“Sometimes, it is not the money in your bank account that solves your problems, but the wisdom in your head.” – Michael Bassey Johnson

One of the greatest tools at a financial advisor’s disposal is the ability to empathize with clients to develop a deeper understanding of their circumstances. Sometimes it’s the excitement they feel over watching their financial plan come together, but it can also be about their concerns.

In some cases, these worries manifest as financial phobias. It’s likely that many advisors aren’t familiar with the term, but they’ve likely unknowingly come across it before.

Here are a few ways to identify and address them for a better advisor-client relationship.

What Are Financial Phobias?

Generally speaking, they’re a class of extreme and often irrational fears related to financial matters.

They can present themselves in acute episodes, such as not opening bank statements after a severe loss, or they can be chronic, like ignoring credit card balances entirely. In either case, they most commonly involve a degree of avoidance behaviour.

The University of Cambridge conducted a study that concluded that symptoms follow a similar pattern to anxiety:

  • +50% suffer apprehension.

  • 45% have elevated heart rates.

  • 38% lack any interest in money matters.

  • 15% are immobilized.

  • 12% feel physically unwell.

  • 11% experience dizziness.

How Common Are Financial Phobias?

According to Brenan Burchell, a senior lecturer, approximately 20% of the population suffers from financial phobias. An interesting demographic trend took shape as well; the condition is more prevalent in women and younger people.

It’s worth noting that this research took place in 2003, but in a 2019 UK financial wellbeing survey, 61% of respondents reported money as the leading cause of stress, ahead of work, health, and relationships. Globally, BlackRock’s 2019 Global Investor Pulse found that 43% aren’t thinking about their future because they’re too worried about their current financial situation. In 2022, Capital One’s research found that a staggering 77% of Americans noted anxiety over their financial wellbeing, and 58% felt that finances controlled their lives.

The most common financial phobias are typically:

  • Peniaphobia, the fear of poverty or being financially insecure.

  • Plutophobia, the fear of wealth or its responsibilities.

  • Atychiphobia, the fear of failure or taking risks.

  • Chrometophobia, the fear of money or spending money.

Where Do Financial Phobias Come From?

Irrational fears in general can develop at various ages, and they’re typically rooted in exposure to some sort of stressor or trauma. Whether an isolated event (i.e., your parents lost their home) or a standing environmental factor (i.e., money was scarce during your childhood) tends to structure phobic behaviours.

In the first case, a client may be deeply fearful of taking on debt, and in the second example, they might resent the idea of spending a dime. Other impacts include:

  • Focusing solely on avoiding losses which leads to missed opportunities.

  • Reacting to volatility and selling suitable investments in a panic.

  • Impulsively investing in speculative or trending assets without due diligence.

  • Excessive risk-taking due to an overconfidence in trading capabilities.

Is There a Need for Advisors to Address Financial Phobias?

The uptick in awareness (and number of cases) of financial anxiety has led the CFP Board to update their principal knowledge topics, and the psychology of financial planning has been introduced to the curriculum and certification exam as of 2022. Vanguard even listed behavioural coaching in their Putting a Value on Your Value report, listing the potential value-add as 100 to 200 basis points in net returns. To put this in comparison:

  • Cost-effectiveness added 30 basis points.

  • Rebalancing portfolios added 14 basis points.

  • Asset allocation added 0 to 60 basis points.

How Can an Advisor Help Financial Phobias?

Clients deserve more out of their advisors than just charts and number crunching. The relationship should be based on trust, open communication, and, above all else, empathy.

It is important to remember that there is a difference between advising and explaining. When a client expresses their concerns, it’s often better to acknowledge them instead of dismissing or trying to describe why they’re baseless worries. Open-ended questions are better suited for allowing investors to talk through their anxieties, and hopefully, find a resolution with a financial planner’s advice, not an explanation.

There is a pressing need for advisors to help clients by listening, understanding, and asking the right questions. In a world where money makes the globe spin, discussing financial worries is a moment of vulnerability—it’s an advisor’s job to provide comfort and support in those moments.

Find an advisor

© Bellwether Investment Management Inc. 2024. This communication is intended for residents of the provinces in which we are registered and is not meant to be a solicitation to any persons not resident in those provinces. Any opinions expressed in this article are just that, and are not guarantees of any future performance or returns. Some of the information contained in this article has been drawn from sources believed to be reliable but due to the fact that it is provided by a third party, it cannot be guaranteed to be accurate or complete. Bellwether Investment Management Inc., Bellwether Estate and Insurance Services Inc. and Bellwether Family Wealth cannot provide tax advice and therefore we recommend that you consult your tax advisor for further assistance with your tax planning and the preparation of your tax return. The report is prepared for general informational purposes only and the securities mentioned in this report should not be construed as a recommendation for any specific securities.

Popular Posts

New call-to-action