Psychology of Financial Planning

CHAPTER 10Cognitive Behavioral Approaches in Financial Planning

If you are ever perplexed about the motivation for someone to do something, being familiar with cognitive behavioral therapy (CBT) can help. CBT is an approach to counseling that operates under the theory that our thoughts, feelings, body responses, and behaviors are all connected. It asserts that what happens to us shapes our thoughts, those thoughts affect our emotions, and those emotions drive our behaviors. While planners are not therapists, it is helpful for them to understand the psychology behind their clients' biases and behaviors so they can help clients make good financial decisions.

CBT has been shown to be helpful in treating money disorders, such as compulsive buying disorder, hoarding disorder, and gambling disorder. However, components of CBT can easily be adapted and used by financial planners in their work with clients to help increase a client's confidence around challenging financial situations and to help modify limiting financial beliefs that lead to self‐defeating behaviors. Financial difficulties are an indicator that there are underlying beliefs about money that could benefit from further exploration. For example, studies have shown that money scripts, including money status, money avoidance, and money worship scripts are significant predictors of problematic money behaviors, higher credit card debt, lower income, and lower net worth [3, pp. 33–43]. CBT uses a variety of techniques that ...