It is not uncommon for boomers to ask their financial advisor for help in dealing with spendthrift loved ones or business partners.
That can put the advisor in a tight spot, says Sarah Kaplan, a partner in Kaplan Financial Group, Bethesda, Md.
“You want to get a system in place to fix the problem, if they’re willing,” she says. But, if they are not willing or if the people involved are at odds over the problem, that can be a “difficult place” for the advisor to tread.
How best to deal with the situation depends on the particulars, say advisors interviewed for this article.
“A lot of boomers are very concerned about their money management, to the point that they save every penny like their parents did,” Kaplan points out.
But others spend a lot, and this too is often learned from the parents, she explains. Among couples, spending can be a “deep issue,” she says. Some spendthrifts say things like, “This is how my father did it,” and they don’t want to hear about other ways, she adds.
In fact, one speaker Kaplan heard recently said his mother had taught him to buy expensive things because they last longer. “You have to wonder, where does that line stop?” she ponders. “Are there no caveats to it, no questions?”
In her experience, if spenders are ready to talk about it, then she will try to provide some guidance. If they know they need help, she will refer them to a “daily money manager” (a professional counselor who helps people put their daily finances in order–a process that also frees up funds for planning purposes).
She says she won’t bring up the topic of spending herself, but if she notices something that suggests a potential problem, she might touch on it lightly, saying something like, “Gosh, you guys are spending a lot. Do you want to see if there are better ways to help you reach your goals?”
If there is no response or no willingness to address the spending, she tries to work around the issue as much as possible.
Many spenders are unaware they are spending beyond their means, observes Margaret Jones, chief executive officer of WCMI, a Minneapolis money management firm.
“They don’t even think about it, or about their (financial) future. They live in the immediate and have no projections for their retirement income.”
But when Jones shows spendthrifts some projections of how their portfolio will run out before they do, she says many “get it.” Once they recognize the problem, she says, she points out the damage they can cause to themselves by continuing this way.
Seeing that is often enough to motivate changes that will produce a better future, she says.
For example, Jones will recommend that the spender have a separate checking account to use as desired, no questions asked. The spender will have no access to the household account, which will replenish the spender’s account on a set basis. Then, if the spendthrift depletes the account in a week or two, only to encounter an unexpected need, “the money will be gone,” Jones says, and “the spender goes without.”
This way, “it’s the spender’s problem,” Jones says. This helps the person see how spendthrift ways actually hurt themselves, she says.