Perspectives in Financial Therapy 3031333616, 9783031333613

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Prince Sarpong Liezel Alsemgeest   Editors

Perspectives in Financial Therapy

Perspectives in Financial Therapy

Prince Sarpong • Liezel Alsemgeest Editors

Perspectives in Financial Therapy

Editors Prince Sarpong University of the Free State Bloemfontein, South Africa

Liezel Alsemgeest University of the Free State Bloemfontein, South Africa

ISBN 978-3-031-33361-3    ISBN 978-3-031-33362-0 (eBook) https://doi.org/10.1007/978-3-031-33362-0 © The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors, and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Springer imprint is published by the registered company Springer Nature Switzerland AG The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland

To Ayanda, Nandi and Zayah Prince Sarpong I want to dedicate this book to my husband, Niel, and my two beautiful daughters, Mieke and Danielle. Everything I do is for you. Liezel Alsemgeest

Preface

Perspectives in Financial Therapy aims to contribute to the body of knowledge in financial therapy, which is currently growing in popularity, as both academics and practitioners in the mental health and financial planning and related fields acknowledge the increasing prevalence of money-related psychological distresses. The main audiences of this book are academics and practitioners in the fields of financial therapy, financial planning, financial counselling, financial coaching, and mental health as well as undergraduate and graduate students in these fields. There are 14 chapters in the book and structured as follows: Chapter 1, Exploring the Emerging Field of Financial Therapy, provides a broad overview of the emerging field of financial therapy and discussions on some of the concerns and benefits of financial therapy. The chapter also discusses some critical issues in the broader field of psychotherapy that have significant consequences on the practice of financial therapy and provides some practical and ethical considerations in the practice of financial therapy. Chapter 2, The Brain and Financial Decision-Making, delves into the field of neuroeconomics and touches on concepts in genetics, neurobiology, and cognitive psychology to set the background for discussions on their impact on financial decision-­making. Since financial therapy aims at, inter alia, solving distresses associated with the consequences of destructive financial decisions, this chapter will provide readers with an understanding of the human brain and how it makes financial decisions. Understanding the functioning of the brain with respect to financial decisions sets the stage for discussions on their practical applications. Chapter 3, Practical Application of Neuroeconomics in Financial Planning, builds on Chap. 2 to provide readers with practical applications of concepts covered in the chapter. This chapter, among other concepts, discusses the ‘behaviour tax’ investors pay for the emotional comfort they experience as they take actions to minimise financial losses. This chapter bridges the technical aspects of neuroeconomics with real-life challenges people face in making financial decisions. Chapter 4, Models, Resources and Tools Employed in Financial Therapy, presents discussions on the identified money scripts and money disorders in financial therapy, and on some of the main models, tools, and resources employed in financial vii

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therapy. The models in financial therapy are adapted mainly from the broader field of psychology and financial planning and can be employed by financial planners, financial therapists, and mental health professionals in helping clients to resolve their money-related distresses. Chapter 5, Decolonising Assessments in Financial Therapy: The Covid-19 Pandemic and African Context, points out the worrying reality that financial therapy, although is in an embryonic stage, adopts assessment tools primarily modelled around the culture of the Western world and may suffer from test-retest and inter-­ rater consistency, thus losing their relevance with time and context, which in turn, can affect the effectiveness of the assessment tools and techniques administered to African clients. The chapter argues that African values are deeply ingrained and distinct from Western values; therefore, African financial therapists are likely to face significant obstacles. The chapter concludes with a suggestion to ‘Africanise’ assessments in financial therapy for African clients. Chapter 6, Online Financial Therapy, presents discussions on online financial therapy as an alternative to traditional in-person financial therapy. The chapter discusses the benefits of online financial therapy as well as its challenges. The chapter further provides discussions on some ethical and practical considerations on the delivery of online financial therapy. Chapter 7, Understanding the Different Generations as Part of Financial Therapy, touches on how each of the generations develop and distinguish themselves from other generations through shared social and historical life experiences. The chapter stresses that in the practice of financial therapy, it is important for practitioners to understanding how each generation’s attitudes, perceptions, and behaviours around money were shaped, in order to be able to create rapport with a diverse group of clients. Chapter 8, Couples and Financial Therapy, explores financial conflicts, which are the most frequently occurring conflict in marriage or a relationship, and tend to be characteristically different from other types of conflict. The chapter touches on the need for financial advisors to realise the shift in the industry towards providing non-financial advice and explores the different financial conflict issues that financial advisors, coaches, and therapists may encounter when working with couples. Chapter 9, Planning for and Surviving Divorce: Can the Incorporation of Financial Therapy Be a Game-Changer?, provides discussions on the trauma of divorce and its emotional, socio-economic, and financial implications on divorcing couples. From a South African perspective, this chapter covers the implication of different matrimonial property systems and their impact on the divorce process and argues that a multi-disciplinary divorce team may be necessary to successfully deal with the divorce process. A financial therapist or practitioner trained in financial therapy may be needed in such a team to deal with emotional distresses and biases as well as the nonsensical need to ‘win’ that may creep up during the divorce process. Chapter 10, Rebuilding a Stable Emotional and Financial Foundation After the Divorce, touches on how the process of a divorce may be gruelling and emotionally draining process and discusses important considerations in the untangling of

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divorcees’ finances to ensure a ‘clean break’. The chapter argues that an interdisciplinary team may be needed to assist persons during and after divorce, to ensure their decisions are based on sound financial and legal principles, and to facilitate smooth and faster post-divorce recovery both financially and emotionally. Chapter 11, Therapeutic Jurisprudence and Estate Planning, argues that financial therapy usually focusses on money-related stress, although estate planning can be one of the most difficult and emotional parts of a person’s financial life. In this regard, the chapter posits that financial planners, estate planners, and attorneys who advise clients and draft estate planning documents also take on the role of counsellors due to the therapeutic potential of estate planning. This chapter discusses the therapeutic and anti-therapeutic effects of estate planning within the framework of therapeutic jurisprudence in estate planning. The chapter further argues that financial planners, estate planners, attorneys, and financial therapists can employ this framework to identify and maximise the therapeutic benefits of estate planning and minimise or alleviate the anti-therapeutic experiences associated with estate planning. Chapter 12, Fearing the Freedom of Testation: How Setting Up a Will as You Please Can Come Under Fire, argues that while the principle of freedom of testation in the law of succession ensures that effect is given to a testator’s wishes to dispose of property as one pleases, this freedom of testation is not unfettered, and the courts have at times refused to give effect to a testator’s directions in a will. Given that one of the anti-therapeutic effects of estate planning emanates from the emotional distress associated with the fear that one’s wishes may not to be carried out as desired, it is important for estate planners, financial planners, and attorneys to aim at minimising or alleviating this distress. This chapter provides technical discussions on possible solutions to ensure that a client’s last will and testament are executed successfully. Chapter 13, Trusts to the Rescue for Estate Planning Fears, follows up on the discussions in Chap. 12 to help clients ‘rule while still alive’, instead of ‘hoping to rule from the dead’. This chapter touches on the technicalities associated with the creation of trusts as a means to alleviate or minimise some of the anti-therapeutic effects of estate planning. This will also help the testator to initiate part of an estate plan and help manage the execution of the plan while still alive. The chapter argues that, if set up correctly, trusts can alleviate some real estate planning fears. Chapter 14, Financial Therapy – A Critical Appraisal, provides a critique to the field and practice of financial therapy and poses critical questions on the tenets of financial therapy, including, among other criticisms, the fairness in framing certain dysfunctional human behaviours around money as ‘disorders’. The chapter aims at getting proponents of financial therapy to pause for reflection, on, among other issues, the question of whether collaboration with scholars within the already established fields in psychology would be more appropriate instead of the advocation for a new discipline. Perspectives in Financial Therapy comes at just the right time as financial therapy is gaining popularity in Europe and North America, and is set to eventually attract more attention in other parts of the world. We believe that this book will

