“A fool and his money are soon parted.”

The origin of this quote is disputed, but it is commonly attributed to an English poet and playwright named Thomas Tusser. Tusser lived from 1524 to 1580. The proverb describes people who are foolish enough to spend money too quickly on unimportant things.

An even more ancient proverb states it similarly: “Precious treasure and oil are in a wise man’s dwelling, but a foolish man devours it.”¹

In the English language we have numerous adjectives to describe how people handle their money: Prudent, profligate, squanderer, indulgent, thrifty, frugal, penurious, parsimonious, stingy, careless, wasteful, cheap or high roller.

Behind all these epithets, there lies a specific kind of relationship that people have with money.

Point: People can be known for many things including how they relate to money.

What Is Your Client’s Relationship With Money?
Every client who you work with as an Independent Financial Professional (IFP) has a complex relationship when it comes to money. They approach spending, saving, investing, and giving based largely on two factors: First, the nurturing and training they received during childhood about money and how to use it; and second, the way they stored or catalogued this information in their mind. People who grew up going to church perhaps developed the habit of tithing. If the client was raised by parents who valued education, they may prioritize college savings.

Think of a horizontal line representing a spectrum. On the one hand, the client may have grown up financially comfortable, even privileged. On the other hand, the client may have grown up in poverty. Many clients were raised in the vast middle. These experiences play out in the way clients behave, what they value, and how they relate with their money.

Clients are sometimes insecure or irresponsible with money based on feelings of scarcity or entitlement. These are each an indication of insecurity. Conspicuous consumption is as much a sign of insecurity as complete risk avoidance and stinginess.

Discovering the Client’s Relationship with Money
An experienced IFP understands that the secret to meeting the client’s needs can only happen after gaining a deep understanding of the client’s priorities, principles, prejudices, and passions. These, in turn, are uncovered through strategic questioning.

How, then, does an IFP discover the client’s relationship with money?

By asking these, and similar, questions:

• Where do your feelings and beliefs about money come from?
• Looking back on your adult years, is your history replete with personal examples of making good financial decisions, and if not, why?
• What kinds of situations cause you to be hesitant before taking action in issues regarding money?
• Are you generally impulsive with money, or do you have the discipline to say “no?”
• When did you grasp the importance of saving money?
• What caused you to form a conservative or aggressive approach to investing?
• When you contemplate leaving money for your children, do you trust them to make good decisions with the money they will inherit from you?
• Does money make you feel anxious, confident, envious, or insecure?
• Do you feel pangs of envy when others appear to have more than you?

Point: Asking clients important questions forces them to take time to think about their relationship with money and how their values were formed. The key to strengthening your client’s relationship with money is understanding what’s driving their financial beliefs and behaviors.

Dealing with Clients and Their Life Partners
Arguments about money early in a relationship have been found to be a primary predictor of whether their relationship will last. Married couples and life partners represent two distinct and extremely independent streams of money experience and training. Clients enter into these lifelong (hopefully) relationships without totally understanding the vast differences in each person’s respective values and opinions.

As an IFP you must act as facilitator of the process of discovery. To do this effectively, use a simple three-part model: Wealth Acquisition, Spending Habits, and Wealth Management.

Wealth Acquisition
Wealth Acquisition discovery is less about how your client and the client’s partner acquire their wealth, but rather, how much money is necessary for them each to feel secure. Consider a married couple, Steve and Barbara. Steve grew up in a well-to-do family and never even had to work while in secondary school or college. In his mind, the acquisition of money is an irrelevant pursuit.

Meanwhile, Barbara was the oldest of three kids and began working when only fifteen years old because her father passed away and she had to help support the family. Even after she and Steve have acquired significant wealth, and have considerable means, Barbara can still fall prey to the idea that “you can never have enough.” Barbara is not so much a greedy person as she is in need of accumulating money in sufficient quantity to make her feel secure as she and Steve provide for themselves and others in their care.

Spending Habits
Some clients seem to be people who make it their personal mission to get rid of money as soon as it comes in. Other clients appear to believe that money will be taken away from them, which leads to an anxious attachment to money, and they may even begin hiding money.
As a young man I bought The Human Comedy, a monster series of some 90 novels and novellas by Honoré de Balzac. I admire Balzac for how he illuminates the virtues and vices of human beings in compelling stories.

One of my favorite novels in his series is entitled, Eugénie Grandet (published in 1833).

The story is saturated with people struggling in their relationship with money. One character commits suicide because of his impending bankruptcy. The action of the novel concerns a woman whose name serves as the title. She is the daughter of a wealthy but tightfisted, miserly man who lives a simple life in the provincial town of Saumur in Western France. Felix Grandet desires to arrange the most financially advantageous marriage for his daughter. Unfortunately, Eugénie’s naiveté and inexperience lead her to fall in love with an unworthy man, her penniless cousin. She eventually pays his debts so that he can marry another woman.

