It’s never too soon for financial advisors to help folks develop a healthy mindset about money. That’s why, sporting a baseball cap and stylish beard, financial planner Brad Klontz, also a clinical psychologist, teaches personal finance to Gen Z on TikTok.
The behavioral finance expert, who does this via lightning-fast entertaining videos, has 205,000 followers, and his most popular video has drawn more than 4 million views.
Perhaps the most gratifying aspect for Klontz, managing principal of Your Mental Wealth Advisors, is showing teenage day traders studies indicating how their habit is a losing proposition, a tack that often prompts them to quit doing it, as Klontz tells ThinkAdvisor in an interview.
Meanwhile, in his practice, the planner manages $350 million in client assets and coaches ultra-high net worth family businesses, and others, on wealth-related issues.
In the interview, Klontz, who has partnered on projects with firms including Capital One and JPMorgan Chase, discusses how he assuaged clients’ anxiety amid the big pandemic-provoked March market collapse.
His newest book, “Money Mammoth: Unlocking the Secrets of Financial Psychology to Break from the Herd and Avoid Extinction” (Wiley), is slated for Nov. 3 publication.
In our conversation, Klontz argues that financial advisors who dismiss behavioral finance and financial psychology as inconsequential are “potentially facing extinction.”
An associate professor of practice in financial psychology and behavioral finance at Creighton University, Klontz is a fellow of the American Psychological Association and co-founder of the Financial Psychology Institute, which trains financial and mental health professionals.
Klontz is indeed no stranger to helping young people. For 20 years, living in Kauai, Hawaii, he worked with high school students to change their mindset on a variety of teenage issues.
And that circles back to TikTok, where Klontz applies the psychology of wealth and personal finance in lively 15- to 20-second videos that enlighten Gen Z about things such as to have “a rich mindset.” His top hit reveals an approach to score an “A” on “every test you’ll ever take again.”
ThinkAdvisor recently interviewed Klontz, speaking by phone from his base in Boulder, Colorado. He was just back from recording a continuing education video for Michael Kitces’ firm. The psychologist describes it as “proven techniques to help clients who are resisting your advice.”
In the interview, he discusses his research on how to motivate clients to save more for retirement by “inspiring their animal brain.”
Here are highlights of our conversation:
THINKADVISOR: Seems pretty offbeat, but you teach Generation Z about finance on TikTok. You began last October. Do you get many comments?
BRAD KLONTZ: Hundreds a day. My favorites are “I started saving because of you.” Or “I stopped day trading because of you.”
Are there really that many teenage day traders?
Oh my gosh, yes. I got on TikTok because there were all these videos on it showing how to be a day trader. But I don’t tell people not to day trade. I just show them studies that [indicate] the success rate of day trading: It’s horrendous. Every time someone comments: “I lost a bunch of money day trading, but I decided to stop after I watched your videos, I’m like, “Great!”
Do you have very many followers?
This is the crazy part: I have more teenagers following me on TikTok than financial planners following me on LinkedIn.
Wow. Let’s talk about advising your clients. Amid the pandemic, in general have people’s relationship with money changed?
There have been some short-term changes for sure. Many people have dramatically reduced spending because their income has taken a hit. And, even if they didn’t lose their job, they’re very concerned about an emergency fund. So a lot of people have become more conservative. The proof, though, is in the lasting impact.
There’s going to be an impact on an entire generation: the most impressionable generation, young adults — the millennials.
How else have clients’ relationship with money changed?
For many people, there’s a foreshortened sense of future in terms of what really matters: They’re thinking that the life they have could go away. I’ve noticed a lot of existential questions. [They’re pondering] the meaning of life. The pandemic is a wake-up call to look at your life. Are you living the life you want?
How does that thinking manifest in practical ways?
People are asking, “Do I really want to live where I’m living?” So it’s not about wanting to just take money out and spend it on things, which is actually harder because of the pandemic.
Why are people so focused on relocating?
Worries about [catching] the coronavirus are part of it. I’ve noticed that a lot who live in concentrated, high-density population areas are reflecting, “Maybe I should move out to the country or someplace where there are fewer people.” Perhaps a little town in the middle of nowhere has never seemed quite so desirable.
