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Dan’s new book for millennials, Wealthier: The Investing Field Guide for Millennials, is now available on Amazon.
Understanding how money impacts human behavior and psychology may help serve your clients effectively. A study titled The Psychological Consequences of Money reveals how wealth can influence your client’s social interactions, willingness to seek help, and overall mental well-being. These findings are particularly relevant in financial planning, where money is central to decision-making and relationships.
A flawed assumption
We are led to believe that accumulating wealth is the holy grail and the key to happiness. The premise of much of the financial media is that more wealth is something we should spend a significant portion of time aspiring to achieve. But is this assumption valid?
Not according to social psychologist Paul Piff. In a TED talk, he painted a dim picture of the benefits of wealth accumulation: “As a person’s levels of wealth increase, their feelings of compassion and empathy go down, and their feelings of entitlement, of deservingness, and their ideology of self-interest increases.”
Piff references a series of studies with these troubling findings:
- Wealthy people have a sense of self-entitlement and believe they deserve their good fortune. One experiment demonstrated those driving more expensive cars were less likely to stop for pedestrians in California, even though they were legally required to do so.
- Lower-income families are more charitable (although I have seen research questioning this conclusion).
- Lower-income participants were better able to analyze the facial expressions of people in photos and strangers in mock interviews. They seemed to evidence superior emotional intelligence.
Other effects of wealth
Here are additional effects of wealth, as found in the study, The Psychological Consequences of Money:
Self-sufficiency and independence: The study found that money tends to foster a mindset of self-sufficiency. Individuals with financial resources may feel less inclined to rely on others, preferring to handle matters independently.
This mindset can reduce the likelihood of clients seeking guidance or support, even when it could benefit them. Some clients may hesitate to fully engage in conversations about their financial goals or ask for assistance in areas they don’t fully understand.
Reduced helpfulness and cooperation: Another finding is that exposure to money reduces helpfulness and cooperative behavior. Wealthy clients may become more self-focused and less likely to engage in discussions around charitable giving or collaborative financial planning. This poses a challenge for advisors trying to foster a spirit of partnership or guide clients toward philanthropic endeavors.
Preference for solitude: The study suggests wealthy individuals prefer to work alone and keep their distance from others. For financial advisors, this could manifest as clients who are more transactional and less interested in forming a deep, trusting relationship. They may prefer quick, efficient meetings rather than in-depth discussions about their long-term financial planning or estate strategies.
Wealthier:
The Investing Field Guide for Millennials.
Why have so many financial advisors agreed to review an advance copy of Wealthier: The Investing Field Guide for Millennials. It empowers millennials to be responsible DIY investors and financial planners. You can see some of their reviews here.
Dan’s new book for millennials, Wealthier: The Investing Field Guide for Millennials, is now available on Amazon.
Here’s what one advisor said: "Saplings grow into trees. We need to help the next generation of investors get to where they need our services."
For more information, visit the website for Wealthier:
To review Wealthier send an e-mail to: [email protected]
Psychological strain due to lack of money: The study highlights that a lack of money can create feelings of inefficacy and loss of control. Financial advisors dealing with clients in distress due to financial challenges must be aware of the emotional strain this can cause. Offering solutions that restore control and provide reassurance are critical in these situations.
Practical implications
As outlined in this study, money's psychological effects carry important ramifications for financial advisors. Here are ways to apply these insights in your practice:
Encourage engagement through trust-building: Wealthy clients may adopt a self-sufficient mindset, which can limit their engagement with their advisor. To overcome this, build strong relationships based on trust and communication. Offer regular check-ins, be proactive with advice, and demonstrate your role as a partner in their financial journey.
Address philanthropy: Clients less inclined to help others may resist discussions of charitable giving or social responsibility. Integrating these topics into your conversations, especially during estate planning or tax mitigation discussions, can help them see the value beyond financial returns. Frame philanthropy as part of their broader legacy planning to make it more appealing.
Mitigate the desire for solitude: Clients who prefer solitude may shy away from deeper conversations about their financial future. As their advisor, emphasize the importance of collaboration in developing a robust financial plan. Highlight how your expertise complements their knowledge, framing it as a joint effort to achieve the best outcomes.
Proactive support: Since the presence of wealth often makes individuals reluctant to seek help, advisors must be proactive. Anticipate potential issues in your clients’ portfolios and offer solutions before they become problems. Providing consistent, proactive advice reassures clients that they don’t need to handle everything independently, creating a more collaborative dynamic.
Manage financial distress: Empathy is critical for clients facing financial challenges. Financial strain can lead to mental health struggles. Advisors must recognize this emotional burden. Offering solutions that address a client’s financial situation and help restore their confidence can significantly improve their well-being.
Final thoughts
The findings of The Psychological Consequences of Money and other similar research underscore the profound impact that wealth can have on individuals’ behaviors and attitudes.
As a financial advisor, you are uniquely positioned to navigate these psychological dynamics and provide your clients with financial and emotional support. By understanding how money influences your clients’ relationships, decision-making processes, and mental health, you can tailor your approach to better serve their needs, fostering stronger, more trusting relationships that lead to long-term success.
Dan Solin coaches evidence-based financial advisors on how to convert more prospects into clients. His digital marketing firm is a leading provider of SEO, website design, branding, content marketing, and video production services to financial advisors worldwide.
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Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
Here’s what one advisor said: "Saplings grow into trees. We need to help the next generation of investors get to where they need our services."