Do you have chronic money problems? Spend too much? Give too much to your good-for-nothing kids? Keep putting off writing or updating your will? Maybe it's all in your head. Really.
Money baggage, or negative beliefs about money, may be holding many folks back financially. Adviser Karen Ramsey explains how to change those beliefs and find abundance. Wealth Management at WSJ.com's Veronica Dagher reports.
Financial advisers and therapists have identified a number of psychologically-based mistakes people make with their money.
"How you feel is how you deal…with money, that is," says New York psychotherapist Karol Ward, whose six-figure clients help other people make money but find it difficult to hold on to their own.
Here are a few of the most common psychological problems people have with their finances—and what you can do about them:
1. Overspending
Ms. Ward worked with a young woman who wanted a relationship but had "deep pain" from her childhood around trusting others. Most of the woman's evenings after work were spent wandering through stores shopping for clothes she didn't need, recalls Ms. Ward.
When she came to see Ms. Ward, she wanted to get out of debt and manage her money. During therapy she uncovered the connection between her fear and loneliness and the overspending.
Overspending usually is related to the management of emotional pain, distorted beliefs about what people feel they deserve and a disconnection between the impulse to buy and the actual results of the purchase, says Ms. Ward.
"Many overspenders don't need what they buy—they just feel they have to buy it," she says.
Financial planner Timothy McGrath has seen many clients overspend because they want to live a similar lifestyle to their neighbors or co-workers, while not recognizing that everyone's financial circumstances are different.
"Clients often don't realize how purchases outside of their means will impact long-term planning," says Mr. McGrath in Chicago.
Once clients are aware of their behavior they can work to change it, says Ms. Ward. Before buying, people might ask themselves "What am I really feeling?" or "Why do I want to buy this?" she says.
Marty Martin, a financial psychologist in Chicago, advises clients who feel the need to spend, but are in a heightened emotional state, to wait to make a decision.
"Collect yourself by distracting yourself by meditating, praying, engaging in some physical activity or doing something other than making a money decision," he says.
2. Enabling
Financial enabling is a common trap for parents who want to help their adult children who are in chronic financial trouble, says Brad Klontz, a Lihue, Hawaii, financial psychologist.
Mr. Klontz worked with a 75-year-old woman who had given her 52-year-old son a total of $150,000 over five years for various business ventures, all of which were ill-conceived and failed. She was having trouble saying "no" when the son asked for another $50,000, even though her own financial security was at risk as her savings were dwindling.
"Money for doing nothing creates more doing nothing," says Mr. Klontz.
Laura Scharr-Bykowsky has seen many grandparents rack up large amounts of credit-card debt and give away the last of their savings to fund their grandchildren's tuition or vacations.
They may have a desire to spoil their children or grandchildren, want to get their attention, don't want to renege on a promise they made when they were in a better financial situation or feel guilty for not seeing them more, says Ms. Scharr-Bykowsky, a financial planner in Columbia, S.C.
If enabling has been going on for years, it can be difficult to stop doing it "cold turkey," says Mr. Klontz. For enablers, it can be important to recognize that their efforts to help backfired or have been reinforcing dependence.
Mr. Klontz says it's also important to set up a timeline to withdraw financial support, say, in six months, and perhaps explore other ways to help such as paying for a financial plan, a career counselor or a therapist.
Ms. Scharr-Bykowsky counsels clients to reduce support to their kids and stop altogether when they are gainfully employed. Then, she says, the parents can make gifts periodically, but only if their adult child is being financially responsible.
"The most important word they need to use is 'no' or else they'll have an entitlement problem to deal with," says Ms. Scharr-Bykowsky.
3. Denying
Financial planner Peg Eddy has seen several clients try to deny the reality of their financial situation and think everything "will all work out."
"Amazingly, some folks think there is a 'money fairy' that will bail them out when they reach 65 and they only have Social Security to depend on," says the San Diego financial planner.
This form of denial combined with lethargy leads to not doing any planning but potentially becoming a burden later on to any children or family they may have.
She's also seen denial take the form of people's failures to create or update their estate plans.
That happened to a man she worked with who didn't want to update his estate plan and died suddenly at age 54. His wife and children were left struggling.
People may not have an estate plan because they find it too upsetting to think about or they don't know whom to name as their children's guardians, says Lauren Lindsay, a financial planner in Covington, La.
"The problem is that the state will have a plan if you don't and it may not follow your wishes," she says.
Namely, it wouldn't include any charitable considerations or know if there are any immediate family members who you don't wish to be involved, she says.
Often the "social taboo" around talking about money keeps family members from discussing inheritance and estate issues openly before anything happens, and while there is still a chance to hear everyone out and include them in the planning, says Mary Gresham, an Atlanta psychologist.
To make this conversation easier, a person might introduce the topic by saying, "I'd like to talk about something that is hard to talk about," so the other person knows it's not just a casual conversation, she says.
Judy Lawrence tells clients to "step up and face the numbers" of their real financial picture. That way, they can create a plan based on their true income, outline a way to gradually pay off debt and save for retirement, says the Albuquerque, N.M., financial counselor.
Ms. Eddy recommends that clients accept their own mortality and plan for what happens in the event of an emergency, disability or death. They can start by having a good estate plan, update beneficiaries on their accounts and if they own a business, continue to work on their exit strategy during their lifetime.
"News flash—none of us are getting out of here alive," says Ms. Eddy.
Article by Veronica Dagher
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