Celebrated musicians, singing stars and pro athletes may be masterful in the spotlight, but when it comes to handling money, they’re often pitiful failures. Indeed, such talents typically blow the millions they make in the first heady years of hitting the jackpot or immediately after retiring.
Enter Dr. Ted Klontz. Focusing on the psychology of money, he helps folks cork the financial bleeding — or prevent it from happening in the first place.
In an interview with ThinkAdvisor, Klontz tells horror stories about the bad financial behaviors of the rich and famous — and how he’s helped rescue these personalities.
Simply instructing a person to halt out-of-control spending won’t work, he says. Instead, it requires getting through to the sensory system to reverse such destructive habits.
Klontz, an international consultant and trainer, is a pioneer in financial behavioral change. His clients include not only entertainers, sports champs and other high-profile individuals but financial advisors serving non-celebrity clients, as well as corporations and the U.S. Defense Department.
Using unique tools and techniques to change self-defeating money behaviors, Klontz, based in Nashville, has helped many country music stars, and travels widely to train financial planners and their clients in his methods.
He is co-founder, with his son Brad Klontz, a clinical psychologist and certified financial planner with the Klontz Consulting Group. The two also created the Financial Psychology Institute, which trains and certifies FAs to be behavioral specialists.
Author or co-author of six books, including “Mind Over Money: Overcoming the Money Disorders that Threaten Our Financial Health” (Crown Business 2009), Klontz has served up his expertise on The Today Show, Good Morning America and the Oprah Winfrey Network.
And with his workshop series, “Exquisite Listening and Elegant Communication,” he helps advisors and others learn how to communicate better person-to-person.
ThinkAdvisor recently chatted with Klontz, who is at counsel with Nashville’s Flood Bumstead McCready & McCarthy, a business and financial management firm. Here is how he’s helping entertainers and athletes overcome their toxic financial behaviors:
ThinkAdvisor: How did you get involved consulting to performers and athletes?
Ted Klontz: Mary Ann McCready [of FBM&M] called and said, “Can you help us?” I walked into a room with 10 or 12 people, each occupying a different part of a woman’s professional life: financial manager, personal career manager, road manager. The woman’s name was Wynonna Judd. In nine years, she had gone from $32 million to $6 million. And she was coming in the next day to get half of that last $6 million. They had tried everything, but she wouldn’t stop spending more than she was making.
What was your solution?
I invited them to use experiential techniques and gave everyone in the room very specific directions. I told them to draw pictures on newsprint of everything Wynonna had done with her millions: real estate, investments and so on. I instructed them to put the pictures on the walls all the way around the room – and wind up with $6 million. I told one of the guys to say, “When we started nine years ago, you had $32 million.” Then, after they went through every picture, I told them to wad each one up and throw it away.
So what happened?
When they got to the seventh picture, Wyonna said, “I get it. Why didn’t you tell me this before?” Of course they’d been telling her for nine years – but telling someone doesn’t work. [Judd wrote about working with Klontz in an autobiography.]
You have to appeal to the part of the brain that makes decisions: the sensory system. That’s why car dealers put your butt in a car. Though most car shoppers are just looking, they walk out with a new car.
Is Wynnona’s case unique?
Not at all. The average musician goes from rags to riches to rags in about seven years. For football players, it’s bankruptcy about two-and-a-half years after they quit playing. That’s the normal, predictable trajectory; and it’s irrespective of race or anything else — except one thing: If you come from nothing, you’ll go back to nothing, unless your thinking changes and you get help.
Why is going back to nothing predictable?
When the career is over and all the people who were your friends because you were who you were have [gone], the only people left are the people you came from: your family.
How does the work you do apply to average clients?
Every financial planner has clients who are out of control and won’t do what they recommend. Planners often get rid of these as soon as possible, but you can’t get rid of them all because you won’t have anybody since not very many of us behave ourselves well around money.
Why do many football players blow their money so fast?
If you come out of college and get a bonus of $2 million and a contract for $50 million, you don’t have $52 million. You have $2 million, half of which immediately goes to taxes. Another 10% goes to your agent. You end up with maybe $200,000. But you want to buy a lot. So the jewelry guy gives you jewelry, but you pay him on a loan. You have all this stuff, but you’re bankrupt the minute you sign that contract unless somebody helps you understand what [can happen].
What other entertainers have you helped?
I recall a singer-guitar player, who’s still active in his career, whose roadies were his cousins and friends from the very small Southern town that he came from. Even though he gave them all a daily meal allowance, he’d take them out to dinner at the highly upscale restaurants where he ate. By the end of the night, the food and bar bills would be $6,000, $7,000, $8,000. This was coming out of his earnings. At the same time, his goal was to make sure that his daughter went to college. But he was spending more than he was making. That’s when I was called in. Everyone was telling him to stop doing that. But you to have to approach it in a different way.
Why was he spending all that on his relatives, when they were on a per diem anyway?
If you come from very poor, small town and start making lots of money, family and friends in poverty back home expect you to give some of that money to them – or else they’ll call you a selfish sellout. The survival norm in that culture is: If one of us has anything, we have to share it.
What approach did you use with him?
I said, “What if you buy that abandoned building in the center of your home town and turn it into a community center with your name on it? Every week, take half of what you’ve been spending in restaurants and bars and use it to make sure you feed people that come to the center. Buy a side of beef or a pig every Friday.” How did he react to that?
