Posts Tagged "behavioral economics"
May 11, 2021
Psychology Added to CFP Certification
Financial advisers have no shortage of clever strategies to dispense to their clients. The tricky part is getting the psychology right.
Human beings have all kinds of hang-ups about money. Presumably, someone who’s walked into a financial adviser’s office has broken through the first barrier to getting help: denial. But even then, blind spots and fears can get in the way of a client choosing or executing a financial plan, even if it’s clearly beneficial.
To that end, psychology is being added to the educational curriculum – along with the longstanding topics like risk management, tax planning, and investing – required for advisers to get certification as a Certified Financial Planner, or CFP.
Money “is a very emotional topic,” said John M. Loper, a CFP and director of professional practice on the CFP Board. That, he said, is a compelling reason for addressing clients’ psychological issues head-on: “If you can’t connect with your client, it’s going to be difficult for them to take your advice.”
The idea came out of feedback the CFP received in a 2019 study, but COVID-19 pushed the issue to the forefront, he said. The psychology curriculum will include managing crises, such as pandemics and stock market drops, that have severe financial consequences.
Wells Fargo’s Michael Liersch, who has a PhD in behavioral finance, said that giving financial advice is challenging because some people are uncomfortable even starting a conversation about money. In families, it’s often a point of contention between husbands and wives or parents and children. Talking about money risks exposes big differences in how it should be used, and the conversations can turn negative.
“People think it’ll be disruptive, so they don’t bring it up,” said Liersch, head of financial advice and planning for Wells Fargo. …Learn More
February 23, 2021
Converting a Desire to Save into Saving
Save. Budget. Spend less on takeout.
“We know what we need to do,” financial behavior expert Wendy De La Rosa says. “The question is how to do it.”
Consider one of the pandemic’s lessons for workers: it’s important to build up an emergency fund for a potential financial catastrophe. But how to translate that into action?
De La Rosa, who founded the Common Cents Lab to help low-income workers manage their limited resources, has conducted research showing that people can overcome the psychological barriers to saving by changing the financial cues around them.
In this Ted video, she provides three practical tips, one of which she applied to her own life. After spending $2,000 in a single month on a ride-sharing app in Manhattan – “death by 1,000 cuts” – she vowed not to do it again. She did it again anyway.
So, she changed her financial cues. She deleted the credit card attached to her app and linked the app to a debit card with a $300 limit per month.
To change behavior, De La Rosa said, “change the decision-making environment.” …Learn More
About Squared Away
Learn more about our blog and its writer, Kimberly Blanton, a former Boston Globe reporter.