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make a significant contribution to the body of knowledge on the emerging field of financial therapy, and we hope that this exciting field will contribute towards dealing with the growing financial distresses of people around the world. Bloemfontein, South Africa  Prince Sarpong   Liezel Alsemgeest

Acknowledgements

This book is the brainchild of Dr Prince Sarpong. Since starting at the School of Financial Planning Law in 2020, he has made an indelible mark that all the colleagues here are very thankful for. He is always hustling, always excited and thinking of new ideas. Thank you, Prince, for pushing us to get this done. Another very important person in getting this book published has been Dr Christel Troskie-de Bruin. I personally have attended a myriad of her article writing workshops and I trust her implicitly with advice when it comes to publishing research. After all these years, I am still amazed at her knowledge, her drive and attention to detail. Thank you also to Ella Belcher in helping us with language editing and formatting, which I can imagine is a struggle when it comes to second language English speakers. Lastly, thank you to Dr Henriëtte van den Berg, the manager of the Transforming the Professoriate Mentoring Programme at the University of the Free State for the access to funding, but more importantly, the great advice and encouragement. Director: School of Financial Planning Law  Liezel Alsemgeest University of the Free State Bloemfontein, South Africa

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Contents

1

 Exploring the Emerging Field of Financial Therapy����������������������������    1 Prince Sarpong

2

 The Brain and Financial Decision-Making�������������������������������������������   33 Paul Nixon

3

 Practical Application of Neuroeconomics in Financial Planning��������   57 Paul Nixon

4

 Models, Resources and Tools Employed in Financial Therapy ����������   71 Prince Sarpong

5

Decolonising Assessments in Financial Therapy: The Covid-19 Pandemic and African Context��������������������������������������   89 Haruna Maama and Lulu Fortunate Jali

6

Online Therapy: Challenges, Benefits and Implications for Online Financial Therapy ����������������������������������������������������������������  113 Prince Sarpong

7

Understanding the Different Generations as Part of Financial Therapy������������������������������������������������������������������  141 Liezel Alsemgeest

8

Couples and Financial Therapy��������������������������������������������������������������  161 Liezel Alsemgeest

9

Planning for and Surviving Divorce: Can the Incorporation of Financial Therapy Be a Game-Changer?��  177 Henda Kleingeld

10 Rebuilding  a Stable Emotional and Financial Foundation After the Divorce��������������������������������������������������������������������������������������  187 Henda Kleingeld

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Contents

11 Therapeutic  Jurisprudence and Estate Planning����������������������������������  197 Sonja Evans and Prince Sarpong 12 The  Limitations on Freedom of Testation����������������������������������������������  211 Rika Van Zyl 13 Allaying  Estate Planning Fears Through Trusts ����������������������������������  227 Rika Van Zyl 14 Financial Therapy: A Critical Appraisal ����������������������������������������������  243 Jurie Gouwsventer and Corné van Graan Index������������������������������������������������������������������������������������������������������������������  255

About the Editors

Prince  Sarpong, PhD, CFP® is a Senior Lecturer at the School of Financial Planning Law, University of the Free State. Dr Sarpong holds a PhD and an MCom in Finance from the University of KwaZulu-Natal, a Postgraduate Diploma in Financial Planning from Nelson Mandela University, and a Bachelor of Education (Psychology) from the University of Cape Coast. He is the author of Portfolio Management for Financial Advisors, a book published in 2020. Dr Sarpong is a Certified Financial Planner professional, a member of the Financial Planning Institute of Southern Africa, and a member of the Global Association of Applied Behavioural Scientists. He is also a member of the Equity and Inclusion Committee of the Financial Therapy Association. Liezel Alsemgeest, PhD, CFP® Director of the UFS School of Financial Planning Law, started her career as a Junior Lecturer at the Department of Business Management, University of the Free State in 2006. She completed her PhD in 2011 and also holds a Postgraduate Diploma in Financial Planning Law. She is the programme director for the Postgraduate Diploma in Investment Planning and the Postgraduate Diploma in Estate Planning. Dr Alsemgeest is a Certified Financial Planner professional (CFP®) and a member of the Financial Planning Institute of Southern Africa. Her main area of research and passion is the subject area of personal finances and internal finance.

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About the Contributors

Sonja Evans, CFP® has more than 20 years’ experience in the Financial Services Industry. She currently works for A Chimes van Wyk Attorneys Inc. She previously worked at FNB in the role of Fiduciary Specialist offering Estate Planning and Trust Advice to High Net Worth and Ultra High Net Worth clients. Sonja obtained her BCom and LLB degrees from the University of South Africa. She recently completed her LLM in Financial Planning Law through the University of the Free State. She has been admitted as an Advocate of the High Court of South Africa. Her hobbies include reading, gardening, and other outdoor activities. She enjoys spending time with her family, including Barnaby, her Old English Sheepdog. Jurie Gouwsventer, CFP® started his career as a Clinical Psychologist in 1986 and worked in that capacity at hospitals in the Free State and in Cape Town. He then moved to Old Mutual, initially as a personnel consultant. While there, he enrolled for an MBA at the University of Stellenbosch Graduate School of Business and joined Old Mutual’s investment division. He left the company at the end of 1993 as a senior investment fund manager to start his own financial planning firm. In 2001 he enrolled for the Postgraduate Diploma in Financial Planning through the University of the Free State. Upon completion, he qualified as a Certified Financial Planner® (CFP®). In the same year, he joined the Financial Planning Institute (FPI), the gatekeeper and mouthpiece of the financial planning profession in Southern Africa. The following year, Jurie completed the Advanced Postgraduate Diploma in Financial Planning with investments as his area of specialisation. He was adjudged national top student in the subject ‘Principles of Portfolio Planning and Management’ that year. Jurie’s training as a Clinical Psychologist, combined with his extensive experience in the field of personal finance, enables him to offer his unique blend of holistic personal financial planning.

