Financial therapy is counseling that helps people deal with financial stress by giving them both financial advice and emotional support. People can become paralyzed by worries about money and finances, which can hurt their family life, work, and everything else in their lives.
The field of financial therapy started after the Economic Crisis of 2007–2008, but its roots go back to the 1990s. It was the time when researchers started to look more closely at how money affects people’s minds and feelings. In 2019, the Financial Therapy Association (FTA) started its Certified Financial Therapist (CFT-I) program for both financial and mental health professionals.
Rick Kahler, a financial planner and therapist, is one of the people who started the FTA. According to his studies, 90% of financial decisions are dependent on how individuals feel. But behavioral therapists aren’t trained in financial planning, and financial planners aren’t trained in behavioral therapy. Financial therapy helps people feel good about their money, the first step toward defining and accomplishing financial objectives.
What is financial therapy?
The FTA says that financial therapy is “a process informed by both therapeutic and financial competencies that helps people think, feel, and act differently about money to improve their overall well-being through evidence-based practices and interventions.”
Money is a big part of a person’s overall health, and the stress of managing money and dealing with financial problems can be very hard on a person’s mental health. If this emotional weight isn’t taken care of, it can affect other parts of a person’s life. A last year’s study by the Financial Industry Regulatory Authority (FINRA) showed that 60% of U.S. adults were anxious about their own finances.
Just like other types of therapy that deal with other parts of a person’s life, financial therapy gives support and advice that are specific to finances and the stresses that come with them. The financial therapy focuses at how a person thinks about money on an emotional and psychological level.
Financial therapists vs. financial advisors
Financial advisors know a lot about their clients’ situations and can give advice on the best ways to move forward. They can share their knowledge in the hopes of making their clients’ financial situations easier. But therapy is not a financial advisor’s specialty. If someone needs real emotional support or help breaking bad habits, they should talk to a licensed professional. The financial advisor is usually better at giving advice on how to deal with money problems. But a licensed professional can help get to the bottom of a deeper issue.
For example you may have $50,000 in cash and you are afraid of going broke. That is keeping you from investing some of that money in the stock market. Then you could talk to a financial therapist. But if you have $50,000 and want to know how to invest it best, you should talk to a financial advisor instead.
Why would you ask for financial therapy?
A person might want or need financial therapy for a number of reasons. In the same way, certified financial therapists are experts in many different fields, such as financial advisors, psychologists, social workers, and more.
Unhealthy ways of handling money
Many times, a person’s bad habits lead them to get into bad financial habits, like spending too much (like gambling or shopping compulsively), working too much to save money, avoiding money problems that need to be dealt with, or hiding money from a partner. Bad habits with saving, spending, or working are often signs of other bad mental or physical health habits.
Experienced financial trauma
People who have had financial trauma, or bad personal experiences with money, may feel anxious or stressed when dealing with money issues later in life.
Need to adapt to a new financial culture
Some people who go to financial therapy may have grown up in a culture or lived in a place where money or knowing about money was taboo. As their lives change, these people might benefit from financial therapy so they don’t feel overwhelmed and stressed about adapting to a new financial culture.
How a financial therapist can help you get past your worries
Therapists we talked to said that limiting beliefs can stop you from investing and keep you from reaching your financial goals. Fears can also make it hard to enjoy the results of your hard work. How do you keep going when you’re scared? Here are some of the things the therapists told us.
Find your limiting thoughts and feelings
Some people, like those who grew up in poor neighborhoods, have money stories they’ve been telling themselves since they were kids. Financial therapists say that these stories can either help you reach your goals or keep you from doing so.
Maybe you saw your parents struggle to make ends meet when you were growing up, and now you think money is scarce and shouldn’t be spent. You might be scared to invest because no one in your family has ever done so. Or, maybe you invest but are afraid to lose money, so you always play it safe.
The financial therapist helps clients feel and name their feelings, then helps them make a plan for their money so they can move on.
Envision retirement
Some investors might not see planning for retirement as important, especially if they don’t plan to retire for a long time. And the uncertainty about the economy in 2022 probably hasn’t made people want to invest. Some people may have to pay for recurring costs first, or they may want to use their money to live in the moment.
People sometimes find it hard to start investing because it’s hard for them to think about the future.
Some of the reasons are not having enough education and not knowing how compound interest works. Or why it’s so important to start investing at a young age, as well.
Financial therapists say that if you have trouble thinking about retirement, you should think about someone you know who is at retirement age and how they live now. This might help you feel connected to the future so you can plan what you desire and plan afterwards.
Start small
If you want to change your money habits, it might be best to do so slowly. This could mean finding out more about whatever is making you feel bad.
Think about passive investing
Passive investing is a way to relieve stress, especially if you’re struggling to understand the sometimes complicated world of finance. It’s a hands-off approach to invest for people who don’t want to learn more complex things or take risks. Using robo-advisors or investing tools like ETFs, index funds, or mutual funds are examples of passive investing.
