Financial Life Coaching

Lesson Two:

The Psychology of Money

David Murphy, Ph.D., CPA, CFP®

Introduction:

I. Psychology of Money

A. What Does the Bible Say?

1. Proverbs 23:7

2. Matt 15:10-11, 15-20

B. Why Psychology and Money

1. American Psychological Association (2004) determined that financial concerns are the number one cause of stress in American’s lives.

2. Money is the number one source of disagreement in the early years of marriage.

3. Disordered money behaviors have a significant negative effect on wellbeing.

4. Money issues are the number one cause of divorce in the United States.

5. Financial problems affect job performance in as many as 15% of American workers.

6. Individuals who are materialistic report:

a. Lower Levels of:

· Self-actualization

· Vitality

· Happiness

b. Higher Levels of :

· Anxiety

· Physical symptoms

· Unhappiness

C. Dysfunctional Money Behavior

1. Maladaptive patterns of financial beliefs and behaviors that lead to clinically significant distress, impairment in social or occupational functioning, undue financial strain or an inability to appropriately enjoy one’s financial resources (Klontz, et al. 2008)

D. Financial Wellness

1. Maintaining reasonable and low debt, having an active savings and/or retirement plan, following a spending plan, experiencing high levels of financial satisfaction, and experiencing low levels of financial stress (So-Hyun and Grable, 2003)

E. Theory of Reasoned Action (Fishbein and Ajzen)

1. Overview

a. Behavior = f(Intention)

b. Intention = f(Attitude, Subjective Norms)

2. Attitudes are Beliefs

a. Money is the root of all evil.

b. Love of money is the root of all evil . . . (1 Tim 6:10)

c. Attitudes about money are independent of income.

d. Money problems are rooted in early experiences with money.

e. Money behavior is learned behavior that is used to meet psychological and emotional needs.

f. Money memories

3. Subjective Norms

a. The influence of other people in one’s social environment on one’s intentions

b. Parents

c. Peer group

d. Church

e. Society

4. Intentions

5. Precursor of Behavior

6. Behavior

Attitude Intention Behavior

F. Money Personalities

1. Psychopathologies

a. Hoarder

b. Spender

c. Worrier

d. Avoider

e. Planner

f. Dreamer

g. Money Monk

h. Money Midas

2. Management Style

a. Independent

b. Cooperative

G. Money Personalities in Relationships

1. Money is the number one source of disagreements in the early years of marriage.

2. Money stress is the number one cause of divorce.

3. Understand your money personality.

4. Understand your spouse’s money personality.

H. Money and Happiness

1. Can money buy happiness?

a. What happens to lottery winners?

b. Initial good feeling

c. Not significantly happier than non-winners

d. Less pleasure in ordinary activities than non-winners

e. Development of severe depression in some cases

2. Lack of evidence showing a relationship between material wealth and happiness

I. Psychology of Change—Romans 12:2

1. Stages of Change Model

a. Precognition

b. Contemplation

c. Preparation

d. Action

2. Components of Change

a. Importance

· Is it worthwhile

· Why should I?

· How will I benefit?

· What will change?

· What will it cost me?

· Will it make a difference?

b. Confidence

· Can I do it?

· How will I manage it?

· How will I deal with ___ and ___ and ___?

· Will I succeed?

c. Readiness

· Should I do it now?

J. Stages of Grief (Kübler-Ross)

1. Denial—Should throw away my 401K statement without even opening it?"

2. Anger—“Why did this happen to me? It is unfair that Wall Street benefited at my expense."

3. Bargaining—“Just give me one relief rally and I can make it all back and sell."

4. Depression—“The market sucks, no one is hiring anywhere. Why should I bother?"

5. Acceptance—“It's bad but these things don't last forever. I'm going to work on my career and portfolio to be prepared for the opportunities when they do come."

II. Conclusion

A. To Be an Effective Christian Financial Coach You Need:

1. Faith and a strong prayer life

2. Patience and charity

3. Understand how your client thinks about money

4. Understanding of sound financial concepts

III. Resources

A. Fishbein, M. and I. Ajzen. (1975). Beliefs, attitudes, intentions and behavior: An introduction to theory and research. Reading, MA: Addison-Wesley.

B. Raghubir, P., and J. Srivastava. (2008). Monopoly Money: The Effect of Payment Coupling and Form on spending Behavior. Journal of Experimental Psychology: Applied, Vol. 14, No. 3, pp. 213-325.

C. Johnson, W. and R. F. Krueger. (2006). How Money Buys happiness: Genetic and Environmental Processes Linking Finances and Life Satisfaction. Journal of Personality and Social Psychology, Vol. 90, No. 4, pp. 680-691.

D. Mellan, O., and S. Christie. (2004). The Advisors Guide to Money Psychology, 2nd Ed. Shrewsbury, NJ: Investment Advisor Press.

E. Financial Psychology Corporation at www.kathleengurney.com

F. Loantz, Bivens, Klontz, Wada and Kahler. (2008). The Treatment of Disordered Money Behaviors: Results of an Open Clinical Trial. Psychological Services, Vol. 5, No. 3, pp. 295-308.

G. So-Hyun, J. and J. Grable. (2003). The Meaning and Measurement of Personal Financial Wellness: A Summary of Professional Insights. Consumer Interests Annual, Vol. 49, p. 1.