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About the Contributors

Lulu Fortunate Jali, PhD is an academic and Head of Department at the Department of Auditing and Taxation, Durban University of Technology (DUT). Dr Jali holds a PhD and has more than 15 years of teaching experience at the university. Henda  Kleingeld, CFP®, FPSA®, TEP started her career as a Lecturer at the School of Financial Planning law, in 2009. She developed and registered the Advanced Diploma in Estate and Trust Administration and acted as the Programme Director for this course for 5 years. This Diploma is accredited by both FISA and STEP.  She is currently the Programme Director of the Postgraduate Diploma in Financial Planning Law. Her qualifications include BCom (Law), LLB, Postgraduate Diploma in Financial Planning Law, the Advanced Postgraduate Diploma in Financial Planning Law, and a Master’s degree. Before joining the University of the Free State, she did her articles and was admitted as an attorney of the High Court of South Africa in 2004. She practiced as an attorney for a few years before becoming a legal consultant at Sanlam in Bloemfontein. In 2006, she joined ABSA Wealth in Bloemfontein where she worked as a Risk and Fiduciary Specialist specialising in Estate Planning, wills, and trust audits for the high-net-worth clients in the Free State and Northern Cape. She has attained her CFP® Professional status and is a registered Fiduciary Practitioner of SA (FPSA®) and a member of the Society of Trust and Estate Practitioners (STEP). Haruna  Maama, PhD, CA(Gh) holds a PhD in Accounting and a Master of Philosophy and Master of Business Administration, all in accounting. Dr Haruna Maama is a lecturer at the Financial Accounting Department at Durban University of Technology, South Africa. He is also a member of the Macroeconomics Research Unit (MRU) at the School of Accounting, Economics and Finance, UKZN.  His research area includes integrated reporting, sustainability reporting, environmental/ green accounting, corporate governance, climate change accounting, social responsibility reporting, value relevance, etc. Paul Nixon, CFP® is the Head of Behavioural Finance for Momentum Investments. He established an applied behavioural finance capability after experiencing client and adviser investment behaviour for over 20 years with various SA insurers and Barclays Bank. Paul holds an MBA (with distinction) from Edinburgh Business School and recently completed a Master’s degree (with distinction) where he researched ‘risk behaviour’ at Stellenbosch University. He recently completed a masterclass in behavioural science at the renowned iNudgeYou Institute in Denmark. Paul is a registered member of the Swiss-based Global Association of Applied Behavioural Scientists (GAABS) where he co-leads the Middle East and Africa regions. Corné van Graan is a Clinical Psychologist with 20 years’ experience in private practice, in corporate, and in community development. Currently, she is the Regional Clinical Psychologist for Western Cape and KwaZulu-Natal campuses at Eduvos,

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promoting student wellness. Prior to that, she was a Lecturer, Clinical Supervisor, and National Module Developer at Eduvos for 8 years. Corné is passionate about the education of young adults at tertiary level, particularly as there is a need in South Africa to promote effective mental health interventions. She enjoys learning from people who are different from her, especially the young generation of students. Community and Health psychology and mental health promotions within communities are her main areas of interest. Corné is a strong believer in the power of positive thinking and strong relationships in the workplace. Rika Van Zyl, PhD, CFP® is a Senior Lecturer at the School for Financial Planning Law since 2008. After obtaining her LLB in 2007, she received her Postgraduate Diploma in Financial Planning in 2008 and LLM dissertation in 2013. She is an admitted Advocate of the Free State High Court of South Africa and a member of FISA and the FPI. She completed her doctoral thesis in Private Law in 2017, on ‘The influence of the stipulatio alteri on the inter vivos trust in South Africa- proposed solutions for better regulation’ under the guidance of Prof. Bradley S. Smith (UFS). This steered her main areas of expertise to the development and application of the Roman-Dutch common law doctrine – the stipulatio alteri (contract in favour of a third person) and on its current application on South African insurance and trusts along with other financial wellness issues. She has delivered a number of papers at national and international conferences and authored a number of accredited research publications on related topics as well as on teaching and learning topics.

Chapter 1

Exploring the Emerging Field of Financial Therapy Prince Sarpong

1.1 Introduction Financial stress is taking a massive toll on people all over the world. In South Africa, about 54% of people run out of money before the month ends. This financial stress, coupled with a constant worry about loved ones, has a significant and negative effect on the mental health of people. A recent study revealed that 57% of South Africans agree that financial stress has a huge effect on their mental well-being (Sanlam 2021). In the United States, The American Psychological Association (APA), in its yearly Stress in America™ survey found in its 2021 survey that 72% of Americans experience some level of stress about money (American Psychological Association 2021). Although these numbers appear high, Americans are reported to be the least stressed among a group of 36 Organisation of Economic Corporation and Development (OECD) countries (Compare the Market 2021).1 The FP Canada™ 2022 Financial Stress Index revealed that, for the fifth time, and every time this survey has been conducted, Canadians report that money is their number one source of stress (FP Canada 2022). There is a significant relationship between mental health and financial stress (Selenko and Batinic 2011). In turn, financial stress has a negative impact on physical health (Sweet et  al. 2013) and even on parenting abilities (Lee et  al. 2011). According to Dew and Stewart (2012), qualitatively, fights around money are worse than other types of fights. Although financial matters are central to families and the

 See https://www.comparethemarket.com.au/home-loans/features/financially-stressed-countries/

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P. Sarpong (*) School of Financial Planning Law, University of the Free State, Bloemfontein, South Africa e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 P. Sarpong, L. Alsemgeest (eds.), Perspectives in Financial Therapy, https://doi.org/10.1007/978-3-031-33362-0_1

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functioning of families (Dew 2010: 341), there are very few publications on the impact of finances in the field of marriage and family therapy (Glenn et al. 2019). Although the healing of stress falls within the practice of psychotherapy and in the domain of the mental health profession, mental health practitioners tend to generally avoid topics relating to finances (Dew 2010). In comparison to other professions, the level of financial health is relatively lower among mental health practitioners (Britt et al. 2015b). Increasingly, the mental health and certain financial services professions are discovering certain overlaps between their disciplines. The overlap may sometimes lead to certain ‘grey areas’ that may be left unattended to, since it may not fall directly in the domain of either mental health or financial planning and other related financial services. In spite of the awareness of these overlaps and discoveries, couple and family therapists tend to avoid delving into these topic areas. Among other objectives, the Financial Therapy Association (FTA) was established to address these overlaps in practice. The main goals of financial therapy include (Kim et al. 2011): • • • • • •

Helping to improve communication among couples Strengthening the stability of relationships Assuaging financial stress Improving skills in financial management Establishing a financial locus of control Improving financial well-being and general well-being

People consciously or subconsciously often project their feelings about something from their past (such as trauma or a relationship with a parent) onto money. Furthermore, couples who grew up with different levels of wealth may have different perceptions about money and finances. With inherited wealth, the successor or beneficiary may feel that in a crisis, the wealth is his/hers to manage, instead of making decisions with the partner. There may also be times when an unhealthy behaviour emanates from anxiety that comes with having great wealth. Some heirs, for example, may seek therapy because they are rich but feel a sense of emptiness. Some people experience a certain feeling of shame because they have lots of money (Darbyshire 2020). Financial therapy is increasingly becoming popular due to the growing awareness that wealth management goes beyond simply looking after a client’s money and entails looking out for clients’ well-being and ambitions (Darbyshire 2020). There is also a growing recognition in the mental health profession of the relationship between financial distress and depression. When there is an intersection of mental and financial health issues, the need for financial therapy becomes essential. Financial therapy is an intersection of two fields, which is an amalgamation of experiential therapy with ‘bolts-and-nuts’ financial planning (Zaslow 2003). The majority of financial therapists will therefore generally have a primary area of training and licensure, plus an additional credential to incorporate the other area of study. For example, to practice as a financial therapist, a financial planner may take a programme in clinical counselling, and a social worker or a psychotherapist may

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complete a programme in financial planning. There are also practitioners who have dual academic qualifications or professional accreditations. Financial therapy fills a void that until recently, many financial and mental health professionals did not talk about or were not even aware that it existed (Kahler Financial Group 2021).

