If you have never heard of financial therapy, don’t worry. You are not alone. The term financial therapy was coined by Rick Kahler in the 1990s. As a financial planner, he noticed that financial advisors and planners were just not trained in the kinds of behavioral change that it took for people to be successful with their financial decisions.
As I like to explain to my clients, most people treat personal finances the way they treat losing weight. We think we know how to go about it, fewer calories in more calories out and we will lose weight. So we restrict our diet sharply, promise to work out like crazy at the gym we signed up for, and start off strong with motivation and dreams of success.
And yet according to the CDC, obesity is still the 2nd leading cause of preventable death in the United States.
Because knowing the theory of what to do in order to achieve your result is not enough
And it’s the same with personal finance.
The basics of personal financial success are well-established, less money out more money in, reduce debt, increase savings and you will be financially successful. So people try and restrict their spending sharply, promise to save and pay down debt like crazy on the latest debt paydown plan they read about, and start off strong with motivation and dreams of financial success.
And yet according to Reuters, the US household debt is topping out $14 trillion at the end of 2019.
This is where a financial therapist can help you. By using financial psychology, financial literacy and money mindset to help you think through and overcome money barriers; a financial therapist can play a key role in your personal finance team.
How financial therapy helps bridge the gap
As you see from the statistics above, there is a gap between what we believe we should do to be successful with our finances and what actions we actually take. This is the gap that financial therapy seeks to fill.
Traditional psychotherapy offers individuals, couples, and families ways to change the thought patterns and beliefs that do not serve their needs through a combination of therapeutic techniques too long to list here effectively.
Financial therapy is a combination of traditional psychology and financial planning that is designed to help individuals and couples make lasting, sustainable change in their financial behaviors and beliefs. This is done with a combination of financial literacy training as well as psychology-based methods for habit-formation and change.
This financial psychology apporach is unique in that it doesn’t just focus on numbers and basic financial literacy but also on money mindset, internal scripts and other thought barriers in addition to the practical financial advise.
Why financial therapy is gaining ground
Despite being a newcomer to the industry of both psychology and finance the principles of financial therapy are based on significant scientific data in an area of study referred to as behavioral economics.
Just as with financial advising, economists realized that there was a difference between the standard economic theory that prevailed in the education community and the actual behaviors of people in the marketplace. And so behavioral economics was born to address, quantify, and identify the patterns between what people are told they should do and what they actually do.
This research into behavioral economics has been paramount in the development of the standards and thoughts around financial therapy and how to apply psychotherapy techniques to help people reach their financial goals.
Who can become a financial therapist?
As with many new industries, the current market for financial therapy is unregulated, that is to say that there is no government or national certification or regulatory body that oversees financial therapists.
The Financial Therapy Association is pioneering a certification program that is still currently in its infancy and, at this time, not yet acknowledged by a licensing body of the government.
So if you are considering exploring financial therapy there are some considerations you should take.
How to find a reputable financial therapist
When thinking about seeking the assistance of a financial therapist I encourage you to first make a list of criteria such as the following:
- What kind of training, certifications, and/or degree(s) does this individual hold?
- What kind of person do I feel most comfortable talking to?
- Do I want to meet in-person or is virtual contact fine?
- How often do I want to talk to them? What kind of access do I want to have to them in-between sessions?
- What kinds of things do I want my therapist to help me overcome? Spending? Budgeting? Money Mindset blocks?
- Does the therapist provide practical tools to help me implement what they are teaching me?
- Do they have a contract that outlines the therapy relationship? (This is a must. Do not receive therapy from anyone that does not have a contract for you)
Minimum criteria for a financial therapist
Let’s review each of those areas above individually with some more detail about what you should be looking for.
- Qualifications: The therapist should hold at least a Bachelor’s degree in Finance or Psychology. There are other certifications, such as the optional one from the Financial Therapy Association or from other groups such as the ATD’s Change Facilitator program. Essentially you want to make sure that the person is qualified not only to help you process emotional/psychosocial concerns but also to give you sound financial advice.
- Comfort factor: This is very much a personal preference and I encourage you to get to know as much about the therapist as possible beforehand. What values do they promote on their website? How do they present themselves? Do they appear friendly and easy-to-talk-to?
- Format of therapy: If you prefer in-person therapy only just know that you will be a bit limited by location as there is not a wide offering of therapists available in every area. If you are open to virtual therapy visits you will have a broader selection but be sure to pick the format that will be most comfortable for you.
- Frequency: This depends on your goals but as with traditional psychotherapy weekly sessions are considered normal although there is always flexibility. Weekly sessions allow you to maintain momentum while also allowing enough time to take action on to-do items throughout the week.
- Goals: Your therapist should be able to help you focus and work on whatever your goals are. Your goals should be the driver for what the sessions are about. If you meet with a financial therapist that simply runs you through a program with set goals, it’s not true financial therapy
- Tools and resources: A qualified therapist should provide you with a variety of tools and resources that can help you practically apply what you are learning about in the therapy session. These tools should be adaptable to your learning needs, style, and personal goals, not one-size-fits-all.
- Contract: A reputable therapist will absolutely have you sign a contract detailing clearly what you can expect from the therapy itself, your obligations, and the therapist’s responsibilities as well. Read any contract carefully and ask questions to be sure you understand it entirely.
Who can benefit from financial therapy?
You can benefit from financial therapy if you experience:
- Frustration in trying to stick to your budget
- Continued “discussions” about money with your partner that never seem to get resolved
- Your parent’s voice in your head telling you that you’re not making the right financial choices
- A life upheaval that radically changes your financial situation
- The feeling that you’ll just never be good with money
- Overspending or compulsive saving that affects your life and/or relationships
Financial therapy session types – individuals or couples
Most therapists will offer either individual or couples financial therapy. While it is certainly possible to be in a partnership that could benefit it is also possible that your partner may not agree with the idea of financial therapy as a potential solution.
If this is the case for you, I suggest attending alone. I have had multiple clients successfully get their partners involved after having individual therapy and any therapist you choose should be open to seeing you individually and eventually together if it progresses towards that.
What financial therapy is NOT
Financial therapy is not, in any way, a substitute for psychiatric or psychological care. Nor is it marriage counseling. It is not used to treat any psychological conditions nor is it used to sell investments or insurances.
The goal of financial therapy is to help the client create sustainable, healthy habits for managing their money so they can accomplish whatever financial goals they have.