Interior Finance: The Micro-Level Exploration of Individual Client Money Scripts

Journal of Financial Planning: October 2012


When clients used to cry in my office, I would feel a strong urge to hide under my desk. Even before the tears were dry, I would divert the conversation back to the numbers as fast as I could. I tried to discourage emotional outbursts by not buying tissues.

Twenty years later, I have plenty of tissues on hand. When the tears start, I make sure a box is within reach and settle in to listen to the client’s story.

At one time I would have considered sitting and listening to clients emote a waste of their time and mine. After all, they were paying me for my financial expertise. I’ve learned over the years that sometimes listening when clients need to talk is the most valuable way to spend an office meeting. Yes, my financial expertise is important. But no matter how brilliant I think my knowledge and advice may be, clients whose minds are jumbled with emotional baggage around money simply can’t hear it.

Emotions drive our clients’ financial decisions. An economist who dismisses or marginalizes behavioral finance needs to spend a week with a financial planner. I’m amazed at those who discount the vast research compiled by behavioral finance experts showing most people don’t act rationally around their money and financial decisions. To believe that people and markets operate rationally and in their own self-interest is, well, irrational.

Behavioral Finance Versus Interior Finance

Behavioral finance is about studying how beliefs, thoughts, and emotions affect the economic decisions of individuals and institutions, and how those decisions affect markets. It’s helpful for identifying and understanding the actions of our clients. Sometimes, listening to clients explain why they want to make decisions that clearly aren’t in their best interests, I mentally tick off the heuristics they’re using: there’s anchoring, that’s overconfidence, now they are into loss aversion. And that was just the first sentence.

While this is great at helping me identify the predictably illogical behaviors of my clients, telling them they anchored, exhibited overconfidence, and fell victim to loss aversion all in one sentence won’t do a thing to change their decisions. It probably won’t help me retain them as clients, either. Behavioral finance doesn’t give me any tools to help clients change the heuristics that lead to harmful financial behaviors. For that, I need to look to interior finance. Unlike behavioral finance that looks at the macro aspects of financial behavior, interior finance looks at the micro level of the individual’s thoughts, feelings, and beliefs about money, with the goal of applying proven technology that facilitates behavioral change.

My 30 years of financial planning have taught me that every client has emotional baggage around money—even those who outwardly appear very successful. Helping clients deal with that emotional baggage is at the heart of interior finance. Understanding this right-brained aspect of financial behavior is crucial for planners who want to help clients make better money decisions. It’s also crucial for financial planning practices that want to stay relevant and profitable.

Putting Interior Finance into Action

Usually, people first consult financial planners during significant life transitions like marriages, divorces, inheritances, buying or selling businesses, and retirement. At these times, which are both financially and emotionally charged, people often have an increased awareness of their past money decisions as well as some fear about the future and uncertainty in the here and now. They are usually not looking for explanations of their money behavior as much as they are seeking ways to do things differently in the future. This is often the perfect opportunity to open the door to exploring their personal relationship with money.

That doesn’t mean it works well to start the first client meeting with, “What’s your most painful childhood memory about money?” Our first task with new clients is to start building a relationship of trust so they feel comfortable enough to tell us their money stories. Discovering what has shaped their money behavior isn’t primarily for our benefit, but for theirs. Therapists tell me that one of the most powerful agents of behavioral change is getting people to tell their stories.

Many planners interview clients about their stories, but that method has never fully worked for me. Instead, I use some tools borrowed from psychologists that invite clients to start exploring their relationships with money at their own pace—kinetically and visually rather than verbally. Most of these I give clients as homework that they can access online through my website and do at their convenience.

I offer interior exercises to help them identify their money scripts and record their money stories. These include techniques like drawing that are intended to engage the right side of the brain and help them access the emotions related to particular money memories. Much of this intake consists of two drawing exercises. The “Money Egg” visually tells the story of their significant financial events, and a modified genogram diagrams how their family functioned around money.

I emphasize that whether and how much to explore the client’s beliefs and emotions about money is completely up to them. I tell them “no” is a complete sentence, and they are free to opt out of any or all of the interior process. Very few do. I’m still surprised on occasion at the emotional depth people are willing to share.

I also ask couples to complete the interior exercises separately and then share the information later. This is a reminder to all of us that they are individuals whose goals, beliefs, and needs around money aren’t necessarily the same. It can also be revealing for spouses, who almost always learn things about each other that they didn’t know before.

Having clients do these exercises between sessions gives them time, privacy, and emotional space to recall and explore their money stories. Most of them spend two or three hours on this, so a lot of the benefit happens even before our next meeting.

Running the Interior Finance Meeting

At that session, we focus on their money beliefs and money history. It’s not unusual, as we go through their money scripts, their money history, and how their family functioned around money, for clients to begin connecting the dots linking their current behaviors and beliefs to their historical origins. “Aha moments” are common.

While the major reason we do this is for the client’s benefit, the planner often benefits, too. I once had a new client whose passion was starting new businesses, most of which were successful. One of her money scripts was, “If I don’t start new businesses, I’ll go broke.” I learned she wasn’t starting new businesses out of passion but rather fear. That insight wouldn’t have come out in an ordinary interview.

Whenever possible, I include a financial therapist in this meeting. He can often help clients gain valuable insights. Even more important, this introduces him to clients and normalizes his involvement as a member of the financial planning team whose services are available to them.
While our financial therapist’s involvement adds value to these initial interior sessions, it isn’t essential. I facilitate these meetings alone if he isn’t available. A financial planner with appropriate education and training can handle this process quite comfortably.

Preparing Yourself to Provide Interior Services

The key words here are “appropriate education.” When I started doing interior work about a decade ago, there was almost no formal training available for financial planners who wanted to help clients process emotional issues around money. That is beginning to change as more planners come to understand the importance of providing interior services. Interior finance and even basic communication skills are still not part of the CFP® certification curriculum, but several academic programs include courses on financial psychology as part of their financial planning degrees.

Perhaps the most crucial requirement for financial planners who want to do interior work with clients, though, is doing our own interior work. The more we have explored our own money scripts and money stories, the more we can understand those of our clients. There’s no way we can effectively guide clients along an interior path unless we are walking that path ourselves.

Appropriate sharing of our own money stories—including, ironically, some of our mistakes—can help build trust. One way I do this is by giving clients my coauthored book Conscious Finance, which includes my personal money story—warts and all. Telling our stories can also reassure clients that behavior and emotions around money they may see as irrational are actually quite normal responses. This can be especially helpful for clients who are stuck in blaming themselves or feeling like financial failures.

The tools of interior finance add measurable, practical value to the financial planning engagement. The more skilled we are in facilitating clients’ ability to articulate their stories, fears, values, and dreams, the more effective we are as planners. Interior knowledge helps us identify clients’ unique needs and design financial plans specifically to meet them.

Interior finance helps us understand our clients. Even more important, it helps clients understand themselves as unique individuals. That understanding is crucial in changing patterns of ineffective or destructive financial behavior. It supports the fundamental goal of financial planning, which is helping clients make better financial decisions. 

Rick Kahler, CFP®, ChFC, CCIM, is president of Kahler Financial Group and coauthor of four books on money. He is on the faculty at Golden Gate University, where he teaches a “Facilitating Financial Health” graduate course.

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