1.2 The Sociology of Psychotherapy A man dying from terminal and inoperable cancer was given a trial drug, against the better judgement of his doctors. This is because the doctors believed he was near his death and the dosage could be better used on other patients with better chances of survival. Miraculously, the tumour masses melted ‘like snow balls on a hot stove, and in only these few days, they were half their original size!’ (Klopfer 1957: 338). As his health improved, he was discharged. Upon reading a newspaper report that questioned the efficacy of the trial drug, he relapsed and was readmitted. This time, he was told he will receive a double strength injection of the same drug (although this was just a placebo injection with water). Again, he got well and was discharged. Finally, it was confirmed that the drug was completely useless in treating cancer. Once he became aware of this, he relapsed again, went back to the hospital and died shortly after (Klopfer 1957). There are times when mere belief can have a huge effect on one’s health. In cases of voodoo death, for example, believing in the power of a curse is sufficient to create an extreme state of terror that the believer ages and dies in a few days (Cannon 1939). Our bodies are made up of extraordinarily unstable materials, and this instability is revealed by its quick change when conditions are altered (Cannon 1939). There are complex networks of physiological, psychological and behavioural mechanisms that drive the health of individuals. In addition, socio-structural factors can impede or facilitate desired health outcomes. Furthermore, social ties have a significant impact on our health and rival the impact of some of the traditional risk factors such as heavy drinking of alcohol, smoking and dangerous physical activities (Kemp et al. 2017). The sociology of psychotherapy aims at analysing events that occur within and outside therapy sessions and studies the psychopathology of everyday life and any implied ways of right living. According to Karl Marx, ‘It is not the consciousness of men that determines their existence, but, on the contrary, their social existence determines their consciousness’.2 In the field of sociology, this mantra is interpreted as the principle that certain thoughts and actions are shaped by social events. In the field of psychotherapy, there is an extensive body of research on psychotherapy and its outcomes (Barkham and Lambert 2021; Heinonen and Orlinsky 2013; Lilienfeld et al. 2013). Within the field of medical and psychological anthropology, there are

 Source: Lewis S.  Feuer, (ed.), Marx and Engels: Basic Writings on Politics and Philosophy (Garden City, NY: Anchor, 1959), pp.43–4. 2

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existing studies on the systems of knowledge of psychoanalysis and behavioural therapy (Davies 2018; Luhrmann 2011) and also on cultural differences in the field psychotherapy (Kleinman 1988). However, very few studies have been done on psychotherapy from the sociological perspective, and this is the case even in studies on the medicalisation of social problems and the growing number of emotional states that were seen as normal but are now included in diagnostic manuals (Furedi 2013; Frances 2013). According to Flick (2021), the sociology of illness and health can benefit from insights from psychotherapy, with such benefit emanating from new fields of empirical studies that provides additional insights into the consequences of a therapy culture (Furedi 2013; Rose 1990). In his book Therapy Culture, Frank Freudi decries therapeutic culture as the phenomenon of foisting a new conformity by managing the emotions of people, by framing everyday life problems through the prism of emotions, which causes them to feel powerless and ill (Furedi 2013). According to Owen (1993), if there is an intention to describe how people feel they ought to live and by whose rules, then suffering and healing must be viewed in a wider context.

1.3 The Elephant on the Couch Financial therapy borrows extensively from existing theories and practices in psychotherapy. However, studies in financial therapy, so far, have ignored the ‘side effects’ of psychotherapy (Berk and Parker 2009). This is of critical concern as the field may inadvertently exacerbate problems it aims to solve. It is important for current and would-be financial therapy practitioners and academics to be mindful of the possibility of pathologising everyday life problems. Therapy privatises troubles and feelings at the expense of politicising them and places the blame on individuals for structural injustices instead of collectively dealing with the root cause of such injustices like capitalism, racism, patriarchy, apartheid war, etc. In so doing, this perpetuates a culture of narcissistic self-obsession (Flick 2021). Crowther (2002), for example, points out the relationship between social marginalisation and chronic patienthood, and Hersen and Sledge (2002) further posit that financial, cultural and legislative issues act in confluence to further complicate the intricacies of psychotherapy. Wilkins et al. (2013) and Horowitz et al. (2019) recommend that in therapeutic sessions with Black clients, therapists must be cognisant that multigenerational oppression, the residual impacts of slavery and a history of maltreatment have led to a culture of mistrust among Black people, and this may manifest as a mistrust of therapists. The intersection of gender, class and race can result in privileging some group(s) while discriminating against other group(s) (Gale et al. 2020). According to Kliman (2015), class is not only defined by economic wealth. The level of education, access to information, loans, privilege, influence and other resources also define economic class. Furthermore, the assumption of

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meritocracy – that every individual has an equal opportunity to be successful – is premised on the concept of socioeconomic status as decontextualised, nonrelational, individual characteristics, which takes cultural value for granted and fails to take into consideration the institutional and social practices that discriminate, marginalise and oppress certain groups of people (McNamee and Miller 2009). According to McNamee and Miller (2009), the general acceptance of the concept of meritocracy leads people to internalising societal oppression and into believing that the situation they (and others) find themselves in are due to individual actions and character. Although individual choices have consequences, it is also imperative to recognise the impact of culture, the societal context, the history of the individual and family, as well as social and interpersonal constraints, and their effect on the ease of accessing resources, and ultimately, success for individuals. Although a client may or may not be aware of structural and historical constraints, which limits his or her opportunities, overlooking these constraints and treating the client as if he/she is solely responsible for making behavioural changes so as to improve financial well-­ being is ethically and conceptually flawed (Kemp et al. 2017). It is therefore important to extend therapy beyond the self to focus on relationships with other people and the broader society. This will help in transitioning to a more considerate and empathetic world (Kemp et al. 2017). In this regard, it is refreshing to see that there are developments in systems financial therapy which takes into consideration the individual and other external factors that influences the individual. While there are many benefits to psychotherapy, it is also important to raise some of the concerns identified in the principles and practices of psychotherapy. Goffman (1968), for example, uses the term ‘total institution’ to describe a place of work and residence where individuals in the same situation are cut off from society for a considerable period and lead a formally administered and enclosed life together. A typical example is a prison, but a situation similar to prison can also be found in institutions whose members have not broken any laws, for example, mental hospitals (Goffman 1968). The goal of psychiatric hospitals is not to study illnesses in comparison with each other but to ‘give madness reality, to open up a space for realization for madness’ (Foucault 2006: 252). Flick (2021) argues that the ultimate intention of clinical psychiatry, contextualised as a total institution, is not to heal, but to turn people into patients. In his book Saving Normal, renowned American psychiatrist, Allen Frances (Frances 2013), who led the Task Force that developed DSM-IV (Diagnostic and Statistical Manual of Mental Disorders IV), narrates how an update to DSM-5 reinterpreted uncomfortable experiences, which otherwise were considered normal into medical conditions: My worries and sadness were going to be “mixed anxiety/depressive disorder.” The grief I felt when my wife died was “major depressive disorder.” My well-known hyperactivity and distractibility were clear signs of “adult attention deficit disorder.” An hour of amiable chatting with old friends, and I had already acquired five new DSM diagnoses. And … my six-year-old identical twin grandsons — their temper tantrums were no longer just annoying; they had “temper dysregulation disorder.” (Frances 2013, XVII).

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Another major concern within the psychotherapy fraternity is that there are hardly any discussions around malpractice, failure or the side effects in psychotherapy (Berk and Parker 2009; Krivzov et al. 2021). With the exception of medical treatment of organic illness, in psychotherapy, there is limited knowledge about the factors that are proven to contribute to successful therapy outcomes. According to Krivzov et al. (2021), 35–40% of clients show no improvement after going through psychotherapy, based on results from both practice-based and randomised controlled outcome research. However, upon examination of the prevalence of cases of failure in the Single Case Archive,3 they found that only 4% of research describe any kind of failure in treatment. The lack of reports on failure cases creates an environment of disillusionment around the success of psychotherapy processes. Krivzov et al. (2021) suggest that to dis-‘illusion’ clinical research and practice, it is important to create an open and safe climate that allows the discussion of unsuccessful psychotherapies in academic papers. In their paper titled The Elephant on the Couch: Side-effects of psychotherapy, Berk and Parker (2009) submit that although psychotherapy is a potent cornerstone of current practice, this same potency may create risks that may be underappreciated, leading to the tacit assumption that psychotherapy is generally devoid of risks. The authors therefore call for the need for greater awareness and adequate risk monitoring to advance the risk-benefit ratio of psychological treatments.

