Getting to the heart of our dysfunctional relationship with money

The concept of a “financial therapist” appeals to me, because I believe in the value of therapy, which is basically the treatment of a disorder. We have physiotherapists, psychotherapists, occupational therapists, speech therapists ... so why not financial therapists?

We all have disorders; some people are just too proud to admit it. Anyone who has found the courage to deal with a disorder will tell you that half the battle is understanding precisely what the disorder is and what’s driving it. The people at Alexander Forbes Financial Services really seem to get this. They realise that most South Africans are struggling to survive, and so saving for retirement is, well, hardly an option.

Why are we struggling to survive? One of the reasons is debt. Until we’re on top of our debt problem, there will never be money for worthy things such as income protection policies or products to provide for children’s education, to name just two. But it’s not just the overindebted who aren’t saving; it’s also those who can afford to save but aren’t – and not because they’re planning to live on dog food in retirement.

“We’re only just beginning to understand the complex dynamics that inform our financial decision-making,” says Anne Cabot-Alletzhauser, the head of the research institute at Alexander Forbes Financial Services and the author of the annual Benefits Barometer.

The aim of the barometer is to measure what’s working in the financial services industry, what needs to change, whose interests are being served, and how consumers – specifically employees who receive employee benefits, such as a pension – can derive more benefit.

The theme of this year’s barometer is financial well-being. The burning question then is: how financially well, or unwell, are South African employees?

Cabot-Alletzhauser says: “The average South African retires with a 32-percent income replacement ratio (what you receive as an income in retirement as a percentage of your salary pre-retirement).” In other words, we’re very unwell. “Either people don’t understand the value of their benefits [pension savings] or they look on this money as theirs to spend,” she says.

Both attitudes reveal that the consumer is unwell.

“While I was in London recently, I caught up with a friend who was just returning from a session at Debtors Anonymous. This woman is quite affluent and has no problems with debt. Her reason for seeking the support of Debtors Anonymous? The programme is about helping people with their dysfunctional relationships with their finances, not just with financial crises. Her problem, as an independent consultant, is that she is incapable of asking clients to pay her what her services are worth.”

Cabot-Alletzhauser says that poor financial decision-making often has little to do with financial literacy, access to money or income, or social pressures. “It may be as simple – or rather, as complex – as an irrational response to a seemingly rational economic problem. What triggers such sub-optimal economic behaviour? The reasons are often complex.”

Factors that have a direct impact on how we engage with money are often rooted in our historical, family and social circumstances. Many of these factors relate directly to a person’s sense of self-worth or security, or underdeveloped interpersonal skills, she says.

Cabot-Alletzhauser concedes that identifying and coping with such problems is generally beyond the training of most financial advisers.

But the reality is that most clients enter their adviser’s office with some sort of financial baggage.

“Amanda Clayman, a New York-based financial therapist, points out that ‘highly anxious people often have a hard time building calm, deliberate moneymanagement habits. To act reasonably, you must first neutralise the effects of the stress – you can’t work through money challenges in the throes of anxiety, because you aren’t thinking rationally’.”

This is where the role of a financial therapist comes in, Cabot-Alletzhauser says. “Importantly, financial therapists engage in almost none of the typical discussions of a financial planner. It’s not about asking clients what their goals are, what matters to them, what it is they require from their finances. In fact, there’s very little reference to financial facts at all in the exchanges.

“Their challenge is to understand why the sub-optimal decision-making exists in the first place. Their task is to identify ways that the individual can use those insights to manage, first, the dysfunctionality. Only when that is under control can the individual move on to more cognitive, information-based solutions in financial planning.”

Apparently, a study has identified four distinct money belief patterns: money avoidance, money worship, money status, and money vigilance. Cabot-Alletzhauser says these belief patterns provide financial therapists with a useful starting point for addressing the particular mode of dysfunctional behaviour.

This is fascinating, but what really blew my hair back was what CabotAlletzhauser calls her first “light-bulb moment”. It was discovering a financial wellness project by BMW South Africa, funded by German Technical Co-operation (also known as GTZ), enlisting the services of social workers, and not financial advisers, to help employees. BMW understood the issue was more about changing behaviour than it was about dispensing financial advice.

Over a period of two years, 199 employees at BMW received counselling from social workers. The impact of the programme was profound: there was a 32-percent drop in the number of debt judgments against employees, and, by the end of the project, employees had reduced their debt by 57 percent and had half the number of creditors they had when they started, according to Procare, the organisation that provided the social workers.

If that’s what can be achieved in just two years, imagine what can be achieved over the long term.