Helping Clients Steer Clear of Destructive Financial Behavior

During the NAPFA Practice Management & Investments conference in New York on Tuesday, Russell James (associate professor in Texas Tech University’s division of personal financial planning) discussed ways to prevent clients from engaging in destructive financial behavior. James suggested “focus[ing] on long-term goals by prompting emotion.”

James also discussed two ways to influence an individual’s behavior: using pre-commitment strategies and changing a client’s time horizons for saving and investing.

Pre-commitment strategies include changing rewards and penalties for a client’s spending and suggesting client’s pay for luxury items with cash rather than by credit card. James cited a 1998 study to demonstrate that creating a longer time horizon for a client’s saving and investing sometimes correlates with a better financial outcome.

See Donna Mitchell, Helping Clients Be Financially Rational, Financial Planning, Oct. 25, 2011.

Special thanks to Jim Hillhouse (WealthCounsel) for bringing this article to my attention.