“Miserliness is the vice of stagnant souls.”² Thus, Balzac defines Felix Grandet.

As an IFP you have likely encountered people for whom parting with money is like having a finger removed. Parsimony does not lend itself to adventure. Hence, the word “stagnate.”

Also in the same novel, Balzac wrote, “To know how to wait is the great secret of success.”³ Just as you work with people who crimp and clip coupons because of a fear of spending too much, you meet people whose eyes are on the future, and who are intentionally saving as much as possible to achieve a goal, to reach a dream. These clients are willing to forego immediate satisfaction in order to fulfill a much larger objective.

Balzac draws on this theme in many of his novels. Here again in Eugénie Grandet he wrote, “All human power is a compound of time and patience.”⁴

As you work with clients, it will be helpful to see them in terms of their place in the spectrum between self-indulgence and patient endurance. Their exact position likely became clear the first time you discussed your fees.

Wealth Management
Clients sometimes present a challenge to the IFP trying to help them achieve financial success. The client who is a compulsive spender is often a poor money manager. The client who is completely disorganized with money may procrastinate when paying bills. He or she may be totally unaware of the true condition of his or her finances.

Money management covers a wide range of financial behaviors, from how clients pay their bills to how they manage their investments.

Again from Eugénie Grandet: “Money is the mind’s stall, where it fattens itself up first, before coming out into the market.”

Point: Each client and client partner represents a tendency, a proclivity, often unconscious, to be either ultra conservative or unreasonably immature in how money flows in and out of their accounts and hands.

Changing Perspectives, Not Personalities
As an IFP, you are not a change agent in underlying personality types. You must work with the client as you encounter him or her. There truly is no personality profile that is better than any other in terms of achieving financial success. It is less personality than it is habits. The only reason anyone changes habits is because they become faced with a new perspective.

Examples:

• The annual physical reveals a dramatic increase in Lipid Panel Blood results. Total Cholesterol rose above 240, LDL soared above 100, and HDL dropped below 40. The assumption that all was well is replaced with the perspective that health is not something to take for granted. Obviously, eating habits and exercise habits must change.
• A friend passes away without life insurance. Seeing the surviving family members scramble to meet monthly expenses, it becomes apparent that more personal life insurance is required to provide for dependents.
• Present value calculations can be highly beneficial in changing perspectives. Say the goal is to have $1,000,000 in liquid assets in 20 years. To calculate the present value of $1,000,000 20 years from now, the required formula is PV = FV / (1 + r)^n; where PV is the present value, FV is the future value ($1,000,000), r is the discount rate (interest rate), and n is the number of years (20). Assuming a discount rate of five percent, the present value is $148,644. If current liquid assets add up to only $50,000, the pace of wealth accumulation must increase dramatically.

IFP Toolkit
In order to change perspectives, you first gather data in order to gain a complete picture of the client’s assets, liabilities, income, and expenses. You help the client clearly grasp current net worth, assets, liabilities, and liquid or working capital. To measure the pace at which wealth will likely be accumulated, you take the temperature of the client’s risk tolerance and risk capacity. Then you go to work. Your toolkit includes questions, like these:

• What is your best- and worst-case retirement scenario?
• Are you facing the scary possibility of outliving your money?
• Are you prepared to handle the financial realities associated with disability, long-term care, or death?
• How do you intend to help your children with the cost of higher education?
• How do you intend to pay off your existing debt and avoid taking on new debt in the future?
• What tips and strategies are you willing to use in order to create budgets that will help you meet your goals in the short and the long term?

Point: Clients need to become aware of what their current beliefs about money are as well as the results that those beliefs create in their lives. As an IFP your number one job is to place clients firmly in reality and change their perspective from what they think is true to what is actually true. Your best tools are questions.

Summary
As an IFP you need to keep in mind that each client you meet has a complex relationship when it comes to money. You need to determine how they were influenced during childhood by money and how to use it, and how they have wrestled with financial realities throughout adulthood.

You must uncover where each person sits on the spectrum from Scarcity to Security, to Entitlement. To begin changing the client’s perspectives you need to discover the client’s relationship with money, and then ask really good questions.

While you are not in the personality-changing business, you are in the perspective-changing business. You already know the deep satisfaction you feel when a client tells you how much freedom they are now experiencing, how light real debt-reduction truly feels, and how having a roadmap gives them confidence they never knew before.

Balzac predicted that your own satisfaction would come from the positive impact you have on your clients. He wrote:

“Someday you will find out that there is far more happiness in another’s happiness than in your own.”⁵

Footnotes:

1. Proverbs 21:20, ESV Study Bible. 2008. Wheaton, IL: Crossway Books.
2. Eugenie Grandet (The Human Comedy), Honoré de Balzac (Author), Marion Ayton Crawford (Introduction), Penguin Classics; 16th edition (April 30, 1955).
3. Ibid.
4. Ibid.