Thursday, June 16, 2016

3 Rules for Clients to Build a Healthier Relationship With Money:

Rich, poor, experienced or green, we can all learn to have a better relationship with our money. No matter where you are starting from, learning these rules, and developing the habit of coming back to them when you get off track, will help you get to a stronger place financially. As advisors, you can help your clients develop stronger financial thinking by learning these three rules, and helping clients to incorporate them over time.

Rule 1. Listen for the Story 

Every financial decision starts with a story. A person’s relationship with money is almost never about the numbers. It is about the stories we tell ourselves because of those numbers. This is why one client can feel satisfied with a middle-class lifestyle while others feel constrained on several million dollars a year. 

Each of us has come to believe certain stories based on our upbringing and our experiences with money: stories about who we are and who we are not, stories about what we can and cannot do in the world. This is where our relationship with money is rooted, and this is where sound money management begins.

It starts with a story.

Some people, having watched their parents lose sleep during the housing crisis, will shrug off any suggestion of real estate in their own portfolios. Others believe deeply that life is too short to worry about tomorrow, and are painfully underprepared for retirement. All of us have felt the pull of marketing campaigns that tap into our personal hopes and goals. We buy clothes, cars and homes that reflect the way we want to feel about ourselves. Taken together, these day-to-day financial choices add up to a lifetime of financial health, or instability. 

As advisors, recognizing that every financial decision is based on a story can help you to tap into your client’s underlying financial narrative. For tips and tools on how to help clients tochange the stories that may be working against them, there are some wonderful resources inMind Over Money (Klontz & Klontz, 2009),Strangers in Paradise (Grubman, 2013), and of course my own new book, LOADED (Newcomb, 2016).

Rule 2. Help Them Choose Healthy Strategies 

The stories we believe lead us to choose certain strategies for meeting our needs. A person who believes that ‘good’ parents pay for their kids’ college tuition in full may sabotage their own financial security in order to nurture their children. This strategy may meet some basic needs (caring, nurturing, knowing they matter, etc.) but it threatens others (security and basic survival in retirement).

The goal of a sustainable financial plan is that it will meet today’s needs without sabotaging the needs of our future self. In order to do this, you can help clients to recognize the difference between a need and a strategy.

Needs are constant, but strategies are flexible. Even the frivolous items we buy on impulse are attempts to serve a fundamental need such as fun, comfort, ease or relaxation. Simply cutting back on expenses without addressing the underlying needs that those expenses are meeting is a recipe for unhappiness. This is why so many people set out to make financial change only to find themselves ‘cheating’ on their plan.

A sustainable and satisfying financial plan is far more like a map than a diet. It’s a plan for meeting all of your needs with your limited resources.

Advisors can help clients choose healthier strategies by asking questions that help identify the underlying need. “What are you afraid will happen if Jr. has to work part time or take oursome loans to get through school?”  Once you hear the need you can help them to devise a strategy that will meet the need without sabotaging their future.

Remember, there’s a story underneath the strategy. For example, if the ‘good parent’ story is leading clients into financial insecurity, it might help to point out that ‘good parents’ model good personal financial decisions, and student loans are often a great motivator for hard work. The goal is to find a new strategy that will still meet the underlying need. When you can help them do this, following their plan will feel deeply satisfying.

Rule 3. Connect Assets to Income

Every stream of income can be traced back to an asset that is valuable to others. While we don’t all start out with assets, we all have resources (time, energy, and intelligence at the very minimum). Learning how to combine one’s unique resources into valuable assets that can increase your income streams is the heart, the very soul, of making money.

When clients learn to think of their money in terms of assets and resources rather than simply in terms of income, they will naturally become more attuned to protecting and growing their assets.

Most of us don’t learn early on how to calculate the amount of income that a lump sum will generate. The result is that we can feel much wealthier than we actually are. Recent research tested the effects of presenting retirement savings to one group of individuals as a lump sum ($100,000) and to others as an income stream ($500 per month for life). They found that people who were presented the lump sumfelt more adequately prepared for retirement than those who saw the income stream (Goldstein, Hershfield and Bernartzi, in Press).

Again, it goes back to a story: “$100,000 is a lot of money,” is one story, while “$500 per month isn’t enough,” is another.  The same financial asset leads to two different stories depending on how it is presented.

By helping your clients to make the connection between the income they enjoy and the assets required to produce that income, you can help motivate greater saving and the cultivation of all potential sources of value. Many people have untapped resources (summer homes that could be rented out, unused valuables that clutter their lives, etc).

Once people begin to see that they have value beyond their salary, and learn how much income to expect from a lump-sum asset, they may naturally be motivated to look for ways of earning extra income in order to boost their retirement savings.

