What is Financial Therapy, Really?

Recently, while co-facilitating my 20th "financial therapy" workshop, it occurred to me that there wasn't much actual financial therapy happening. As one of the originators of financial therapy, that was a most disconcerting thought.

My next thought was even worse. I realized that almost none of the psychologists and therapists I've thought of as financial therapists are indeed financial therapists.

Does this mean what we've been calling "financial therapy" over the past few years has been wrong? Absolutely not. A great deal of wonderful work with excellent outcomes has been done by financial planners, therapists, and coaches who have helped many clients transform their lives. I've had the privilege of witnessing some of those transformations myself.

So what do my uncomfortable realizations mean? I believe that the brand-new field of financial therapy is beginning to evolve.

To see how rapidly a new field can change, we need to look no further than the gadgets stuffed in our own pockets. As a technology junkie, I remember buying my first cellphone in Rapid City, S.D., in 1984. Even though it was as big as a shoebox, to me it defined the essence of high tech.

A few years later, my definition of high tech changed when I got the first small flip phone, which was only the size of my fist. It wasn't long until my first BlackBerry redefined high tech yet again. Today, my definition has morphed even further with the advent of the Android Extreme-now, that is really high tech. I can hardly wait to see what comes next.

In the same way, my definition of financial therapy has evolved since I first heard the term. In 2003, I helped design and facilitate the first therapy workshop where the focus was on money issues. The Wall Street Journal called it "an innovative effort that combines experiential therapy with nuts-and-bolts financial planning." At the time, that definition seemed to fit as well as any other.

It is a well known fact that therapists and psychologists have historically avoided dealing with money in therapy. By the same token, financial planners have avoided dealing with their clients' emotions during planning sessions. Because so few therapists are willing to acknowledge the emotional role money plays in their clients' lives and well-being, I've often proclaimed any therapist who has "done their own money work" to be a "financial therapist." I've also deemed any therapy workshop that focuses on the participants' money issues to be financial therapy.

PLANNING OR THERAPY?

What I came to realize during my "aha moment" was that we have been missing one essential ingredient for true financial therapy-integration. While there was a lot of therapy happening in the workshop, the personal financial situation of each participant was not integrated into the therapy experience. My experience shows that integrating the two disciplines results in clients progressing exponentially faster than if they were working with just the financial planner or only the therapist individually.

When people attend a therapeutic workshop, they typically fill out an extensive intake questionnaire. This detailed questionnaire is designed to elicit important details from the participants, so they can start the workshop from an informed position. As one participant put it, "It felt like they wanted to know every person I had ever kissed and for how long."

The point is that to do effective therapy, the therapist needs to have gathered extensive information and performed comprehensive evaluations of the emotional strengths and shortcomings of their clients. Without this information, the workshops are doomed to failure.

Our workshops had never engaged in a similar level of data gathering and evaluation of participants' financial histories. Although I led the participants through several useful exercises to help them uncover what they thought, felt and believed about money, any therapist or coach trained in the exercise could do that.

So what did I bring to the workshops that a therapist or coach couldn't? The answer, unfortunately, was only a few hours of generic financial education. While the therapist leading the workshop was operating with the knowledge of each participant's personal emotional health, I knew nothing of their personal financial health.

We often say that talking about money is the great societal taboo, and here I was, staring at that principle in my own workshop. What could I do about it?

I realized there was probably more true financial therapy happening in my office when I worked in conjunction with my staff therapist than in any of the 20 financial workshops I had ever co-facilitated. In my office, I am constantly dealing with clients whose every financial detail is well known to me. When I include the therapist in a meeting, he has reviewed various assessments of the clients' emotionalhealth. So, together, we have a relatively complete picture of both their financial and emotional health.

Today, a number of financial coaches and planners advertise that they do financial therapy. The terms "financial coach," "financial psychologist" and "financial therapist" are becoming ubiquitous labels for therapists and psychologists who now address money issues in their coaching or therapy sessions. It is hard to pin down the real work being done behind these labels, which lack definition.

I even have a set of exercises on my website called "The Financial Therapy Series." I would suggest that none of this means there is any real financial therapy being done.