1.4 The Benefits of Psychotherapy Psychotherapy involves structured talks; it is premised on a relationship of trust between the therapist and the client and aimed at assuaging or healing mental disorders (Barkham and Lambert 2021). Psychotherapy falls within the field of psychosocial advice with a goal of dealing with the people’s action problems in terms of their options to participate in various functional fields. Therefore, the aim of psychotherapy is to treat action-related problems so that people can be self-reflexive to their problems and themselves (Schützeichel 2010). Mental illness is on the increase and according to the World Health Organization, the commonest mental disorders is depression, with about 5% of adults suffering from depression globally. Depression is also known to be a major cause of disability and one of the main contributors to the overall global burden of disease (World Health Organisation 2021). However, it is also possible that the increase in mental illness could be due to the increasing awareness of mental illness or a change in practitioners’ inclination to diagnose mental disorders (Mulder 2008). That notwithstanding, the increasing cases of mental illness is positively correlated with the rise in treatment and a surge in demand for psychotherapeutic services (Robert Koch-Institut 2015; Strauß 2015). Therefore, psychotherapy has now become an

 A database of over 3000 psychotherapy case studies from ISI-ranked journals

3

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important institution, as the number of individuals who will require psychotherapy in one way or the other, are increasing. According to Karlsson (2011), a greater percentage of individuals who go through psychotherapy experience relief from their symptoms and are able to function better in life. About 75% of people who receive psychotherapeutic services report some form of benefit from it. Furthermore, it has been shown that psychotherapy improves emotions and behaviours and linked with improvement in the functioning of the brain and body. Psychotherapy leads to increased work satisfaction, less disability, fewer sick days and fewer medical problems (Karlsson 2011). Through brain imaging techniques, researchers have reported improvements in the brain functions after a person undergoes psychotherapy. Studies have also reported positive brain changes in individuals with mental illnesses including depression, panic disorder, post-traumatic stress disorder (PTSD) and other conditions after undergoing psychotherapy (Cozolino 2015; Javanbakht and Alberini 2019; Karlsson 2011). In most cases, the changes in the brain as a result of undergoing psychotherapy were similar to changes that emanate from the use of medication (Karlsson 2011). By all measures of effectiveness, psychotherapy works, and according to Campbell et al. (2013), the evidence can be found in hundreds of meta-analyses and in thousands of individual studies conducted over several decades. Properly structured psychological interventions deliver positive and meaningful outcomes and are generally robust and effective across settings ranging from practice-oriented clinics to research-oriented laboratories (Shadish and Baldwin 2003). The average effect size for psychotherapy, across studies, is about 0.80, and in the behavioural sciences, this is deemed a large effect size (Wampold 2013, 2019; Wampold and Imel 2015). Although psychotherapy may not work perfectly or may not achieve the desired results for all clients, it is remarkably effective; hence, the average person undergoing psychotherapy is better off than 79% of individuals who do not receive any form of psychotherapy (Prochaska and Norcross 2018). Although the benefits of psychotherapy is not in question, it may be helpful to change classifications such as normal-deviant, healthy-sick, and just-unjust, in a positive direction (Kurtz 2000). This is because, with the exception of the medical field, there is no clear definition of illness and health. Therefore, based on the therapeutic paradigm, the definitions may vary. And while there are classifications such as functional-dysfunctional, conscious-subconscious, and so forth, there is no universal conception of mental health (Flick 2021). Furthermore, given that psychotherapy considers the relationship between the therapist and the client as one of the major contributors to successful treatment, psychotherapy not just a form of treatment but also a mindset (Flick 2021).

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1.5 Is Financial Therapy Psychotherapy? At the onset, people undergoing psychological stress may not be able to distinguish between distresses emanating from finances and those emanating from other psychological distresses. Regardless of the source of the stress, this has a negative impact on their general well-being. Financial distress has a significant impact on financial well-being, which in turn has a negative impact on mental well-being. Mental well-being also can have a major impact on financial well-being. This makes it important for financial therapist to be able to identify the source of distress, in order to be able to adequately resolve clients’ distress. Some enduring experiences, such as emotional instability, can cause financial anxiety and lead to suboptimal financial behaviours (Moss et al. 2018). According to Ford et al. (2020), there is a significant relationship between financial stress and depression; therefore, clients experiencing extreme financial stress are also likely to experience significant depression, and financial distress could be a contributor to depression. There is also a significant relationship between financial distress and depression, as well as a comorbidity between financial distress and depression. There is thus a need for researchers, mental health professionals and financial professionals to improve their understanding of this relationship, to better deal with client distress (Ford et al. 2020). Financial therapy is a multifaceted field that integrates concepts from financial planning and mental health, to help couples, individuals and families in dealing with their financial problems by addressing the behavioural, emotional, cognitive, economic and relational issues associated with their problems (Schwartz 2021). It is an emerging field, which encompasses a synthesis of psychology, financial counselling, financial planning and marriage and family therapy. Financial therapy incorporates two distinct disciplines of therapy and finances, with a focus on the overlapping areas between the two disciplines (Grable et al. 2010). The areas of overlap may be as a result of the ultimate goals of both disciplines, where financial planning seeks to deliver financial well-being, while therapy seeks to deliver mental well-being. This overlap may sometimes create grey areas that are left unattended to by both disciplines although they both focus on client well-being. Britt et al. (2015a) argue that therapy is an inclusive term and not limited to diagnosing and treating mental disorders that are money-related and refer to the dictionary definition of therapy, which includes psychotherapy and any act that relieves tension. Britt et al. (2015a) further argue that theories and techniques in financial therapy can be incorporated into any of the financial professions within the constraints of the ethical standards and scope of practice of each profession. Zaslow (2003) on the other hand posits that financial therapy falls within the field of experiential therapy. Experiential therapy covers a broad family of psychotherapies originating in the 1950s and 1960s and falls under the umbrella of existential–humanistic psychology. Experiential therapists believe that true changes in behaviour occur through active and direct ‘experiencing’ of what the individual is going through and feeling at any given period in therapy (American Psychological Association 2022).

