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Financial Planning > Behavioral Finance

For this advisor, it’s all academic

By Daniel Williams

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Like many financial professionals, Linda Leitz has an alphabet soup of letters following her name. There’s the CFP, the EA and the CDFA, but the one that catches my attention is the one that’s not there, yet.

“I’m working on my Ph.D,” Leitz tells me at the Colorado Springs, Colo. office of her company, It’s not Just Money, Inc.

Though she’s not yet begun the dissertation portion of the doctoral program, Leitz has a pretty good idea where one aspect of her focus will be.

“The KSU program (Kansas State University, where she’s studying remotely) looks at behavioral finance,” she says. As financial professionals “you can teach concepts, but if the client isn’t motivated they won’t follow through.”

At the heart of it, she wants to understand what makes the client tick. What’s the psychological background that causes them to dig themselves into deeper and deeper holes of debt? What defines self-image relative to money? Do you see yourself as poor? If so, what caused that way of thinking? “Are you looking at what your friends have? What someone said?”

If you can understand what makes your clients buy then it gives you a better chance at helping them break the bad habits and get on the road to financial recovery. If financial professionals avoid the emotional aspects of their clients, says Leitz, then it’s just numbers on a page.

Another area she’s intrigued by in her studies is the influx and popularity of the celebrity financial gurus. She doesn’t paint them all with a broad brush claiming them all to be evil, but she does have skepticism.

Celebrity advisors

First of all, what are their credentials? That’s a problem with most financial professionals and especially perplexing to those with the ABCs after their name. “They may actually make good points about finance for people,” says Leitz, “but that may not be good for the individual.”

She says we’re all unique. We all have a specific set of circumstances so the advice doled out to one caller on a celebrity guru’s show might be the antithesis to what other listeners need.

“I may want to buy a dress because it looks great on my friend, but it might not work me,” Leitz adds. The basic idea is financial plans, like clothes, are not one size fits all.

Of all the generations, the baby boomers have perhaps been the most discussed and dissected. Who hasn’t seen images of them slogging through the mud in Vietnam or slogging through the mud at Woodstock? And who hasn’t acclaimed or blamed them for every financial peak and bubble that’s occurred over the past 25 years?

But Leitz says there’s even more to dig into when discussing the boomers’ habits. Particularly, we can look more deeply into their buying behavior.

Many boomers are in a bind, which is causing them more problems than they’d expected when they began their careers. Their model was their parents — the Silent Generation. The boomers grew up in single-income homes. Dad worked; mom ran the house. Dad worked at the same company his entire career, retired with the girl, the gold watch and a big, fat pension.

Using that as a model, too many boomers have had to battle against the current. Their lives haven’t taken the same course as Dad’s. The boomers lived in two-income homes, which is good. But too often their relationships ended in divorce, which was a blow both emotionally and financially.

Sandwich Generation

On top of that, says Leitz, too many of them don’t have that pot of gold waiting for them at the end of retirement. “They had assumptions based on their parents’ generation,” says Leitz. The problem is the situations changed. You could say, the world changed, too.

For sure, the buying patterns and the lifestyles changed. “In the Silent Generation you didn’t have two cars. Now you have at least one car per adult in the household. If you don’t, people think you’re on food stamps.”

These days, the boomers are getting squeezed in another way their parents never did. “They’re the Sandwich Generation,” says Leitz. “They’re taking care of aging parents and still supporting their children as well.”

She says this dual role leaves boomers in conflict. They want to take care of their own retirement plan, but they want their parents and their kids to be OK, too.

But not all is bad news for the boomer generation. First of all, they’re living longer, which, depending on how you look at it, could be a good or a bad thing. “When the first boomers were born the average lifespan was in the 60s. Now, baby boomers can live to 100 or close to it. So it’s easy to work 30-40 years to then live for another 30-40 years.”

With all that time in front of them, many boomers Leitz works with are forgoing that cliff dive approach to retirement. Many are working part time or taking on consulting work. For others, they’re having a light bulb go off about their retirement years and how they can achieve the lifestyle that want to reach.

“Since 2008, I’m seeing more and more boomers that are saying, ‘y’know, I need to save.’ It’s amazing how many boomers are having me run a plan with Social Security and without it. They’re not sure if it’ll be there for them, but they want to be prepared either way.”

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