with their clients.

“Financial advisors are realizing that feelings and psychological behavior often have a

major impact on their relationships with clients and on how clients make financial

decisions,” says Dr. Gurney.

However, she cautions that many financial planners are still much more comfortable with

the technical side of financial planning than the emotional side. Many participants at

NEFE's think tank agreed. “We have planners in our practice who can do a great financial

plan but don’t want to get anywhere near the soft stuff,” said one participant. Another

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participant put it this way: “Sometimes I really want to say, ‘Drop the psychology. We’re

talking money.’”

Planners who simply are not comfortable with exploring their clients’ emotions should

tread carefully, according to Dr. Gurney. “It’s perfectly acceptable for planners to feel

that this is just not their strength. The ones who find this less stressful are those who are

more comfortable discussing their own feelings and may have done some ‘work’ on

themselves. Advisors who are open to working through clients’ emotions, especially the

emotions that come to the surface during a lifechanging event, are generally those who

understand their own attitudes and feelings about money.”

Financial psychology can help advisors communicate more effectively with their clients

and enhance the planner-client relationship. It can also be a valuable tool for working

with people experiencing lifechanging events. “It’s the difference between interacting

and interviewing,” as one think tank participant put it. However, there is some risk

involved in going beyond the accepted fundamentals of financial planning, especially if

the planner feels uncomfortable or poorly suited by personality to address emotional

issues. Those advisors may actually do more harm than good, said one participant.

“People often go to planners with the expectation that they’re going to be helped through

their emotional dilemmas and then are traumatized when they’re not.”

Minimizing the risk is based partly on setting expectations for the relationship at the

outset. According to Dr. Gurney, planners need to set their own boundaries. “Although

many clients go to planners expecting them to address ‘the whole person,’ it may not be

fair to expect that from all advisors. It’s important for advisors to tell people that certain

areas are not their expertise. That’s where a team concept can be very helpful.”

A team of professionals—which could include a mental health professional or licensed

therapist, an attorney, a mediator, or a career counselor, depending on the client’s unique

circumstance—that can address the entire spectrum of needs is a very effective structure

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for many planners and clients, particularly for those confronting a major life transition.

“It indicates to the client how each of these professionals can help and how their efforts

will coordinate on this person’s behalf,” said one participant. Some clients, however, may

resist this approach, said another participant. “Broaching psychological ‘needs’ is a

delicate area.”

Some planners may resist, too. “This may be asking the financial advisor to be the one

that opens up Pandora’s box,” said one planner at the think tank. But, added another,

establishing the multidisciplinary team at the beginning of a client relationship

“destigmatizes” the approach. “It opens things up in a very nonthreatening way,” said this

planner.

Ultimately, absent a planning environment that includes both a financial focus and an

emotional focus, individuals going through lifechanging events may fail to make a

healthy transition into the next stage of their lives. Instead, they may act out their

emotions in ways that are financially harmful. At one extreme are people who feel so

powerless about the possibility of becoming financially destitute—the bag lady

syndrome—that they spend until they are broke. At the other end of the spectrum is the

client in a personal crisis who does nothing.

Most people, according to Dr. Gurney, are in the middle. “They’re fearful of being unable

to manage the change in their lives.”

To help clients feel confident enough to manage this change, advisors need first to focus

on helping them prioritize both their emotional needs and their financial needs, the group

agreed. This act alone can help people feel less overwhelmed. In addition, those who seek

help from financial advisors during a lifechanging event need to address the burning issue

in their gut—fear.

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“The client must be helped to say ‘What I’m most afraid of is . . .’,” said Dr. Gurney.

“People’s biggest fear, though, is talking about fear. None of us can discuss it easily.”

Clients can be their own biggest asset when they can adequately recognize their degree of

emotional trauma and clearly communicate to their advisor what they believe is realistic

for them to accomplish or undertake, she added.

Where Do We Go From Here?

Some of the think tank participants believe that the financial planning profession is

naturally, but slowly, evolving toward a more holistic, psychologically based approach,

but that it will take more time. “Financial planning is, at best, just over 30 years old,” one

participant reminded the group. Professions such as law, medicine, and even accounting

have been around much longer—and even they are still evolving. For example, think of

the subtle difference today between a physician and a healer.

A philosophy of partnering—using financial psychology to link planners and

psychologists for the benefit of clients experiencing lifechanging events—is a way to

build meaningful relationships between consumers and advisors. Financial psychology

can inspire individuals to have confidence and trust in financial professionals when

advisors know certain things about their clients: how they think and feel about their

money, what their “subjective reality” is, what they can emotionally tolerate and sustain,

what they want and need to achieve with their money in their life plan, what they expect

from their advisors in managing their money, and what is reasonable, realistic, and

rewarding for them to achieve with their money5.

This philosophy can also create meaningful relationships with clients if advisors know

certain similar things about themselves—their own attitudes and feelings, how their

personal biases may affect clients, how to adapt and target their communication to build

rapport and engender trust, their skills and capabilities in dealing with clients and their

specific needs, and when to make a referral to other professionals as appropriate6.

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“Practicing” financial psychology is not a one-way street—it’s not just for financial

advisors who are looked to for help with major life transitions. Clients can help

themselves by:

• recognizing their own feelings and trying to assess their ability to work

through them

• not making hasty decisions or decisions made in isolation. By working with

an experienced financial planner, clients will realize which decisions must be

made and which can be postponed.

• understanding that many feelings that seem abnormal are actually normal

during a time of personal crisis

• pacing themselves and understanding that where they are today in a

lifechanging event may be very different than where they will be tomorrow

• turning outward. Although it’s easy to become self-absorbed, and actually

desirable to be introspective, it’s also important to keep asking: “What does

life expect of me?”

By bringing together financial planners and psychologists to discuss the needs of clients

going through a life transition, NEFE hopes to make planners aware of the emotional

and psychological implications in such events and of ways they can address them in their

relationships with clients. The Foundation further hopes that the information from the

think tank might help consumers who are seeking financial guidance be more aware of

how a range of emotions common to significant life transitions may influence their ability

to make sound financial decisions.

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Endnotes

1. Kathleen Gurney, Ph.D., Your Money Personality: What It Is and How You Can

Profit From It. Doubleday, 1988.

2. “The Fine Line Between Therapist and Planner,” Sudden Money Institute Quarterly.

Sudden Money Institute, Fall 2000.

3. “Managing Client Confidence,” www.financialpsychology.com

4. USA Today, December 13, 2001

5. Kathleen Gurney, Ph.D., Your Money Personality: What It Is and How You Can

Profit From It. Doubleday, 1988.

6. Kathleen Gurney, Ph.D., Your Money Personality: What It Is and How You Can

Profit From It. Doubleday, 1988.