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What Your Clients' Finances Reveal About Their Mental Health

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Managing money well or making a mess of it, addicted to gambling or lumbered with financial paranoia or obsessive-compulsive disorder — and so on — people’s mental health is revealed in the state of their finances. To help determine if clients’ appetite for risk jibes with their asset level and other critical considerations, advisors should pose pointed questions.

So says psychologist John Huber, the chair of Mainstream Mental Health who was a psychology professor for 21 years at Texas State University, in an interview with ThinkAdvisor.

Mainstream, a nonprofit, seeks to destigmatize mental health issues and helps provide services for disadvantaged young people and military veterans who suffer from them.

In the interview, Huber, a consulting clinical psychologist at two long-term acute-care hospitals and an expert witness in federal and state court cases, offers insight into how money behavior reveals mental health and how best to handle clients who show signs of dementia or other cognitive issues.

ThinkAdvisor recently interviewed Huber, on the phone from Mainstream offices in Austin, Texas, from which he hosts a popular podcast, Mainstream Health Radio. A shocker that surfaced during our conversation: Most big lottery winners are broke three years after they score that big jackpot.

Here are highlights of our interview:

THINKADVISOR: As a psychologist, how do you initially assess someone’s mental health?

JOHN HUBER: I look at it as painting by numbers: I try to find out about Color No. 1 and fill in all the spots I can. Then I go to Color No. 2 and so on. All of a sudden, I see a picture of someone who’s really together or someone who’s paranoid or depressed [etc.]. You don’t necessarily have to fill in all the colors once you realize you have a panda, not a giraffe.

What does the state of someone’s finances say about their mental health?

I have one client with net assets of around $300 million who starts spending money like nobody’s business when he gets depressed. I have other patients who feel completely devastated because they’ve lost everything and can’t get caught up. One had a psychotic break and is now living on state disability.

Though financial advisors aren’t typically psychologists, should they try to evaluate clients’ mental health to determine how to best help them invest?

I would like to see simple questions asked. For instance, when a client says they want to make an investment, if they can express the risk and potential rewards in their own terms, then I think they’re OK. If the advisor has concern that this is a trade or investment that’s outside the client’s normal pattern to withstand risk, they [should] look into it. That’s what I do. I look at behavior — what’s the normal functioning for this person? When they’re outside of that, I start asking [probing] questions.

Suppose an advisor observes that a client is losing touch with reality. Is there anything they should do? 

It’s a scary thing, especially for a money manager: At what point should they ask the person to get themselves checked out? I have this discussion with my money manager all the time: What’s the responsibility in this situation? He has some clients that could be financially hurt long term if they sell their best assets, as they sometimes want to do.

So what should be done?

Contact someone in the family and say, “Is your uncle OK? He’s not making a lot of sense right now.” But there’s a fine line. At what point are you stepping over it and violating the trust that you developed with the client as their money manager and are becoming a pseudo-psychologist? But if you don’t do something and you allow the person to [make a bad investment or trade], are you now liable? Will someone in the family come after you because you allowed all the client’s assets to disappear?

Let’s look at a few scenarios of how people handle their finances. For example, what’s going on with an hourly paid worker who has a retirement nest egg and wants to make reckless, high-risk investments with it?

They’re a gambler, kind of addicted to that sense of risk versus reward. True, we’ve got to take a little risk to get a little reward, and somebody has the right to put all their money on the color red and hope for the best. But we don’t like to watch that. It’s a scary thing because we know the potential problems.

Then there’s the bag-lady syndrome: Many ultra-wealthy women fear their money won’t last and they’ll wind up living on a park bench. How realistic is that?

It’s not rational, though we all have a fear that we won’t have enough. These women are falling back on [an attitude that] protected them before and allowed them to survive. My [Great Depression-born] grandparents had plenty of food, but they built a special building for extra food. They’d have 30 cans of corn in there. They were afraid they wouldn’t have enough if something happened.

What about affluent people who are very tight with their money? 

I know [wealthy celebrities] who feel that because they’ve worked hard for their money, don’t want to just throw it away. They were so used to having nothing that when they do have something, they’re afraid to let go of any of it. It’s paranoia directed at their finances specifically. They think, “Even though I have a closet full of money, I can’t spend a dime because I might not have a dime tomorrow.”

Any other pathology that can be seen in the way people handle money?

Those with obsessive-compulsive disorder have to know where every single penny is or is going. But they may not have anything [if] their outflow is greater than their income.

Some folks treat their money like a child’s receiving an allowance: They get it, spend it all immediately; get it, spend it.

That person is not forward-thinking. They’re just thinking about instant gratification, the right-now. It’s similar to when people win the Publishers Clearing House [sweepstakes]. That money is soon gone. Research on lottery winners shows that if they were broke before they won, usually within three years, over 90% of them are broke again, regardless of the dollar amount. The New York State Lottery did a study in the ’90s showing that somebody could win $150 million and three years later they were broke.

There are people who are simply lax about spending or who keep their finances in a mess.  What does that say about their mental health? 

They don’t have an internal need for organization. Oftentimes they have a, kind of, false sense of security or serenity. Some have absolutely no idea where their money goes. They pay into their company-supported retirement plan. They’ll buy their kids whatever they want. Their attitude is: “We have the money — let’s just spend it.” But the next week, when they get their paycheck, they use it to pay their rent.

As did earlier generations, do millennials, in general, have a devil-may-care attitude about spending, not thinking of the future and just hoping everything will turn out for the best?

Yes. When they buy a car, they think, “Can I afford the monthly payments?” — not “Can I afford the car?”

What other advice have you for financial advisors?

Juts keep your eyes open. A lot of psychology is very much what you see is what you get — if it looks like an orange, you know it’s an orange.

Is there any other information that advisors can try to elicit from clients that’s helpful for recommending investments?

Get to know your clients: what they like, what their risk versus reward [tolerance] is. You can do that in a couple of ways besides just asking them. For example, find out what they like to do when it comes to indoor or outdoor activities. Do they like to sail? Snow-ski? Play bridge? Do they like to gamble in Vegas? All of that will give you a picture of who you’re dealing with as a person. It’s like what I do as a psychologist.

How might that information be useful in recommending specific investments?

It will help to get to know the client’s tolerances and what they may be willing to invest in. If they’re sports-oriented, they may be more willing to invest in sports-oriented businesses versus going high tech. Someone else may be more risk-taking and want to invest in a new company that’s coming out with a stock option and has no history. You can tell all that by people’s everyday likes and dislikes.

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