He loved the idea because it was fulfilling his obligation to the community: Doing good for his people in a demonstrable way. And now he’s able to save for his daughter’s education. This technique is different from telling him, “You’re really stupid for supporting all these people.”
Why isn’t just telling someone to save money a workable solution?
Because the brain isn’t wired to save. The DNA we carry didn’t come from people who were savers. In fact, saving weighed you down, making you more likely to be beaten up and killed. So we have to work around the natural tendency of the brain not to save and spend what you have right now.
Is automatic enrollment in 401(k) programs a good example?
Yes, it’s well documented that the best way for people to participate in anything that you think is their best interest is to automatically enroll them with an opt-out option, such as a 401(k). Most people do not opt out.
What other cases can you share?
There was a female singer-guitar player whose thing was shopping. She toured a circuit that included New York City. She’d roll into New York a day early, and her friend who ran a [posh] boutique would pick her up at the airport, saying, “I’ve saved some things that would be great for you!” The singer felt obligated to buy them: $2,000 and $3,000 outfits, a lot of which she never even wore. But nighttime was her worst time because she’d take her iPad to bed and go shopping, even when she was in New York.
How did you turn her behavior around?
Through a variety of strategies, including keeping her iPad out of the bedroom. We had her tell her friend that she couldn’t afford to buy at the boutique anymore because she was trying to support her daughter’s education and wanted to keep the home she had. We helped her with these conversations and to be held accountable.
What were some sensory specifics?
We put a picture of her house with her daughter standing in front of it on the singer’s phone’s [homepage]. So every time she’d pick up the phone, she’d be reminded of what was important to her. We set goals with her and had contact every week. We had flow charts and spreadsheets. She’d say, “Oh, my God, I can’t believe I spent this much. It must be a mistake.” Well, it wasn’t a mistake. So much of it was unconscious. This is how a lot of us are around money. We don’t always want to know.
How did you get her to stop buying clothes from her friend’s shop?
She gradually realized that because she was very lonely and isolated, she wasn’t sure that the woman would be her friend unless she bought from her. She was finding friendship through spending.
Do folks ever reject your recommendations?
Here’s an example: I consulted to the people of one of the biggest rappers in the world. He carries a $40 million debt load. He’s trying to save everybody in his [childhood] community, and he demonstrates to them that he’s made it by [buying and] wearing bling. That’s what’s done in his culture, instead of, say, getting a Lexus or a very expensive home. I was called in because he was that much in debt, and his management didn’t know what to do. What happened?
Apparently I didn’t give them the right answer because they didn’t call me back. People tend to say, “Make them stop!” They want the magic two-hour presentation of information. But that’s not how it works.
What’s an instance of how you’ve helped athletes?
I was working with a gentleman in the auto-racing world who was spending about twice as much as he could afford. He bought a multimillion-dollar motor home for his family to stay in at the track after he flew them there to see his races. He was doing that because all the other professional race-car drivers at that level do it. But he couldn’t afford it. He came from a family that spent everything they got when they got it.
What tack did you take? We said that when his career was over, we wanted him to have a certain seven-figure number and that if he got hurt before then and couldn’t work, his family would still be taken care of.
How did you get him to shape up?
We said: Here’s what you can and can’t afford. We were able to help him acquire a vision of the future and get him to stanch the bleeding. His career at [a high] level is now over; but I just got an email from him saying, “Thank you for helping me go from race car driver to businessman.”
What other case can you share?
We worked with a singer-songwriter who had $2 million worth of sponsorships – like, Budweiser – for his concert tour on which he was opening for a headline act. Even so, he told us he had to continue living with his parents because his net at the end of it all would be only $40,000. And he was irate.
What did you do?
We set up a team meeting: Everybody who was connected with him put on a little hat: One said “IRS.”; one said “Career Manager”; another said “Road Manager,” “Show Expenses” and so on. We put coins in front of him that represented the $2 million in sponsorship money. We said, “If you want to be the opening act, this is how much it’s going to cost you.”
Did it work?
He said, “OK, I get it. If I write songs, that’s where I’ll get my money.” So he ended up not with $40,000 but with a quarter of a million dollars. But he had to touch it, hear it clinking on the table — have that sensory experience.
This sort of approach sounds very much like an intervention.
Yes, but it’s an information intervention. And the sensory system is the decision-making part. Who have you worked with recently?
One young artist whose father kept saying to him, “The people back home are saying that you think you’re better than they are and that you’re selfish.” This kid was working his ass off. But the father was putting incredible pressure on him to fork over time, energy and money because it looked like he was selling out. Not that there’s anything wrong with that pressure because if people in that type of poor culture don’t share, they’ll die. That’s how they eat. I’ve lived in a community in Tennessee that operated just like that.
You conduct “Exquisite Listening and Elegant Communication” workshops. How useful are these to financial advisors?
They teach people how to listen. Financial professionals tend not to be very good at communicating. They’re about numbers and books because that’s their comfort zone. Relating to other people is not [necessarily] their skill set.
So if FAs want to offer something that robo-advisors can’t, they should learn to communicate better. Is that your point?
Right. Within five to seven years, people won’t need financial advisors: They’ll be able to [digitally] find out anything in a very customized way at one-quarter the price that advisors currently charge. Financial advisors need to be able to communicate better – not talk better but listen better. That’s my message. People are saying, “I don’t like it, but I get it.”
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