Articles About Financial Psychology

Many financial planning clients have spent much of their adult lives saving. Self-discipline and restraint may be key traits in building wealth, but when clients enter a phase of life where spending is more appropriate, they can hit a roadblock. Even when their plans support discretionary spending and they express a desire for it, they may find themselves unable to act. For advisors, this can be perplexing – and even frustrating! – when the numbers say "yes" but the client still says "no." However, underspending is rarely a purely financial issue. Instead, it's often shaped by deeply rooted values, personal identities, and psychological barriers. Understanding the reasons behind why clients underspend is essential not only for preserving client trust but also for supporting a more holistic, values-aligned use of wealth.

In this article, Meghaan Lurtz, behavioral finance expert and partner at Shaping Wealth, describes the psychological barriers that hold clients back and how advisors can gently help them experiment with spending more. By framing expenditures as low-stakes trials, advisors can help clients discover which expenditures truly add value – and which do not.

Common barriers include fear of future dependence ("What if I need this money later?"), doom forecasting (catastrophizing about worst-case scenarios), and a fixed saver identity that makes spending feel like betrayal. These patterns are reinforced by behavioral biases such as loss aversion and poor emotional forecasting. Even joyful experiences, like a family vacation, may be overshadowed by the psychological 'cost' of seeing account balances drop, making it challenging for clients to spend even when they logically know that they can.

To address these barriers without undermining client agency or triggering defensive reactions, advisors can reframe spending as an experiment. These experiments are low-stakes, time-bound, and designed to generate feedback. This shifts the focus from identity ("I'm a spender now") to curiosity ("Let's see how this feels"). For instance, rather than recommending a wholesale shift to luxury travel, an advisor might suggest trying business class once on a meaningful trip. Clients gather 'emotional data' from the experience, which can then guide future decisions. Advisors support the process by designing the experiment, encouraging participation, facilitating a thoughtful debrief to separate value from extravagance, and aligning the results with the client's self-image as a responsible steward of wealth.

This iterative, feedback-driven process can be transformative. Experiments give clients permission to try new behaviors while preserving their sense of responsibility around money. Over time, these conversations shift spending from a moral referendum to a learning opportunity, helping clients clarify what truly brings joy and meaning. As clients build confidence in their ability to use money in ways that reflect their values and enhance their lives, they often become more open to further experiments, deepening both their financial well-being and their relationship with their advisor.

Ultimately, underspending isn't solved by pushing clients to spend more. It's about helping them align their money with the life they want – whether that means spending, giving, or simply feeling free to explore what's possible. By framing spending as experimentation, advisors can offer clients a safe, low-stakes way to test new behaviors, learn from the results, and ultimately unlock greater satisfaction and purpose. The shift from static planning to dynamic experimentation empowers clients to confidently align their wealth with what matters most!

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For many financial advisors, an early planning conversation often includes asking clients to identify financial goals. But when clients are still emotionally weighed down by an immediate pain point – the source of their stress or uncertainty that led them to seek out their advisor in the first place – their ability to articulate meaningful long-term goals may be limited. What emerges instead is a practical-sounding to-do list that lacks inspiration. Which can leave both client and advisor feeling stuck: The client doesn't have the motivation to act, and the advisor struggles to guide the plan forward in a way that connects.

To help create better engagement, advisors often turn to frameworks like SMART (Specific, Measurable, Achievable, Relevant, and Time bound) goals – which can be great for implementation, but aren't always designed to evoke meaning or spark emotional connection. And when used too early, they risk leaving clients feeling overburdened with a pile of uninspiring tasks. Instead of inspiring change, the plan begins to feel like a chore.

A more effective approach is to start with the immediate stressor – the problem that brought the client in – and wait to develop an inspiring financial plan built on deeper vision-building during a second or third monitoring meeting. By then, the client has had a chance to feel some initial relief and develop trust in their advisor, creating the space for deeper reflection and more personally resonant goals.

In these later conversations, advisors can use carefully timed questions to guide clients into a more expansive mindset – exploring what their ideal life might look like, the kind of legacy they hope to leave behind, or the meaningful experiences they haven't yet had. Advisors can then transition to asking questions like, "What's one change you could make today that moves you toward that vision?", allowing the client to identify a single, manageable step they can take now.

To further support this process and help the vision-setting process resonate with clients, advisors can preview these conversations in advance, providing an agenda with some key questions they plan to ask and explaining how the conversation can be valuable to the client. During the meeting, a Statement of Financial Purpose can effectively capture what matters to the client in their own words. And leaving space for follow-up questions and shared reflection can encourage honest dialogue and build trust, which are key to effective vision-setting conversations. Because these conversations aren't just about uncovering what matters to the client – they're about co-creating that vision together, so the financial plan becomes a true reflection of the client's values and priorities – with the advisor playing an essential role in helping bring that vision to life.