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It entails engaging directly with the client, enabling the client to access and express inner feelings and experiences and providing perspectives for integrating these experiences into realistic and healthy self-concepts (American Psychological Association 2022). There are several therapeutic approaches that can be classified as some type of experiential therapy. They include dynamic therapy, gestalt therapy and cognitive behavioural therapy. Experiential therapy is grounded in the humanistic approach pioneered by, among others, Abraham Maslow, Carl Rogers and Fritz Perls. Experiential therapy is therefore not a category of therapy per se, but different forms of therapy focusing on real involvement with different kinds of experiences, which include interacting with others, emotional processing, creativity and reflecting on events which go beyond the traditional ‘talk therapy’ (American Addiction Centres 2021). Experiential therapy helps to make individuals more conscious of their internal representations of life. Amongst the main kinds of therapies that are categorised as experiential therapy are art therapy, music therapy, play therapy, psychodrama and equine therapy. These kinds of therapies enable the individual to get involved in a process of creation or interaction that helps in developing insight and realisation into the nature of one’s inner feelings, experiences and thoughts. The realisations are similar to those that transpire in ‘talk therapy’ and help individuals to gains insights and learn about themselves, their needs and approaches to addressing their needs (American Addiction Centres 2021). Miller et al. (1997) contend that although ‘psychotherapy’ is continually splitting into several different models, studies show that regardless of the field, technique, or theory one adopts, there are certain common factors across models that matter. Miller et al. (1997) therefore entreat practitioners to shift their attentions away from allegiances to models and masters and rather focus on the common factors that present a unifying language of psychotherapy. According to Miller et  al. (1997), what matters most in psychotherapy are as follows: • • • •

Respect for the client’s point of view Understanding of the problem Knowledge about its solution Interacting with chance events that impact its course

Miller et al. (1997) further draw attention to the therapeutic relationship, which studies show is more important than the therapeutic technique or orientation (Bishop et  al. 2021; Moreno-Poyato and Rodríguez-Nogueira 2021; Theodoridou et  al. 2012; Welch 2005). Thirdly, people generally have hope and plans for the future, and this can be nurtured in the therapeutic relationship (Miller et al. 1997). Miller et al. (1997) conclude that there is a place for the different models and techniques to introduce novelty and provide structure to the practice of therapy. Jerome Frank, one of the pioneering theorists on the common factors, observed that although there are significant differences among the theories and methodologies in psychotherapy, they all share common healing components (Frank 1974).

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Table 1.1  Rank of factors according to categoriesa

Factors Client’s extra therapeutic factors Therapeutic relationship Model/techniques Client’s hope and expectations

Categories Client Individual 14% 32% 23% 31% 100%

Couple 11% 26% 30% 33% 100%

Family 16% 34% 28% 22% 100%

Therapist 22% 35% 16% 27% 100%

Source: Thomas (2006) a Mean percentage

This is because all the different psychotherapy schools of thought aim at fighting demoralisation, which is ‘a state of mind of a person who feels unable to cope with a life situation that he and those about him expect him to be able to handle’ (Frank 1974: 368). Thomas (2006) studied the perception of therapists and clients on the extent to which the four common factors in therapy contribute to success in therapy and found that therapists and clients differ on which factors contribute the most to success; however, they both agree that the client makes the biggest contribution to success. Therapists believe that among the common factors, the therapeutic relationship contributes the most to change (Table 1.1). Financial therapy incorporates concepts from financial planning and related fields as well as psychotherapy and therefore serves as an intersection between these fields. There are therefore concepts in financial therapy that falls outside the domain of psychotherapy but relevant in aiding therapeutic healing. Consequently, the practices of financial therapy can be incorporated into existing psychotherapy practices or financial planning practices. There is also the emergence of financial therapy as a field in its own right, with a dedicated journal and numerous financial therapy research now published in financial planning and psychology-related journals. When there is an intersection of mental and financial health issues, financial therapy is warranted (Grable et al., 2020).

1.6 Financial Well-Being and Mental Well-Being While traditional financial planning focuses mainly on financial well-being, there is now in increasing recognition within financial planning of the impact of mental well-being on financial well-being. Figure 1.1 shows the financial planning paradigm (Sortino et al. 2001). Although the model provided by Sortino et al. (2001) is more of a model of investment planning (a sub-category financial planning), it captures the essence of financial planning – employing financial products to achieve financial goals and in so doing, achieving financial well-being. Financial planning

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Create financial plan

Design optimal portfolio

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Gather financial data Detailed goals analysis Detailed financial forecast

Time horizon Required return

Investment policy

Implementation

Monitoring

Mutual funds

Client expectations Relative to goal?

Fig. 1.1  The financial planning paradigm. (Sortino et al. 2001)

is goals and needs oriented and involves the use of detailed forecasting models and other value-added services. Life insurance and risk management, funding the education of offspring, retirement and estate planning are examples of the works done by financial planners (Sarpong 2020). According to the Consumer Financial Protection Bureau (2015), financial well-­ being is a state where an individual is capable of fully meeting current and future financial obligations, feels financially secure and able to make decisions that allow one to enjoy life. Salignac et al. (2020) define financial well-being as the ability of a person to cover expenses and still have some money left after expenses, being in control of one’s finances and feeling financially secure, both at present and in the future. Salignac et al. (2020) provide a conceptual model of financial well-being, which encapsulates the individual, the household, the community and the society at large (Fig. 1.2). While traditional mental health focuses mainly on mental well-being, there is also an increasing recognition of the impact of financial well-being on mental well-­ being. Figure  1.3 shows a model for sustainable mental health developed by Bohlmeijer and Westerhof (2021). Bohlmeijer and Westerhof (2021) however state that their model for sustainable mental health is applicable primarily to psychiatry and clinical psychology. They further submit that mental well-being is a related but different aspect of mental health that can help to reduce the risk of future occurrence of mental illness (Bohlmeijer and Westerhof 2021). Mental well-being is valued highly by individuals undergoing psychological treatment, as a critical element of

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Fig. 1.2  Conceptual model of financial well-being. (Source: Salignac et al. 2020)

recovery, and personal growth. Mental well-being is therefore an important product of mental healthcare (Bohlmeijer and Westerhof 2021). In sociology, well-being (which includes financial and mental well-being) includes concepts like happiness, a ‘good life’, fulfilment, and satisfaction (Bartram 2012; Carlquist et al. 2017; Kim 2008). According to Ryan and Deci (2001), from a hedonic perspective, well-being is defined as the attainment of pleasure or the avoidance of pain, and from a eudaimonic perspective, well-being encapsulates meaning and self-realisation with a focus on the ability of people to function. The models of financial and mental well-being acknowledge external and contextual factors such as the family, culture, society, gender, etc. One of the contextual factors that are either not captured, or adequately dealt with in mental health, is the financial factor, which directly impacts financial well-being. Possibly, this could be as a result of mental health professionals struggling with their own finance-related contextual factors. There are arguments that mental health professionals generally avoid dealing with the topic of finances in their own lives and that of their clients (Dew 2010; Herron and Welt 1992; Klontz et al. 2008b;

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Fig. 1.3  Model of sustainable mental health. (Source: Bohlmeijer and Westerhof 2021)

Monger 1998; Shields 1996). Mental health practitioners may be more prone to validating money scripts that are associated with lower net worth, lower income, and negative financial behaviours (Britt et al. 2015b). In comparison to other professions, mental health practitioners report significantly lower financial health levels (Britt et al. 2015b). Avoiding money-related issues in mental health may be rooted in the attitude of the father of modern psychology – Sigmund Freud – towards money-related issues. According to Trachtman (1999), on matters relating to his father’s financial problems, he ‘preferred to suppress rather than explore their impact on him’ (Trachtman 1999: 283). Mental health is also heavily influenced by contextual factors. Ecological factors, such as parents, relationships, organisations and communities, can either lead to or encourage maladaptive or dysfunctional behaviours associated with mental distress or illnesses. These factors can also augment resources that support adaptation and mental health (Bronfenbrenner 1995). Historical, social and cultural context can also play a crucial role in thwarting or supporting an individual’s attempts to achieving and maintaining mental health (Bohlmeijer and Westerhof 2021). The contextual factor of financial circumstances directly impacts financial well-­ being and, consequently, on mental well-being. Financial well-being, however, falls in the domain of financial planning, financial coaching, financial counselling and related profession. Mental health, on the other hand, has a direct impact on metal well-being and can directly influence financial behaviour, which in turn have a direct impact on financial well-being. Mental well-being however falls outside the domain of financial planning. Financial therapy is therefore uniquely positioned to tackle this grey area and help clients achieve both financial and mental well-being. Klontz et al. (2016a) posit that financial stress can lead people to look for professional financial advice. These kinds of stress can emanate from different sources. It

