Wealth & Well Being: Your Money Relationship

Attorney Rebecca Y. Zung-Clough explains why knowing yourself makes all the difference when managing your money.

This year, as many of us began to poke our heads out of our foxholes to survey the damages the market downturn had on our portfolios, it was natural to first look back and question, ‘How did this happen?’ And then look forward to ask, ‘How do I prevent this from happening again?’

The answer truly depends on you.

At a recent seminar that I led along with psychologist, Donna Daisy, Ph.D, called “The New Economy: Understanding Yourself and Your Relationship with Money,” we discussed how our relationship with money has everything to do with what’s going on inside our own heads and oftentimes, our hearts. Money emotions are just as powerful as other emotions – we love it, we hate it, we fear it, we want it and we (gasp!) need it. The roadmap to empowering ourselves financially requires us to first look within and examine ourselves. Only then can we determine our goals and march forward into the headwind of the new economy armed with a constructive plan.

Learning from the past can help find answers as to how to build a solid foundation for the future. Traditionally, meetings between an investor and their advisor have been driven by certain basic models. Sometimes the result is right, but oftentimes, it is wrong. Not unlike a doctor prescribing medications, sometimes the financial plan prescribed does not interact well with us as individuals. Our own knowledge level strengths, weaknesses, insecurities, fears, childhoods, backgrounds and emotions are all amalgamated into the model plan, rather than assisting the investor with a customized plan designed just for her.

A Holistic Approach

The key is to get the equivalent of a complete physical – take your financial temperature; get to know those critical vital signs. The holistic approach looks at your attitudes, biases and prejudices, in addition to your goals and risk tolerances. In the world of medicine, a pharmacist will ask if you have any allergies, and a doctor will ask about your family and medial history. Your financial prescription should be no less individualized.

The idea of behavioral finance has been around for many years, but after the recent market woes, it’s enjoying a naissance. The idea is that advisors study a person’s financial personality before deciding how to structure their portfolios. No longer would a planner determine that a person’s goal is just ‘income with moderate growth’ then forge ahead. Instead, advisors are creating plans and goals based on their client’s biases, rather than forcing the client to adapt to an artificial plan taken off the shelf. Nowadays, planners ask questions to help determine a person’s attitudes and feelings about money. By knowing those traits – how much you’re willing to lose; how much control you like to have over your money; and your confidence level in your financial knowledge – advisors can put them to work for you and create a plan that harmonizes with your individual characteristics. Truthful responses allow for a truthful diagnosis, so it’s important to answer honestly – not say what they think is correct or responsible.

Another part of the solution is to start with four basic and distinct investment goals: liquidity, income, capital preservation and growth. Here, the investor prioritizes these goals based on her specific circumstances. An advisor can use this information, take into account the investor’s biases and prejudices, and design a portfolio in the appropriate proportions.

For women, knowledge is the key to empowerment. Once we expose our fears, they no longer have power. Money relationships aren’t any less complicated than the other relationships in our lives. Taking a look at our whole selves gives us courage to face the unknown, let our guards down, open our hearts and enjoy this very important, unique relationship. You and your money truly get to know each other first, before going all the way.

Rebecca Y. Zung-Clough is vice president and wealth strategist with Northern Trust, and creator of the bank’s popular Empowered Women Series.

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