Financial advisers play the Grinch when clients’ spending gets out of hand

Financial advisers play the Grinch when clients’ spending gets out of hand

Compulsive spenders and pandemics don’t mix well. Stuck at home, it’s easy to shop online — and keep shopping — especially during the holidays.

Financial advisers are acutely aware that some clients struggle to stick to a budget in these anxious times. Helping them combat the urge to overspend requires giving clients education and promoting vigilance.

Experienced advisers know what not to do. Lecturing doesn’t work. Scolding only spreads ill-will or makes clients feel ashamed. Excessive nagging can backfire.

So what’s the best strategy to rein in free spenders?

“I always try to be positive,” said Tess Zigo, a certified financial planner in Lisle, Ill. “If I nag them, they’ll just rebel. So I help them be more mindful” about their spending.

She guides spendthrifts to craft a budget that includes a feel-good category for discretionary purchases. Then they hold a video call every two weeks to track progress.

If the client isn’t sticking to the plan, Zigo asks, “Can we do better the next two weeks?” She may cite the goals and values that the client holds dear, such as funding a child’s tuition, to highlight what matters most over the long term.

When clients mention big-ticket purchases that led them to exceed their budget, Zigo follows up with two questions: “Are you happy with your purchase?” and “Would you buy it again?”

Raising awareness of what causes overspending enables clients to make better decisions. A nonjudgmental adviser who discusses the allure of external gratification — and how a stressful stay-at-home regime can induce people to seek solace through shopping — can play a vital role in redirecting a client in the right direction.

Liz Windisch, a Denver-based certified financial planner, says that some spenders find it “self-soothing” to shop.

“You’re trapped in your house and you think, ‘I deserve a treat,’” she said. “It’s also boredom. There’s less to distract you” when you’re idle, and online shopping offers endless diversion.

Windisch uses financial planning software as a teaching tool. It provides a real-time snapshot — a  “probability of success” score — of whether a client is on track to achieve saving goals. If someone considers an expensive purchase, Windisch can show how the client’s score would fall from, say, 86 to 70 after buying the costly item.

Some advisers urge clients to tweak their shopping habits to save money. One simple tactic: Avoid storing credit card information on a favorite e-commerce site. Having to step away to find the card and enter the number serves as a beneficial self-imposed delay before finalizing the transaction.

An even better way to postpone a purchase is to put the item in your cart and then wait at least 24 hours before paying for it. After the pause, you might think twice about it, lose interest or move on.

Another tip is to unsubscribe from merchants’ emails. Receiving frequent notices of sales, often with a fast-approaching deadline to encourage impulse buys, makes a purchase harder to resist.

In addition to treating the planning process as a way to engage clients and give them a path to save and spend wisely, advisers also know that it’s a valuable activity in itself.

“During periods of stress, there’s a natural desire to want to do something,” said Brent Weiss, a Baltimore-based certified financial planner. “Taking action gives us a feeling that we are in control. The trick is to take this desire to do something and channel it towards more positive action.”

For Weiss, productive action can include working with clients to list in advance what types of holiday gifts to buy for whom (with spending caps for each one). They might also commit to regular check-ups with Weiss to review their budget.

Also read: When financial advisers survey clients in these ways, they often get back more than they asked for

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