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could be because of a financial crisis, fear about retirement, starting a business, an inheritance, etc. Where the financial distress is not linked to a major psychological distress like depression, anxiety or problem relationships, then traditional financial planning could be adequate in helping the individual achieve financial health. The FP Canada™2022 Financial Stress Index, for example, provides a vivid illustration of the important ties between financial planning and the emotional well-being. While 35% of Canadians report that financial stress led to anxiety, depression and mental health issues, only 16% of people who work with a financial planning professional say the same (FP Canada 2022). In situations where advice from traditional financial planning does not deliver the desired outcome, then financial coaching, which may involve exploring and identifying money scripts, could be helpful. However, where the financial stress is due to a serious psychological distress and/or when financial coaching is not able to deliver the desired outcome, financial therapy would be the most suitable option to help the individual.

1.7 Financial Capacity Building Financial capacity building encompasses various interventions employed to help people to be in control of their financial life and entails the use of information or education models, mechanism models and advice models (Collins 2010). Information models are aimed at improving the financial knowledge of an individual, while mechanism models employ information and choice architecture and research in behavioural finance to guide the choices of consumers. Although advice models are related to information and mechanism models, they are not the same and include financial advising, planning, coaching and counselling (Collins 2010). Figure 1.4 shows various components of financial capacity building. The underlying Financial capacity Building Information Models

Mechanism Models

Advice Models

Disclosures

Defaults

Technical Expert (Credentialed)

Print/Web

Automatic Deposit

Interactive Web

Product Constraints

Workshops One-on-One

Reminders

Fig. 1.4  Financial capacity building. (Source: Collins 2010)

Transactional Guide (May have sales focus) Counselling (Acute Problem Solving) Coaching

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economic theory on the market for financial advice is based on three fundamental hypotheses (Collins 2010): • The cost to obtain financial information may be lower for people working with advisors. • Advisors can guide people against making cognitive errors. • The cost of using an advisor may simply be relatively less compared to the time committed to doing the task yourself. Technical experts are professionals skilled in financial and legal aspects of personal finance and provide advice on property, life and liability insurance, investments, credits and loans, tax planning, trusts and estate planning, ownership structures for small businesses and other complex issues relating to personal finance and consumer law. In most cases, the kinds of information analysed by technical experts are either too complex for the typical client to acquire and process, or may take a considerable amount of time and might be needed for only a few important decision points over the client’s life (Collins 2010). The field of counselling is broad and includes social services and mental health services. A financial counsellor works with clients on specific personal financial matters, usually with the goal of remedying a serious financial problem, influencing and motivating the client toward acceptable goals or helping the client to change ingrained problem behaviours (Collins 2010; Mason and Poduska 1986; Pulvino and Pulvino 2010). The collaborative effort between the financial counsellor and the client entails getting to understand the complex relationship between (a) beliefs, values, self-esteem attitudes, emotions, and (b) saving, borrowing, spending, and investing (Hira 2009). Usually, the counsellor is not a financial planner or an investment professional, may not have technical training in finance and focuses mainly on basic personal financial management and not investment planning or holistic financial planning. However, the basis for financial counselling is similar to expert advice with respect to the provision of information and avoidance of mistakes (Collins 2010). Counselling differs from other advice models in many respects. First, counselling is usually aimed at helping clients resolve financial barriers or crises. For example, credit counselling and bankruptcy counselling are aimed at helping clients address acute financial problems. Counselling can also delve into the personal situations of clients and map a plan of action based on clients’ current situation. While counselling entails providing financial information, it also includes the provision of instruction, direction and motivation to clients (Kerkmann 1998). This is particularly so because, in the contexts of crisis, people may not be aware of the options they have, or may experience challenges in finding and processing the relevant information. Financial counsellors can assist clients in making sound decisions in times where emotional stress can distort the decision-making processes (Collins 2010). Financial coaching also falls in the advice model. In practice, the term ‘financial coaching’ describes to a wide range of approaches. Many public and private entities use the term ‘financial coaching’ to describe a broad range of activities that are aimed at helping clients achieve greater financial security. In some cases,

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organisations describe financial education, planning and counselling as financial coaching, regardless of the strategies used with clients (Collins and O’Rourke 2012). According to Dean and Biswas-Diener (2010), coaching is a subset of positive psychology. Positive psychology is centred on utilising innate strengths, positive virtues and qualities to help people improve (Linley and Harrington 2014). Coaching also focuses on the utilisation of personal and social strengths to achieve goals and attain happiness. Grant (2014) on the other hand argues that coaching falls within the domain of traditional psychology rather than in positive psychology. That notwithstanding, coaching differs from clinical therapy. Coaches work with people who are not suffering from any mental illness but rather want to achieve some specific goals in their personal lives and/or work. Although there are different definitions of coaching, all the definitions accept that clients should not have any major mental health problems, and it is generally outcome or solution-focused (Grant 2014). Literature on the psychology of coaching suggest that coaching is more suitable for clients with some history of success, which can built upon (Collins 2010). People in crisis and people experiencing some form of physical, social, financial and mental problems may first require direct counselling interventions and may only become eligible clients for coaching after the resolution of the particular issues (Grant 2001). The ideal candidates are therefore persons who seek to improve their current situations. Generally, these clients have specific goals and ready to embark on a certain process of change. Some people may require support in the process and after working with a coach. In certain situations, working with a coach can serve as a motivation to seek further information or guidance on how to resolve issues that were hitherto neglected (Collins 2010). Although therapy and coaching share a theoretical background and fundamental practice skills that include listening and establishing a relationship between clients and practitioners, the goals of therapy and coaching differ. Whereas coaching is more goal and result-oriented and focuses on achieving client-defined goals, therapy generally focuses on the underlying causes of the problems, irrespective of their connection to goal attainment. While coaches generally focus on the future, therapists generally view problems in the context of the past (Bluckert 2005). Therapists generally take on the role of a caretaker or healer, while coaches aim at establishing collaborative alliances (Collins 2010). Furthermore, there may also be less stigma attached to seeking the help of a coach than seeking the help of a traditional counsellor or therapist (McKelley and Rochlen 2007).

1.8 The Changing Role of Financial Planners According to the Financial Planning Standards Board Ltd. (FPSB), financial planning is the ‘process of developing strategies to help people manage their financial affairs to meet life goals’ (FPSB n.d.). The FPSB is the owner of the Certified Financial Planner (CFP) mark outside of the United States and enters into agreements for licensing and affiliation with non-profit organisations (or their equivalent)

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around the world to authorise them to run the CFP certification program in their jurisdiction. The Certified Financial Planner Board of Standards (CFP Board) confers the CFP designation in the United States. In South Africa, the Financial Planning Institute of Southern Africa (FPI) issues the CFP destination. FP Canada™ is a national professional body that issues the CFP designation in Canada.

