Discussing Financial Independence With Clients

When you ask your clients to define their personal goals, you probably hear this answer a lot: financial independence.

Sounds great, right? Who doesn’t want to be financially independent and not rely solely on that paycheck from your job and be able to do the kind of work you choose—or even not work at all.

To many folks, becoming financially independent involves your Uncle Stanley dying and leaving you. Yes, inheritance is one way to achieve it. What happens if you are like most everyday folks who don’t have a rich Uncle Stanley?

While a lot of people daydream about being financially independent, few know what it really takes to get there. Understanding what it takes requires financial literacy.

Your clients, who are among the super-majority of Americans who are financially illiterate shouldn’t be criticized. It’s not taught in school, and few parents pass it down. We’re left to acquire it on our own through Hard Knocks.

Our industry is finally starting to tackle financial illiteracy. We’re seeing more and more 401k providers and FinTech startups promoting it with their clients. 

If that trend continues, it will be good for everyone. Better-informed investors can lead to better financial choices, hopefully leading to better financial outcomes. That’s good for us as wealth managers because we all want satisfied clients.

This is important, as Joe Saul-Sehy recently told me on my “Bridging the Gap” podcast. He’s a successful host with his own “Stack of Benjamins” financial podcast. And he shared with me a startling study.

“One big statistic that hit me hard was over 150 million Americans say they cry about their money. We’re all having these fears; we’re all doing worse than we pretend we are on Instagram and TikTok. You would think those are people living paycheck to paycheck. But listen to this: Nearly half of people making over $250,000 a year are saying they’re crying about their money. And you know what I think it is? I think their values are going one way, these financial goals they’ve set for themselves, and their money is going another way. So, there’s a big disconnect.”

Joe went on to say that having a values-based discussion with clients can lead to greater contentment and satisfaction for them.

“When we have those conversations, we stop crying about our money because we know that the things we’re saving for, and the way we’re saving for them, is meeting an important goal they really care about.”

And the key to that is financial literacy. Because financial literacy involves more than a working knowledge of the markets and financial fundamentals, it includes not only having clearly defined goals and objectives and a strategy for achieving them, but it can also hold the key to financial peace.

“A big knock on the FIRE (Financial Independence, Retire Early) movement is there are some people who are chasing dreams that are not going to make them happier in the end,” Joe pointed out. “They’re not going to achieve FIRE and suddenly be happy. Clients need to enjoy the journey as much as the prize.”

It’s the Has versus Wants Equation. Everybody has all these “wants” that keep striving for success. They’re never satisfied with their “haves.” And their “wants” number continues to grow, making them unhappy.

That perfectly matches the idea that gaining financial literacy, while at the same time clearly understanding the “why” that is motivating their decision to invest, coupled with an appreciation of the journey while getting there, can go a long way in enhancing client contentment.

As financial advisors, our responsibility is not only to help investors reach their unique targets but also to coach them along the way so they will feel good about themselves.

And the first step in making that happen is encouraging and promoting their financial literacy.