Derek Hagen, CFA, CFP®, FBS®, CFT™

“Every financial decision makes perfect sense when we understand our underlying beleifs, our money scripts.”

-Rick Kahler

Financial psychology connects behavior to belief, helping advisors turn data into empathy.

Why Understanding Client Stories Matters More Than Correction

If you’ve been an advisor long enough, you’ve seen it: a client who seems to be acting against their own best interests:

Maybe they keep giving money to an irresponsible family member.
Maybe they’ve delayed updating their estate plan for years.
Or maybe they have more than enough saved, but still can’t bring themselves to spend.

When we see clients make emotional or inconsistent decisions, our training often pushes us toward correction. We try to help them make more “rational” choices. But what financial psychology teaches us is that clients aren’t being irrational at all. They’re being human.

Every decision makes sense when viewed through the lens of that person’s story. Each action is rooted in experiences, values, and beliefs that shaped how they see money and the world.

What Financial Psychology Really Is… And Why It Matters

Financial psychology sits at the intersection of money and clinical psychology. While behavioral finance combines money and cognitive psychology (how we think) financial psychology focuses on how we feel and learn.

It explores how early experiences, family systems, and culture shape present-day financial behavior. It’s about connecting a client’s current decisions to their past experiences.

This perspective helps us empathize with clients who seem resistant or inconsistent. It helps us see that behavior is rarely random. It’s informed by the lessons life has taught them. Clients aren’t being difficult; they’re simply acting out a story that once made perfect sense.

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How to Apply Financial Psychology in Planning Conversations

You don’t need to be a therapist to use financial psychology. You just have to be curious. The key is to see client behavior as data—not as defiance.

Here are practical ways to start weaving psychology into your client conversations:

Listen for origin stories. As clients talk about their goals or struggles, listen for clues about their early experiences with money—family norms, cultural messages, or past hardships.
Listen for scripts. When a client says, “Debt is bad” or “You should never talk about money,” that’s a money script. Ask where they learned that message. The question alone opens awareness.
Normalize and validate. When you hear a belief that might not serve them now, try saying, “That belief probably protected you when…” This acknowledges that their logic once had a purpose.
Explore their biography. Use Money Quotient’s Biography tools or simply ask reflective questions like, “What was money like growing up?” or “What lessons did you learn about money as a child?”

Each of these conversations creates context for advice. They move the discussion from correction to connection.

From Correction to Connection: Turning Advice Into Relationship

The goal of financial psychology isn’t to fix or diagnose anyone. It’s to understand them.

When we connect client behavior to their experiences, we make the subconscious conscious. We transform advice from a transaction into a relationship.

Clients are more likely to trust us, follow through, and feel understood… not because we gave them the “right” answer, but because we saw the story behind their behavior.

Financial psychology reminds us: financial behavior isn’t random. It’s learned.

And when we understand the story, we can help clients write a better one.

FAQ: Incorporating Financial Psychology into Financial Planning

What is financial psychology?

Financial psychology studies how early experiences, family systems, and cultural beliefs shape financial behavior. It connects emotions and money decisions.

How is financial psychology different from behavioral finance?

Behavioral finance focuses on thinking—biases and heuristics. Financial psychology focuses on feeling—the emotions, beliefs, and life experiences that drive behavior.

Why do client stories matter more than correcting behavior?

Correction targets surface behavior. Understanding stories reveals context—why a client acts that way. Context builds empathy and trust, leading to better outcomes.

Can advisors use financial psychology without being therapists?

Yes. Advisors simply need curiosity and empathy. Listening for origin stories, validating beliefs, and asking reflective questions create powerful breakthroughs.

How does financial psychology improve advice follow-through?

When clients feel understood, they trust the process. Financial psychology moves advice from transaction to connection, improving motivation and implementation.

Want to Learn More?

Money Quotient trains financial professionals in the True Wealth process and helps them implement the concepts into their practices. The first step is to learn about the Fundamentals of True Wealth Planning.