Amid a whirlwind of rising interest rates, talk of a recession, and exploding mortgage and rent payments (not to mention daily headlines about global crises), many Canadians feel like they’re in a torpor.
This lethargy and longing for the “normal” of yesteryear can turn into financial paralysis. If you’ve been putting off making financial decisions and plans, waiting for the world to calm down, you’re not alone. And a little-known type of therapy may help.
“Financial therapy is the application of therapeutic techniques to financial issues to help people think, feel, communicate and behave better about money,” said Natasha Knox, a financial planner at Alaphia Financial Wellness in the Greater Vancouver Area.
He is part of a movement of practitioners receiving deeper training in the psychological aspects of money management. While the traditional Certified Financial Planner certification has included behavioral finance and psychology in its training curriculum for years, Ms. Knox also holds the lesser-known Certified Financial Behaviorist, or FBS, designation.
There are only a handful of people in Canada who hold the FBS title issued by an American organization. The Certified Financial Therapist (CFT-I) designation is similar and only available in the United States; however, the management association’s website indicates a desire to expand to other countries. And given the demand and declining stigma around mental health care in general, and the intertwining of money and mental health specifically, financial treatment is likely poised to grow in a variety of ways.
The effects of skyrocketing interest rates have been a major nuisance, especially straining many Canadians and causing outright fear for those whose mortgages are delinquent. Ms. Knox says renewal is coming. Other key financial concerns their clients cite include housing (not just for themselves, but for future generations) and what AI will mean for their careers and the job market.
He explained that people often rely on mental shortcuts when making financial decisions, which can lead to suboptimal results even in the best of times. When we add depression and fatigue, the results can be even worse.
“Overwhelm tends to confuse our decision-making in general.”
Add in climate change, conflicts around the world graphically displayed in high definition, and the endless shouting of armchair analysts, and the potential for all of this to negatively impact our decision-making is obvious.
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But whatever the specific reason, Ms. Knox says the solution is the same when it comes to our finances.
“The antidote is time, rest and real calculations. If possible, people should be aware of when they are tired and implement a personal rule to not make decisions when they feel tired and overwhelmed. That’s why the beginning of the day is usually better than the end of the day.”
He adds that when overwhelm and fatigue become chronic, it’s time to seek professional advice.
Ms. Knox describes financial therapy as a spectrum with financial planners combining behavioral finance and psychology at one end, and mental health professionals at the other.
“Clients can enter financial therapy at either end or at any point in the continuum. As you move closer to the middle, you’ll encounter practices that sit right in the middle, truly bringing together both mental health and financial planning,” he said. This is from someone trained in both areas. It may be a collaboration between the practitioner or two professionals.
If you don’t have access to professional therapy, Ms. Knox offers a prescription of sorts:
1. Give yourself some time when making important financial decisions. Consider your options in the morning or whenever you feel most energetic.
2. Clearly state the main results you hope to achieve. This will help you understand which variables are most important.
3. If there is a number component, mathematize it. There are many free calculators on the Internet.
4. If you’re still stuck and the decision has a non-mathematical component, find an objective “thinking partner” to help you; not necessarily someone who gives advice, but someone who is good at reflecting what they hear. you unravel your thoughts and find clarity.
Preet Banerjee is a consultant to the asset management industry focusing on business applications of behavioral finance research.