Ultimately, the key point is that the best financial plans don't just help clients save more, spend wisely, or retire on time – they spark excitement for what's ahead. When clients can see what's possible and feel truly connected to that vision, follow-through becomes less of a task and more of a natural next step. And when advisors make space for those conversations – not too early, but at just the right time – planning stops being a checklist and starts becoming something transformational!

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Measuring a client's risk tolerance is both an art and a science. Beyond assessing how a client feels in the moment, advisors must evaluate a client's long-term behavioral tendencies, actual risk capacity, and financial goals – all of which require considerable time and skill. These dynamic complexities multiply when working with couples, where each partner has unique preferences and traits and may influence the other's risk-taking behaviors.

Risk tolerance questionnaires alone often fail to capture the full picture of a couple's risk dynamics. While each partner may have distinct preferences and traits, their financial decisions are rarely made in isolation. For example, one person may be highly risk-averse, which can pressure the other to take on more risk to compensate for their partner's behavior. Furthermore, household dynamics often lead one partner to take on the role of "Family Financial Officer", who drives most of the financial decisions while the other partner remains less involved. Yet, even if one partner isn't actively managing finances, they are still affected by saving and spending decisions. And, if they feel overlooked – especially in early stages of working with an advisor – it can increase the likelihood of disengagement.

However, risk tolerance assessments can serve as a valuable tool for building goodwill with both partners – and setting the stage for long-term financial harmony. As a starting point, individual psychometric risk assessments can help identify two key considerations: whether there's a gap between a client's individual questionnaire score and their stated goals, and whether there are significant differences in risk tolerance between the two partners. From there, the advisor can guide clients in productively navigating these differences.

Advisors may want to ask what the client thought about the risk tolerance assessment, encouraging each partner to share their perspectives on financial risk, their past behavior with risk-taking, and their personal 'story' of risk, which can help the advisor better understand how each partner approaches financial decision-making. These conversations also offer an opportunity to discuss preferred communication styles about financial matters (especially in response to market performance). In the short term, focusing on shared priorities can promote alignment, while in the long term, honoring each partner's risk preferences can lead to more balanced financial decisions and a stronger sense of partnership in managing their wealth.

Ultimately, the key point is that a couple's risk tolerance is shaped by a combination of personal history, future concerns, and the ways that partners influence each other. Navigating differences in risk isn't a one-time evaluation but an ongoing conversation. And by proactively addressing these dynamics, advisors can help couples build confidence in their financial decisions and create a strong foundation for collaboration over time!

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Whether it is a free sample in the grocery store (where the store hopes the sample convinces the shopper to purchase the item), or ‘Freemium’ software (where the developer hopes that consumers using a more basic version of their software will lead them to purchase an enhanced version), consumers are used to being offered free goods as part a company’s marketing process. But offering free financial plans remains controversial in the financial advisory community. Even if some prospects could become clients as a result of receiving the free plan, some advisors ask, might offering plans for free reduce the perceived value of financial planning in consumers’ minds?

A research study conducted by Kitces.com Lead Researcher Derek Tharp suggests that offering an initial financial plan for free doesn’t reduce the value of the plan in consumers’ minds. Furthermore, not only may it be the case that free financial plans don’t diminish the perceived value of financial plan, but offering paid one-time plans at typical fees charged by advisors could actually decrease the perceived value of ongoing planning relative to offering free initial plans! In an experimental study, participants were given a scenario in which they received a $1 million windfall inheritance and were seeking out an advisor to help them manage it. The participants were divided into four treatment groups based on the cost of their initial financial plan: either free, $1,000, $2,000, or $3,000. They were told that the advisor’s planning strategies would save them more than $500,000 in taxes during the next 30 years, and were then asked what they thought a reasonable annual fee would be to pay for ongoing services from the advisor.

While some observers might expect that participants in the experiment who were told the initial plan was free would pay less for ongoing services, those who were told they would receive a free plan suggested the highest price of all treatment groups! One possible explanation for this effect is that the price of the initial standalone plan set expectations for the participants of the value of ongoing services. In the case of the experiment, those who were assigned a non-free price for the initial plans perhaps used their respective prices as ‘anchors’ when estimating the value of ongoing planning, using those prices as reference points when considering what ongoing fees would be reasonable, whereas those who were to be given the free plan did not have any such reference points to work from (and perhaps were compelled to focus more on other details, such as the given amount of projected tax savings).

Ultimately, the key point is that goods or services that are ‘free’ are not necessarily perceived as having lesser value; on the contrary, research suggests that clients might be more willing to accept higher annual fees if they are provided with a free initial plan rather than one with a price significantly less than the advisor’s ongoing fees. Which means that advisors may want to consider either increasing their fees for initial plans (raising client expectations of the cost of ongoing planning), or using a model with a free initial plan that helps the client better understand the value of the advisor’s services and, at the same time, avoids an ‘anchor’ price that weighs down their expectations of the advisor’s fees!

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