On TikTok, a Psychologist Teaches Gen Z How to Build Wealth

How did you help your clients cope when the market plummeted 20% in the first quarter of this year?

It wasn't a normal market crash. They weren't just fearing for their portfolios but fearing sickness and loss of their lives and of the people they love. All that added to the stress.

How did you assuage their fears about finances?

I used the technique of mental accounting: I split their portfolio into a couple of buckets — like equities and fixed income — and showed them the relative impact of what was happening in the two buckets. That seemed to calm a lot of nerves when they realized that 60% or 70% of their assets were in fixed income, say, and that that was down only a [little] vs. equities, which might have been down 20%.

Do you think that in serving clients, FAs need to pay more attention to behavioral finance and psychology? Some FAs regard these areas as unimportant — so they just focus on numbers.

Those advisors are potentially facing extinction. With robo-advisors and the commoditization of portfolio design and other [tech advances], how are you going to define your value and prove your worth? For three out of four Americans, money is the biggest source of stress — and stress can kill you. People feel so much shame around money.

So who [should] they see to help with financial stress?

Therapists?

Not therapists — they have a tendency to be money-avoidant themselves.

What, then, can advisors do to help and in doing so, prove their worth?

They need to look at their job as beyond just portfolio and asset management. Money intersects with every aspect of a client's life. Financial planners [per se] understand that and work as a, sort of, financial life coach for their clients. These are the ones who will not only just survive but thrive.

You train lots of FAs. What are some behavioral finance methods you concentrate on? 

People aren't used to being listened to. So if an advisor has some real basic listening skills, they'll give their clients an incredible emotional experience. Someone is listening to them, and also, they can hear themselves talk. It's extremely useful in helping people have better lives.

You conducted a research study that came out last November: "A Financial Psychology Intervention for Increasing Employee Participation in and Contribution to Retirement Plans." Just what was the intervention?

In psychology, an "intervention" is when you help somebody change. In that study, I got random group[s] of people to save more money. We ran the study in five cities, comparing financial education to financial psychology. Those in the financial psychology group increased their savings by 73% after about an hour and a half of intervention.

How was that done?

We got people to become super-excited about why they wanted to save. Our theory was that everybody already knows that they should save — but how do you motivate them to save? You do it by inspiring their emotional brain — the animal brain — the part of the brain that, essentially, drives all behavior.

What specifically did you do?

We used visualization to make their ideas and goals much more concrete and less abstract. When you want to motivate someone to save for retirement, you don't say, "When do you want to retire?" You say, "Paint me a picture of your ideal retirement: Where do you see yourself? Who's around you? What are you doing? How does it feel?"

Did they literally create pictures?

Yes. In the study, we gave people art supplies — poster board, crayons, markers, scissors, glue, tape and had them draw or color, or cut out pictures, or put stickers in a book. I had them identify their top savings goals and why they matter, and make pictures of their [end] goal.

What's the key takeaway for advisors from this study?

If you've got a client who's stuck and really want to motivate them to take action, you have to find ways to speak to the emotional part of themselves and the part that's focused on their values in terms of what they want most out of life — versus just throwing up charts and graphs and telling them they should save.

Instead of using actual art supplies, how can FAs have clients "paint" their retirement picture?

Through answering questions, they can describe it verbally: "What's your ideal retirement? Who are you with? What are you doing? Help me understand. Paint me a picture of yourself in retirement. This helps me get a clear picture of what your goals are."

Yet the question remains: Why are Americans so bad at saving for retirement?

I think about that a lot. One of the reasons is that we've had a huge cultural shift from "Your company is going to take care of you [with a pension], and Social Security is going to take care of you as you get older" to "You're all on your own." It went from defined benefit plan to defined contribution plan. That word "contribution" has led to a dramatic change in our culture. Now the liability and responsibility are 100% on you. But people just didn't get the memo.

What can be done to help them understand that they need to save more?

[First] they need basic financial literacy. That should be taught in schools and be mandatory. Studying economics is interesting, but it's way less relevant to the average American, whereas personal finance is absolutely critical. It's 100% your responsibility. If you don't know that [early], by the time you figure it out, you'll be really far behind.

— Related on ThinkAdvisor:

• Dr. Klontz's Financial Therapy Aims to Cure Your Clients' Fear of Change
• How Advisors Can Cope With 2020, the 'Year of Anxiety'
• How a Wall Street Psychologist Helps Advisors Cope With Crisis