How did you help your clients cope when the market plummeted 20% in the first quarter of this year?
It wasn’t a normal market crash. They weren’t just fearing for their portfolios but fearing sickness and loss of their lives and of the people they love. All that added to the stress.
How did you assuage their fears about finances?
I used the technique of mental accounting: I split their portfolio into a couple of buckets — like equities and fixed income — and showed them the relative impact of what was happening in the two buckets. That seemed to calm a lot of nerves when they realized that 60% or 70% of their assets were in fixed income, say, and that that was down only a [little] vs. equities, which might have been down 20%.
Do you think that in serving clients, FAs need to pay more attention to behavioral finance and psychology? Some FAs regard these areas as unimportant — so they just focus on numbers.
Those advisors are potentially facing extinction. With robo-advisors and the commoditization of portfolio design and other [tech advances], how are you going to define your value and prove your worth? For three out of four Americans, money is the biggest source of stress — and stress can kill you. People feel so much shame around money.
So who [should] they see to help with financial stress?
Not therapists — they have a tendency to be money-avoidant themselves.
What, then, can advisors do to help and in doing so, prove their worth?
They need to look at their job as beyond just portfolio and asset management. Money intersects with every aspect of a client’s life. Financial planners [per se] understand that and work as a, sort of, financial life coach for their clients. These are the ones who will not only just survive but thrive.
You train lots of FAs. What are some behavioral finance methods you concentrate on?
People aren’t used to being listened to. So if an advisor has some real basic listening skills, they’ll give their clients an incredible emotional experience. Someone is listening to them, and also, they can hear themselves talk. It’s extremely useful in helping people have better lives.
You conducted a research study that came out last November: “A Financial Psychology Intervention for Increasing Employee Participation in and Contribution to Retirement Plans.” Just what was the intervention?
In psychology, an “intervention” is when you help somebody change. In that study, I got random group[s] of people to save more money. We ran the study in five cities, comparing financial education to financial psychology. Those in the financial psychology group increased their savings by 73% after about an hour and a half of intervention.
How was that done?
We got people to become super-excited about why they wanted to save. Our theory was that everybody already knows that they should save — but how do you motivate them to save? You do it by inspiring their emotional brain — the animal brain — the part of the brain that, essentially, drives all behavior.
What specifically did you do?
We used visualization to make their ideas and goals much more concrete and less abstract. When you want to motivate someone to save for retirement, you don’t say, “When do you want to retire?” You say, “Paint me a picture of your ideal retirement: Where do you see yourself? Who’s around you? What are you doing? How does it feel?”
Did they literally create pictures?
Yes. In the study, we gave people art supplies — poster board, crayons, markers, scissors, glue, tape and had them draw or color, or cut out pictures, or put stickers in a book. I had them identify their top savings goals and why they matter, and make pictures of their [end] goal.
What’s the key takeaway for advisors from this study?
If you’ve got a client who’s stuck and really want to motivate them to take action, you have to find ways to speak to the emotional part of themselves and the part that’s focused on their values in terms of what they want most out of life — versus just throwing up charts and graphs and telling them they should save.
Instead of using actual art supplies, how can FAs have clients “paint” their retirement picture?
Through answering questions, they can describe it verbally: “What’s your ideal retirement? Who are you with? What are you doing? Help me understand. Paint me a picture of yourself in retirement. This helps me get a clear picture of what your goals are.”
Yet the question remains: Why are Americans so bad at saving for retirement?
I think about that a lot. One of the reasons is that we’ve had a huge cultural shift from “Your company is going to take care of you [with a pension], and Social Security is going to take care of you as you get older” to “You’re all on your own.” It went from defined benefit plan to defined contribution plan. That word “contribution” has led to a dramatic change in our culture. Now the liability and responsibility are 100% on you. But people just didn’t get the memo.
What can be done to help them understand that they need to save more?
[First] they need basic financial literacy. That should be taught in schools and be mandatory. Studying economics is interesting, but it’s way less relevant to the average American, whereas personal finance is absolutely critical. It’s 100% your responsibility. If you don’t know that [early], by the time you figure it out, you’ll be really far behind.
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