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The Psychology of Money

The Psychology of Money

By Peter Cole, LCSW, ChFC,Daisy Reese, LCSW

In this two-part installment of Clinician's Money Update, I have taken a slightly different direction than usual.My wife Daisy Reese and I wrote this piece together.We thought it would be informative to describe the work we do together with therapists in the financial sphere.The piece is a little more philosophical than my usual "hands on" column. I hope you find it helpful. - Peter Cole

This being human is a guest house.
Every morning a new arrival
Be grateful for whatever comes,
Because each has been sent
As a guide from beyond.

The Buddhists teach that "how you do anything is how you do everything." Psychotherapists know that the macrocosm is apparent in the microcosm. Interpersonal therapists, in particular, are attuned to the fact that a person's way of being the world is reflected in each interaction.

As we have turned the focus of my practice to the interplay of money and the psychological dimension, we have seen repeatedly how each impacts the other.Without a base of financial support, most people will be severely handicappedin their efforts toward personal development.At the same time, unless attention is paid to the emotional field around money issues, financial security becomes an elusive, ever-receding goal.

Do I have enough? What is enough? How can I get enough? It seems obvious that one cannot reach a target without first defining the target. However, the emotional baggage that most of us carry around questions of money can make arriving at the definition of enough seem impossible. What was learned (or absorbed) from one's family-of-origin colors the way one understands and deals with money throughout one's lifetime. For psychotherapists, the issue can carry additional layers.

  • Few therapists enter into their profession with monetary reward as the primary goal.
  • Therapists tend to be "caretaker" types to some extent
  • Money is often the "ultimate taboo" between client and therapist and among therapists themselves. For instance - do you know your colleagues' fee structure? Do you discuss your clients' income levels and spending habits with them? How comfortable are you discussing the financial aspects of your practice with peers?
  • Therapists typically are under-educated about financial matters. Graduate and postgraduate training emphasize clinical skills but frequently ignore practical money issues.

At the end of all our wanderings

We will arrive at where we started
And know the place for the first time
-T.S. Eliot

In our work with therapists and their families, we have 4 major goals in mind:

  • To help them develop an understanding of their "money type".This allows them to come to a greater awareness of the emotional role that money plays in their life and the ways in which their (often unconscious) relationship to money impacts their handling of it.
  • To help them move toward greater understanding and integration of the emotional issues which make wise financial decisions difficult for them.
  • To help them become more educated about the financial "nuts and bolts" and put together a plan which will provide a strong financial base for them and a secure future for their families.
  • To help them implement their plan and keep it flexible enough to respond to changing life goals and circumstances as well as fluctuating market conditions.

To illustrate how these 4 goals are attained, it seems most helpful to use a "real-life" example. (The names and identifying characteristics have been changed to protect the client's privacy.)

Integrating All the Pieces - The Story of Dr. Freedlander

Rachel Freedlander, LCSW, PhD is a 48-year-old therapist practicing in L.A. She is divorced and lives with her 16 year-old daughter, Sarah in a townhouse with a $200,000 mortgage. Dr. Freedlander has worked diligently to build a highly successful practice. She graduated from Smith College School of Social Work, then went on to the UCLA where she took a PhD in psychology. She is a talented and successful clinician who has won a respected place in her professional community, with most of her referrals coming from fellow therapists. She grosses well over $100,000 per year and lives comfortably, with most of her income going toward providing for herself and her daughter. Her ex-husband pays child-support, but this will be coming to an end when Sarah reaches age 18. She maintains a SEP IRA which she has funded sporadically, accumulating a little under $100,000. Aside from an anticipated inheritance of about $200,000 from her parents, this is the totality of her resources.

Family of Origin
Rachel is an only child - born when her parents were in their early thirties, after 10 years of marriage. Rachel's father is a second-generation immigrant, determined to succeed and provide well for his wife and beloved daughter. Rachel's mother has always been a homemaker and raised her daughter to be the same. Both parents were surprised and a little overawed by Rachel's precocious intellectual development. Feeling "honored" to have such bright and ambitious child, they supported her all the way through her PhD. Her academic and professional successes, however, were seen as frosting on the cake. As her father often said: "I think it's great that you're getting a Ph.D, honey. I just hope you'll never have to use it." Rachel's parents' real hope for her was to marry well and raise a family of her own. They were overjoyed when she brought home John, an up-and-coming attorney she had met at the UCLA. After ten years, the marriage ended. Rachel and Sarah stayed in the family house, but making the mortgage payment and meeting Rachel's other expenses became a tighter squeeze. Her parents helped Rachel financially from time to time in the first few years after the divorce. Rachel's father has had a tendency to be a bit grandiose about his own finances, telling Rachel that she would be "well taken care of" after her parents' deaths. It is only gradually that Rachel has come to realize that her parents' estate will fall far short of providing her with a comfortable retirement.