These three rules can help you as an advisor to bring your conversations with clients to a new level. By helping them to recognize and challenge the stories that influence theirstrategies for creating and consuming their stores of value, you can lead them into healthier and more stable financial lives.

Credit by Sarah Newcomb

Tuesday, June 14, 2016

How should you prepare for a career in your 70s?

Donald Trump will be 70 next week and Hillary Clinton will be 69 in October Professor Albus Dumbledore, headmaster of Hogwarts, was well over 100 years old when he died. The exact age is subject to dispute; JK Rowling has previously talked about him being 150 (and, as the author, she should know), but her website says that he was born in 1881, making him either 115 or 116 at the end.

One place I hoped to find the exact answer was at Bloomsbury, Rowling’s publishers and the hosts of an excellent party last week to celebrate two of their other authors, Lynda Gratton and Andrew Scott. The latter are also professors, albeit at the London Business School, and have written a book called The 100-year Life, looking at (among other things) how careers will work in an age when half of today’s children will live beyond 100.

The book does an excellent job of bringing together in a coherent way all the points to consider in a long career — health, wealth and competencies. I have started to realise how many people work on into later life. At the conclusion of a meeting last week, I headed for the tube, along with the person I had met, in full-time employment, who produced a free senior travel pass. Is this a sign of austerity, or fulfilment? Of course, Dumbledore was not alone in carrying on in his job well beyond the time he would have earned a Freedom Pass in the Muggle world.

In the US, people regularly work into their 70s and 80s. Donald Trump will be 70 next week and Hillary Clintonwill be 69 in October, yet both are vying for a job that will be more time consuming than anything either of them have ever done before.

Closer to home, Jeremy Corbyn, aspirant prime minister, is 67, and our head of state is still going strong at the age of 90.

Working later and longer is going to become the norm. Are you prepared for it? Professors Gratton and Scott have usefully included a diagnostic tool on the website for their book, which I dutifully filled in.

It tells me that I am “building my productive and my transformational assets”, and “maintaining my vitality and my tangible assets”. Translated, that sounds like it means I need to exercise and save more, and that I am ready and prepared for the move to my next career.

One of the practical points that Professors Gratton and Scott make in their book is that a long lifetime may mean multiple romantic partners as well as multiple careers. Dumbledore never married. Professor Gratton, who I confess is a role model of mine, (and who introduced me to Herminia Ibarra, the subject of my latest podcast), is engaged to be married to Nigel Boardman, the M&A lawyer, who continues in a long and distinguished career at Slaughter and May.

Both qualify for Freedom Passes, and both are shining examples of long and successful careers. Neither shows any signs of slowing down. I wish them every happiness, with careers as long and as successful as that of Professor Dumbledore.

Credit by Mrs Moneypenny

Saturday, May 14, 2016

The legacy of Jamsetji Tata

No company evokes Indian business better than TATA. The legendary family business founded by Jamsetji Tata in 1868, TATA has established a domestic and international reputation that is arguably greater than any other Indian business.

When it comes to the numbers, TATA is truly impressive. The TATA Group is the holding company of 29 companies listed on the Bombay Stock Exchange. It accounts for 8 percent of the market capitalization of the Bombay Stock Exchange. TATA has made its mark in every major industry in India - steel, power, automobile, aviation, information technology, telecommunications, financial services, consumer goods, education, healthcare, and more.

But perhaps its role in the building of India and placing the importance of community before the profit motive are factors that have contributed most to its success - certainly from the point of view of many of its stakeholders. The journey of development of India can be traced through the house of TATA and the businesses that they ventured into. And during that journey profitability was not the only thing on the company’s mind. Indeed, nation building was just as important, if not more so.

For example, when the family built TATA Steel in Sakchi, now Jamshedpur, TATA also established an entire city around it. When the Taj Mahal Hotel was built in Mumbai, it was “to attract people to India”. When Tata Hydro Electric Power Supply Company was established, it was with the hope that Bombay would become a “Smokeless City”. And today the mission of the TATA Group continues to be: “To improve the quality of life of the communities we serve globally, through long-term stakeholder value creation based on Leadership with Trust”.

The early founders of the company - Jamsetji Tata, Sir Dorabji Tata and Jehangir Ratanji Dadabhoy Tata - worked to uplift the country and to improve the quality of life of the people around them. This was so central to their decision making that many times they put the importance of the community before their own wealth. In fact, profits were always secondary to Jamsetji Tata, and this tradition has been followed by his successors. But because they pursued excellence in whatever they did profits followed.

Sometimes in the world where instant gratification is so dominant in most societies there is a need to go back to the life and times of people like Jamsetji Tata and the other earlier pioneers of TATA to understand and appreciate their values just a little bit more.

Credit by Nupur Bang