The COVID-19 pandemic has demonstrated to us once again that economic uncertainties are ubiquitous and often hard to predict. We need to stay vigilant and be prepared for the rainy days.
-Standard Center for Longevity
To launch the “Financial Resilience in America” project, researchers at the Stanford Center on Longevity teamed up with the Global Financial Literacy Excellence Center (GFLEC) to explore the four pillars of financial resilience: Asset Management, Debt Management, Risk Protection, and Financial Literacy. To learn more about this important initiative, click here. Read the brief and check back frequently to take advantage of additional resources as they become available.
From a practical standpoint, we at Money Quotient completely agree that financial resilience requires a strategy for building financial security. Therefore, helping your clients recognize potential threats to their economic well-being can be a powerful catalyst for positive change.
However, we also believe that financial resilience requires your clients to possess emotional strength. You can nurture this equally important component by helping them to identifying their fears and concerns as well as their attitudes and beliefs about money. Often, reflection and conversation are all that is needed to increase awareness and overcome the underlying issues.
… because nearly all of life’s challenges have a financial tether, it is important for you—as a financial planner—to consider what you can do to nurture your clients’ financial resilience. Click To TweetIn addition, understanding the difference between financial stress and financial anxiety will help you identify the best strategies for nurturing their financial resilience. A useful primer on this important topic is “Distinguishing Financial Stress from Anxiety and Client Communication Strategies to Help” by Meghaan Lurtz. She points out that while the terms “stress” and “anxiety” are often used interchangeably, they are actually quite different emotional responses that require different communication strategies.
While stress is the result of external stimuli perceived to pose some level of threat, anxiety results from internal forces arising from unhealthy attitudes towards a particular idea or concept.
In addition, Lurtz explains that stress can be addressed by removing the stimuli acting as the stressor, whereas anxiety will linger even in the absence of the root cause.
… while stress can be eliminated when the external stimuli are removed, the same is not necessarily true for anxiety. While an external stimulus might serve to trigger anxiety, removing it may have no effect on the anxiety since it is the internalized idea that causes the anxiety versus the actual external trigger.
Therefore, because financial stress and financial anxiety are different conditions, financial planners will need different strategies for supporting their clients. When working with clients under financial stress, Lurtz recommends the following:
1. Reframe the issues positively. This isn’t telling the client “it’s okay” or “don’t worry.” Rather, it is about shifting their perspective by reframing the issue in a way that appeals to one of their strengths and/or helps them to visualize a positive outcome.
2. Be problem-focused. Those under financial stress are eager to take action and resolve the issue. Discuss the issue and support your client in being proactive. Even if you feel their attention should be focused elsewhere, they cannot fully focus on other goals until their most pressing concerns are addressed.
3. Make to-do lists. Clients with financial stress will benefit from and respond well to a task list that clearly shows the steps to relieve the stress they are experiencing.
However, when working with clients experiencing financial anxiety, different strategies will be required. Lurtz explains that it is important that financial advisors not rush these clients into action or simply tell them not to worry. In addition, task lists are not a helpful strategy. Instead, she offers the following best practices for helping their clients overcome financial anxiety:
1. Provide a safe place for money talks. Lurtz makes a point of explaining that financial advisors do not have to be therapists in order to help clients overcome their financial anxiety. The solution can be as simple as providing the space and opportunity to talk about their money fears and issues. Solutions are not required, just the opportunity to verbalize their concerns.
2. Offer support and complete tasks together. Lurtz also explains that “to do” lists can feel overwhelming to clients experiencing financial anxiety. Therefore, set up a meeting to help your client accomplish important tasks such as setting up auto-debits to fund their IRA or establishing a 529 Plan. Each accomplishment will help to ease their anxieties and boost their self-confidence.
3. Recognize growth. Lurtz reminds us that anxiety can be debilitating. Therefore, each accomplishment should be recognized and celebrated. “An honest compliment or acknowledgment that the client is growing and changing will encourage them to keep going and make additional progress in the future.”
In a nutshell, nurturing financial well-being requires both practical strategies and emotional fortitude. Therefore, because nearly all of life’s challenges have a financial tether, it is important for you—as a financial planner—to consider what you can do to nurture your clients’ financial resilience.
—Carol Anderson