There’s a mindset shift taking place within some corners of the financial planning and advice world, by a small but vocal set of advisors out there. I count myself among them, and part of it, for me, is that it aligns with my relationship with money in my own life. Another part of it is simply a squaring of what, in my opinion, we as advisors are ultimately here to provide, and where we can actually add value to our clients’ lives. The shift I’m referring to is from a mindset of recommending saving above all else to more of what I’d call a ‘spend-the-money’ mentality. And to understand why this is such a revolutionary change, we first have to understand where we’ve come from, and why the saver’s mentality is so pervasive in our industry to begin with.
To start, I think we have to understand that the financial advice industry as we know it, is really a post-Depression-era industry; and that the first practitioners were either ‘greatest generation’ or ‘baby boomer’ advisors, all of whom were either alive during the Depression, or brought up in the years shortly after. The idea of financial devastation and total destitution associated with the Depression, and its always being a potential threat which might be just around the corner, I believe, had an effect on those who pioneered our industry and effectively wrote the rules. It made insulating against those outcomes job one for the advisor, and for good reason. How can we do the job of helping clients build lasting wealth, if they are always one bad outcome away from financial ruin?
And so, we are taught as advisors that before we can help our clients start to build wealth through investing, we must first ensure that they are well protected. And that means cash reserves and insurance. If you’ve been a client of ours for any amount of time, I’m sure you’ve heard us say it: “If you don’t have adequate cash reserves and insurance in place, then you are not investing, you’re gambling.” And it’s true. It’s the right way to begin the journey to building lasting wealth.
But there’s something that happens along the way, as we harp on that most basic tenet of financial security over the years. And it plays along side our clients’ most human, and understandable fears of somehow losing everything, and becoming destitute. And those forces, when combined through the years, often lead to our being afraid to actually spend the money we’ve now spent our whole lives saving, so that we can enjoy it without the fear of not having enough.
Every day, we see folks who want to take the whole family to Hawaii, or buy their grandchild a new computer, or purchase a new car, and they choose not to do these things because they are afraid of running out of money. And yet we know they can afford them. We know because we’ve been helping them build wealth for the past fifteen years, and we’ve run scenario after scenario in their financial plan which shows they are not in any danger of running out of money. Yet, they still can’t pull the trigger because that fear is visceral and it’s real.
Another notion which has started to shift a bit, and adds to the change in mindset for some of us, is the holy grail of the wealth-management industry, building generational or intergenerational wealth. For generations, this has been the ultimate prize for advisors to hold up for clients as the end game. But lately, many are starting to question the idea of building generational wealth as a goal worthy of our effort, or more importantly, our clients’ sacrifice. You’re seeing many more wealthy people stating their intentions not to leave huge bequests to their heirs. Famous wealthy people from all industries, from Warren Buffet to Daniel Craig for example, have stated publicly that they have no intention of leaving vast fortunes to their children, so that those children can be wildly wealthy, without having had to do the work to get there. And it’s understandable, too, when you look at the actions of some of the heirs to enormous fortunes in the past. I’m not going to name names, but I’m sure you can think of a few on your own. A quote I read recently by another advisor I respect on this subject made me laugh. It’s a bit on the cynical side, but I think it highlights the point: “You know what happens to intergenerational wealth? It ends up going up someone’s nose.”
And this notion of building generational or intergenerational wealth can add to the paralysis that some people have when it comes to spending their own hard-earned money as well. I had a client many years ago who told me he and his wife decided not to attend their daughter’s graduation in France because it was simply too expensive to fly there and pay for hotels, etc. They said they would rather leave her more money when they passed, than spend it frivolously traveling to Paris for the ceremony. Now I don’t know about you, and I never asked the daughter how she felt about it, but I seriously doubt if she would have preferred that her parents pass up on a key experience in her life like this, so she could later inherit a few thousand more dollars.
In the end, I think my thoughts on this come down to what I truly believe our jobs as financial advisors is all about. To me, our job is to make our clients’ lives simpler and more enjoyable. Yes, we toil daily in numbers, statistics, outcomes and returns, but what we’re really trying to provide is peace of mind. And while it is imperative that we continue to coach our clients to be responsible and put in place the financial protections they need to prosper, when they’ve done all the right things, and put themselves in position to enjoy the fruits of their labor, it’s also imperative that we help them to feel comfortable doing just that. In short, we need to spend more time telling them that it’s ok to spend the money.
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