What Brought Her to Consultation
As Rachel moves closer to retirement she is becoming increasingly concerned about what the future holds. She would like to be able to retire in her mid-sixties but is not at all sure that is a realistic possibility. Her daughter Sarah is hoping to follow in her mother's footsteps at Georgetown, perhaps pursuing a law degree after that. Will Sarah's father contribute? This is a topic Rachel and her ex-husband have never discussed. Indeed, at the very mention of it, Rachel's anxiety skyrockets. There were many acrimonious disputes over money during the marriage and Rachel's guilt over instigating the divorce leaves her feeling "one-down" in any disagreement with her ex-husband.

Since her graduate school days, Rachel has pursued personal therapy a number a times. This has been helpful to her in many ways and Rachel would be the first to say that her therapy had been quite successful. However, the issue of money is one that has never been truly explored. In part, this is because Rachel felt comfortable with her income and lifestyle - money was never in the foreground. In part, perhaps, it is due to the discomfort many therapists feel in broaching the topic of money with their clients. If the therapist's own money issues are largely unexplored, it becomes very difficult to "hold the mirror" for the client around this topic. For whatever reason, money was an unworked area in Rachel's life. As she moved closer to the reality of dealing with her parents' estate, her daughter's higher education and her own retirement, she recognized that this would need to change.

The Emotional/Psychological Dimension
Through her work in consultation, Rachel became aware that her money type was that of the "Princess". This was difficult for her to make sense of at first -- "I'm not someone who had everything handed to me.I worked really hard to get where I am and I'm still working hard! Lots of weeks I see 30 clients.That's twice as many as some of my friends." Rachel was right. She was indeed working hard. What she overlooked, however, was the fact that much of her hard work went underpaid (sometimes even unpaid). Rachel had internalized her father's message that she would always be "well taken care of." This made her feel less pressured to take good care of herself. She took on clients whom she found "interesting" or "challenging". Their ability to pay her fee was often secondary. Her billing was sporadic and disorganized. She found herself in frequent discussions with clients over whether and how much they owed her. In Rachel's unconscious, the work she did was somehow not directly connected to the money she made.

Rachel's trust in being "well taken care of" did her another disservice. She operated on the assumption (again unconscious) that she didn't really need to worry about the future. She could enjoy spending the money she made, with the conviction that she would "somehow" be provided for. This conviction also played a part in Rachel's avoidance of having a financial discussion with her ex-husband. "I know John's angry at me, but I'm sure he'll do the right thing (i.e. "take care of me and Sarah") in the long run."

Looking at her posture of entitlement was difficult and, at times, enraging for Rachel. However, with the capacity for insight honed by her years of therapy and with latent good business sense, she was able to begin the journey from pseudo-independence to true self-support.

The Practical Dimension
Once Rachel had a greater awareness of her emotional issues around money, it became much easier for her to work with the practical issues.

She took a long, hard look at her practice and made some difficult decisions:

  1. She decided that it was financially feasible for her to see only 3 clients per week on a sliding scale basis. Over the next 6 months, she concluded her work with many of her low-fee clients and now refers such clients to colleagues once her 3 low-fee slots are filled.
  2. On the days when she is out, she sublets her office to a colleague, cutting her rent by about 25%.
  3. She hired a part-time bookkeeper. Though this meant an out-of-pocket expense, Rachel found that her increased efficiency in billing and collecting made the expense well worthwhile.

She rose to the challenge of starting to really take care of herself:

  1. She enlisted Sarah's aid in reducing expenses (fewer dinners out, a used car vs. brand-new) and putting the savings into a SEP IRA and a 529 College Savings plan for Sarah.
  2. She began working with her tax planner to minimize her tax liability and make quarterly estimated payments to avoid the penalties and interest accumulated by waiting until April 15 to pay her taxes.

Perhaps most importantly, Rachel faced her demons:

  1. She had lunch with her ex-husband and talked frankly with him about Sarah's educational needs and Rachel's realistic limitations to contribute to these, and her expectations of her ex-husband to contribute. This dialogue is still in progress. But whatever the outcome, Rachel will come away armed with the knowledge she needs to make informed decisions.
  2. She spoke with her father about her financial situation and his, and asked that start a 529 account for Sarah's education. Once he recovered from his astonishment, Rachel's father was proud to participate in his granddaughter's education.

Rachel's journey to financial maturity is far from over. For most of us, it takes a lifetime. Increasingly, however, she is living by the words of Henry Miller:

Every man has his own destiny. The only imperative is to follow it, to accept it,
no matter where it leads.

Peter Cole is an LCSW, Chartered Financial Consultant and director of Insight Financial Group1.He specializes in financial planning2 for psychotherapists in private practice throughout California. Peter Cole and Daisy Reese's book, Mastering The Financial Dimension of Your Practice is due to come out July 15th 2004, published by Brunner-Routledge. Peter can be reached at (916) 444-1122;
1 Securities through Securities America Inc, a registered broker/dealer, member FINRA/SIPC, Peter Cole, Registered Representative. 2 Advisory Services Through Securities America Advisors, an SEC Registered Investment Advisory Firm, Peter Cole, Investment Advisor Representative.CA insurance lic. 0D04931.