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How to Give Financial Advice: Tips from an Expert Who Knows People Don’t Listen

There are many times in your life when you might want to offer financial advice. However, people are touchy about money. Therefore, they may not receive your advice well. This can greatly impact your personal relationships in not-so-positive ways.

If you’re interested in learning more about how to give financial advice, then I’d recommend reading the book Advice That Sticks: How to Give Financial Advice That People Will Follow. Author Dr. Moira Somers is a financial expert who knows from professional experience that even clients who say that they want financial advice often fail to follow through on it. She did extensive research on human behavior to uncover why.

The book itself is written for people who give financial advice for a living. However, each of us can draw from her tips to improve the way that we offer financial advice to others in our lives.

People Are Complicated When it Comes to Money

If each one of us could deal with money in a practical, rational way, then we wouldn’t have nearly so many financial problems. We especially wouldn’t have so many challenges when it comes to how many affects our relationships. However, people are just way more complicated than that when it comes to money.

In researching this topic, Dr. Somers looked at financial psychology, behavioral economics, neuroscience, positive psychology, and other fields to figure out why people respond as they do to financial advice. As she puts it in her introduction, “most people are at least mildly crazy when it comes to money.”

It’s helpful to keep this complexity in mind anytime that you are tempted to give financial advice to someone. First of all, you’re coming to the table with your agenda, emotions, psychology, money beliefs, etc. Secondly, the other person has all of those as well. You may or may not be privy to what drives their financial decisions. Therefore, a good place to start is to listen. Open yourself up to honest, open communication about money before giving any financial advice.

Dr. Somers points out that you can get a good understanding of another person’s emotions and thoughts about money by looking at:

  • Job choices
  • Spending habits
  • Investment decisions
  • Comfort or discomfort with debt
  • Charitable giving habits
  • Relationships as they relate to money
  • How people talk about money (both tone and content)

3 Components of Giving Good Financial Advice

Dr. Somer points out that there’s bad advice and then there is good advice badly given. The first component to giving good financial advice is to make sure that you know what you’re talking about. There’s no excuse for bad advice. If you’re going to offer someone advice on saving, budgeting, investing, etc. then you should have strong technical knowledge about those things. For example, if you’re going to teach your child to save for college, then make sure you’re familiar with the options before you offer that financial advice.

Once you have good technical advice, the rest is about giving that advice in the right way. Here are the three components of that:

  1. Get clear on what motivates the other person and what their concerns are
  2. Help the person set a clear path to reaching their goals
  3. Create a backup plan for dealing with any obstacles that might arise

For example, let’s say that you want to give some financial advice to your aging parent. First, take the time to listen to what they want. What motivates their spending and saving? What are they most worried about? Most importantly, what are their goals? Of course, you can give advice that suits your own goals, but how many people want to listen to advice like that if it’s not aligned with their own goals? Identify the problem as they see it and allow them a say in setting the goals.

Once you’ve collaborated in this way, create a step-by-step plan for reaching those goals. If you understand what motivates your parent to spend or save, then you can work that motivation into the steps. Of course, the plan might not work out. What are you going to do to get back on track if it doesn’t? You and your parent can create a back-up plan together.

4 Things That Sabotage Good Financial Advice

Even if you have worked together on a plan, and the person you’re helping wants your financial advice, many things can derail the plan. Here are four things that Somer says make it harder for people to take financial advice, even when it is spot on:

  1. Unpleasantness when having to implement the changes necessary to follow the advice
  2. Perceived immediate short-term benefits and sacrifices compared to long-term ones
  3. Degree of change required to follow the financial advice
  4. Complexity of the step-by-step plan

In other words, if taking the financial advice is difficult, uncomfortable, or feels like it doesn’t pay off immediately, then people are less likely to follow that advice. Therefore, you need to work with the other person to find ways to reduce the discomfort and increase the obviousness of the benefits.

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Kathryn Vercillo

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