Budgeting. Investing. Spending. Each of us reacts to money-related topics on a scale from negative to neutral to positive. Money attitudes are not perfect predictors of financial behaviors. However, how we feel about budgeting, spending, and investing can and does impact our financial goals. Indeed, our attitudes can affect the entire financial planning process, especially when working with others who may not share our perspectives.
What Are Attitudes?
Let’s start with the basics. What is an attitude? Attitudes are just one type of many individual differences characteristics. Individual differences make us who we are and include our values, personality, and other personal characteristics. Attitudes fall into this camp. An attitude, as defined by the American Psychological Association, is as follows:
attitude – n.a relatively enduring and general evaluation of an object, person, group, issue, or concept on a dimension ranging from negative to positive. Attitudes provide summary evaluations of target objects and are often assumed to be derived from specific beliefs, emotions, and past behaviors associated with those objects.—attitudinal adj.
What Are Money Attitudes?
Now, let’s consider what attitudes are in the context of financial psychology. Using the base definition from the APA as a starting point, we define money attitudes this way:
money attitudes – n. a set of summative, affective responses to areas of personal finance and financial planning that range from negative to positive.
If we break down this definition, it includes a few critical components related to managing our financial lives.
First, money attitudes are a summary of our experiences, emotions, beliefs, and behaviors with a specific aspect of money management. This explanation makes sense given what we know about our underlying money beliefs, those so-called money scripts formed in childhood and adolescence regarding money. Attitudes form as we “collect” experiences with specific financial topics such as investing. Strong or salient experiences are particularly critical in the formation of attitudes.
Second, money attitudes are how we feel about money rather than knowledge or ability. For example, we may know that budgeting is appropriate and helpful for meeting our household’s financial goals, but that doesn’t mean we will enjoy the process of or application of budgets in our day-to-day lives. Likewise, asking clients how they feel about a complex topic like “tax-loss harvesting” when they have little to no experience or knowledge would be inconclusive and unhelpful.
Money Attitudes And Financial Planning
Uncovering money attitudes can help facilitate the financial planning process. For example, suppose a client has relatively adverse reactions to budgeting. In this case, the planner can discuss “spending plans” differently, demonstrate empathy regarding that particular perspective, and avoid assuming that the client holds the same perspective as the planner about the importance of budgeting. This is particularly useful at the beginning of a relationship when the client often assesses “fit” with the advisor or firm.
Recently, the CFP Board recognized the importance of understanding money attitudes in the context of financial planning when it released its updated Principal Knowledge Topics in 2021. These standards indicate that financial planners should uncover money attitudes as part of the basic financial planning process. This guideline makes good sense given the nature of the topics discussed in the context of the financial planning process.
Measuring Money Attitudes
There are several ways to assess client money attitudes. You are probably aware of your long-standing clients’ perspectives about financial management simply through the interactions you’ve had with them in the past. More than likely, the work you’ve done with them may have helped to shape their attitudes. However, there are other ways to assess money attitudes, particularly at the beginning of a relationship.
How can attitudes be measured in the absence of a long-term client relationship? Especially at the beginning of the relationship when a client’s first impression of you is crucial? The easy answer could be: ask clients how they feel about topics such as budgeting. But, we know that in the context of the client-planner relationship, asking direct questions might elicit some amount of impression management from the client, that is, the subconscious effort to make oneself look good to others. Instead, consider using open-ended prompts. As an example, let’s consider how we could measure budgeting attitudes:
- Consider the experiences you’ve had with budgets while growing up or early in your life. Would you mind sharing your general perspectives on budgeting with me based on those experiences?
- Tell me about the last time you had to review your household budget. Describe how that process felt.
- Think about a time you were required to match your spending to a budget or spending plan, either at home or work. What was that experience like for you?
Open-ended interview “questions” can help you understand your clients’ money-related attitudes and allow them to share more about their experiences. The downside of this process is that it is difficult to standardize the measurement of attitudes across all clients and ensure accuracy without a scoring rubric.
Money Attitudes Tests
If you want a more efficient and standardized process, consider using a psychometric measure of financial attitudes. The client should respond without you being present (virtually or otherwise), which will help to keep any impression management at bay. You’ll have a standard process across all clients and will also have a way to understand the client’s attitudes compared to others (which can help eliminate the problem of impression management).
Implementing Money Attitudes In Financial Planning
Using assessments is the first step to uncover money-related attitudes. Implementing assessments into a financial planning workflow has relatively straightforward steps. We’ll consider these in light of money attitudes.
Promote and Analyze
First, if financial psychology is part of your process, share that through your marketing content. Let prospective clients know you assess or measure financial attitudes as part of your process. This step is referred to as “promote,” and it includes marketing how you incorporate financial psychology in your process on your blog, in email marketing, and in any prospect-facing information about your client experience.
Next, take the time to understand your clients’ scores. For instance, understand if your client scored low, medium, or high on each attitude area. Then, review the narrative feedback results for each factor measured by the test.
- What information can you use to help better communicate with this client?
- How will the client’s attitudes impact the way they approach financial planning?
- Are there ways you could present information back to the client that will elicit positive attitudes about the plan?
Clarify and Implement
Third, review the results with your client. This step will help you clarify the results of the assessment and gives your client the opportunity to share experiences and perspectives on the results. The DataPoints advisor-facing reports provide prompts and questions to help you review results with clients and learn more about their money-related attitudes and experiences. For example, imagine the results of a test indicated that a client had a neutral attitude about budgeting. Asking an open-ended question along the lines of “tell me about your experiences with using budgets, either at work or at home” will help you both discuss the topic and further clarify your client’s reactions to spending plans.
Once you’ve clarified the results with your client, determine how to use the results on an ongoing basis. Advisors use the results of money attitude tests to enhance their communication strategy with the client, identify areas where the client’s attitude might impact financial success, and track changes in financial perspectives over time.
Adding Financial Psychology via Money Attitudes
Measuring money attitudes is one way that financial psychology can be incorporated into the financial planning process. While taking “personality tests” can be a fun exercise for clients, the benefit of uncovering money attitudes is much more than entertainment. A clear picture of money attitudes can lead to better conversations, tailored communication, and increased empathy for the client’s unique experience. By assessing attitudes, clarifying results, and incorporating those results into your practice, you can simultaneously get to know your clients and personalize the client experience in a systematic and effective way.