OVER THE COUNTER

Financial therapy must involve the integration of therapy and finance. It certainly is not done by a financial coach or even a financial life planner. Neither is financial therapy done by psychotherapists who have “done their own money work.” This is simply a layman’s term for dealing with their own counter-transference issues.

Counter-transference occurs when therapists overidentify or project their own unresolved issues onto the clients so that the clients' work is contaminated by the therapists' own issues. If you think about it, good therapists will "do their own work" to avoid counter-transference in every area, including gender, sex, race, food and chemical dependency issues. They've just begun to add money to that list.

Of course, it's a positive thing when therapists are able to talk with clients about their money issues without counter-transference. But that doesn't mean the session constitutes financial therapy. (I would use "session" rather than "conversation" to describe these meetings-we don't want to imply that the therapist is just having a conversation rather than a therapy session.)

I would suggest that true financial therapy needs to evolve into a specialty within the larger fields of psychotherapy and financial planning just like other specialties such as addiction therapy, family therapy or tax planning have done. As with other specialties, financial therapy will require specialized training.

For a therapist, this training would be a CFP designation, at a minimum. For a financial planner, it would be a minimum of a graduate degree in counseling.

A TEAM APPROACH

Another way to provide a new kind of financial therapy involves a therapist and a a financial planner working as a team in harmony with the client. In either case, the professionals will have done a full intake and assessment of the client's emotional and financial well-being.

Perhaps we need a more accurate definition of financial therapy. Such as definition would read as follows: Therapy conducted by professionals trained in both financial planning and psychology who, after having evaluated the client's emotional and financial health, use a range of techniques based on experiential therapy, financial planning, dialogue, communication and behavior change to improve the client's financial and emotional health.

Based on this new definition, few, if any, previous workshops have offered "financial therapy" in any true sense of the term. Yet the outcome of those sessions has been life-changing for many participants. By adding specialized training for professionals and more fully integrating the personal financial history of each participant into the process, I can only imagine the even more transformative outcomes that will be possible in the future.

That may be the future of financial therapy, but it will take some time and hard work to accomplish. I recently participated in the first convention of the Financial Therapy Association. The opening session consisted of a panel of financial therapy pioneers from each of the three disciplines: financial planning, psychology and academia. I was honored to represent the financial planning field.

The moderator asked us to define financial therapy. Not surprisingly, each of us had a different definition. It will take time for those differences to resolve into one single definition and for the field of financial therapy to establish itself.

SPREADING THE WORD

One of the last questions directed to me at that opening panel was, "How can this embryonic association get the word out about the life-changing benefits of financial therapy?" Unfortunately, my answer was that we probably won't be able to do that anytime soon.

Almost 40 years after the first "financial planners" emerged from the College of Financial Planning, the field has yet to define what constitutes real financial planning, whether a planner owes a fiduciary duty to the consumer or even whether financial planning is a profession, an industry, or both. Even today, anyone can literally set up a noffice and say they are a financial planner. With such a gargantuan lack of clarity on the part of those in the financial planning field, it is no wonder that most consumers think a financial planner is someone who sells investment products.

Today financial therapy is probably 10 years behind where financial planning was 40 years ago. There is no accreditation process or degree whereby someone can become a financial therapist. There is also no clear definition of what financial therapy is or who is qualified to be a financial therapist. Any therapists, counselors or coaches who work with clients' money issues can hang out a shingle and call themselves financial therapists.

Still, we have made a start, and it's exciting to be present at the beginning of the journey. As this embryonic profession struggles to define and identify itself, it will take many twists and turns.

The road will not be smooth or always scenic. Based on my experience and the life-changing outcomes I've witnessed, however, it is a road well worth traveling.

Rick Kahler is recognized as a founder of financial therapy. His work was featured on ABC's 20/20 and by the New York Times, Washington Post, the Wall Street Journal and other publications. Business Week recognized him as one of the 15 most experienced planners in the United States. A fee-only financial planner and president of Kahler Financial Group, he is co-author of four books on the psychology of money.