1.8.1 The Financial Planning Body of Knowledge This section covers a discussion on the body of knowledge of selected financial planning programme that leads to the awarding to the CFP designation in the United States, South Africa and Canada. Figure  1.5 shows the Principal Knowledge domains of the CFP Board and the Knowledge Topic for the Psychology of Financial Planning. Table 1.2 shows the FPI body of knowledge for the CFP certification. The Asset Management section also covers behavioural finance, and there are talks to incorporate more concepts relating to the psychology of financial planning into the body of knowledge. Table  1.3 shows the Financial Planning Body of Knowledge for FP Canada and has among other topics, the topic of human behaviour, which requires that: Both CFP professionals and QAFP professionals are expected to possess knowledge related to how the brain works and makes decisions, including the values, heuristics, emotions and disorders related to money that an individual brings to the decision-making process. Professionals should understand the stages of individual change and what may motivate or inhibit an individual in making change. They should also understand how their actions and communications may garner or hinder trust.

Fig. 1.5  Principal knowledge domain and knowledge topic for psychology of financial planning

18 Table 1.2  The FPI body of knowledge for the CFP certification

P. Sarpong Principles and practices of financial planning Financial management Asset management Risk management

Tax planning Retirement planning Estate planning Integrated financial planning

Table 1.3  FP Canada financial planning body of knowledge Financial planning profession and financial services industry regulation Financial analysis Credit and debt Registered retirement plans

Registered education and disability plans Government benefit plans Economics Investments

Taxation Law Insurance Human behaviour

From the body of knowledge of the three FPSB members, one can see that the work of the financial planner goes beyond the ‘bolt-and-nut’ financial planning and covers concepts relating to behaviour, emotions and disorders relating to money. Although ‘therapy’ is not explicitly stated in any of the bodies of knowledge, the training of financial planners extends into concepts relating to psychotherapy although the depth may be far less than that covered in psychotherapy education. Financial planning can help to maximise the potential of a client meeting life goals and incorporate the relevant elements of the client’s financial and personal circumstances (CFP Board 2021). The definition provided by the CFP Board points to the evolving role of financial planners and touches on critical concepts relating to the psychology of coaching and counselling, as well as financial therapy. Paul Auslander (then Financial Planning Association president) suggests that psychology is an important component in certain relationships in financial planning. For example, some couples may benefit from techniques in behaviour modification to make spending compromises, or curb runaway spending. Paul however expressed his doubt on the existence of sufficient number of financially trained psychologists to help couples cope with the consequences of financial crises (Voelker 2012). According to Archuleta and Grable (2011), the major financial planning or counselling education and registration or accreditation bodies do not require training in social services, psychology or marriage and family therapy. Therefore, the solution to financial situations with undelying psychological causes is left to each financial planner or counsellor’s relative expertise, and whether such expertise is grounded in clinically established approaches or simple hunches cannot be determined. Whether financial planners plan for it or not, they may sometimes act as personal coaches and counsellors to their clients, as some clients open up to their financial planners about their non-financial lives. This is because, once clients trust their advisors, they tell them any and everything (Dubofsky and Sussman 2009a, b). Figure 1.6 shows the average percentage of clients who raised non-financial issues. From this table, it can be seen that in their interactions with their financial planners, clients bring up and discuss many non-financial issues. Although the bond between

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Fig. 1.6  Average percentage of clients who raised non-financial issues (Source: Dubofsky and Sussman, 2009b)

client and planner sets up the foundation for talking about non-financial issues and the need for coaching is increasing, the ability of financial planners to deliver that coaching service is problematic at best (Dubofsky and Sussman 2009a). According to Archuleta and Grable (2011), the main challenge now is knowing what is the next step for the profession of financial planning and counselling, in order to tie up current advice models with established models that can be employed to deal with financial situations that encompass mental well-­being and relationship dynamics. In a survey by Dubofsky and Sussman (2009a) on the changing role of financial planners, the respondents estimate that they spend 75% of their time dealing with financial planning (monetary) issues, and 25% spent on nonfinancial issues (human drama and frailties) such as death, spirituality and religion, divorce, illness, family dysfunction and depression. Majority of the respondents also reported that non-­ financial coaching and counselling enables them to be better planners, and this is

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also helpful to their clients, although they are unsure whether these activities increase business. While majority of the respondents had some form of training to enable them to assist clients with their non-financial issues, 40% had no training or professional development (Dubofsky and Sussman 2009a). According to Dubofsky and Sussman (2009a) although the meanings of ‘financial’ and ‘non-financial’ issues are ambiguous, many non-financial coaching and counselling activities have financial consequences (Dubofsky and Sussman 2009a). Comments from the inaugural forum on financial therapy revealed that, inter alia, there is a need to determine what works and how interventions can be incorporated and implemented in the practice of financial planning (Grable et al. 2010). According to Klontz et  al. (2016b), all the psychotherapy theories, in varying degrees, are designed to: • Identify self-destructive belief and behaviours in people. • Understand the aetiology and maintenance of problems in living. • Provide a means to treat symptoms and solve problems. Whereas Klontz et al. (2008a) suggest that the term ‘therapy’ is rooted in the field of medicine, Klontz et al. (2016b) argue that financial planning shares some of the common factors in therapy; thus, financial planners are also positioned to help resolve financial stress. According to Klontz et al. (2016a, b), financial planners can help clients minimise their financial stress and improve their psychological and physical health, occupational functioning and relationships. ‘The relationship with a financial planner can be one of the few places clients can talk openly about their money and their feelings about their financial lives’ (Klontz et al. 2016b: 57). Talking to clients about money can get emotionally charged, especially when there are conversations around major life events. The emotional impact of issues relating to money can be viewed as a continuum from mildly stressful, to conditions and disorders that require psychological diagnosis. Training in financial therapy will enable the financial planner better to understand and deal with client’s distress. Furthermore, it is important for financial planners to be aware that dealing with certain emotional/psychological issues surrounding money may be beyond the scope of financial planning although it has a significant impact on financial plans. It is also important for the financial planner to have a referral process that is as comfortable as possible for the client.

1.9 Considerations for the Practice of Financial Therapy Financial therapy can be viewed as a profession, where a duly qualified practitioner with appropriate training provides the service of financial therapy. It can also be viewed as a model that can be incorporated into exiting financial planning, financial coaching, financial counselling or psychotherapeutic and mental health practices. In this regard, where a financial planner believes the underlying cause of stress is related to a major psychological distress, the financial planner may refer the client

Financial wellbeing

Mental wellbeing

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Financial Planning

Financial Counselling

Financial Coaching

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Psychotherapy

FINANCIAL THERAPY Underlying source of stress is pathological

Underlying source of stress is financial

Fig. 1.7  The financial therapy continuum

to a financial coach or a financial counsellor. Where financial coaching and/or financial counselling may be inadequate in resolving the underlying distress, the client should be referred to a psychotherapist. On the other hand, where a psychotherapist believes the underlying source of stress is financial, the client is better served if there is a referral to a financial counsellor or a financial coach, and depending on the specific situation, a financial planner may also be needed (Fig. 1.7). In practice, there may be an overlapping area that therapists may notice. This involves issues of mental health and financial problems, and on such issues, depression and financial distress are two of the most pervasive. Financial distress predict depression and vice versa (Ford et al. 2020). A study by Ford et al. (2020) revealed that there are significant and positive correlations between financial distress and depression. In their study, Ford et  al. (2020) found that the majority (56.8%) of participants receiving therapy also experienced financial distress. Moreover, the majority (78.3%) of participants who experienced depression were also experiencing above average financial distress. Using an interdisciplinary clinic population, the study revealed the prevalence of comorbid financial distress and depression. Ford et al. (2020) suggest that additional training, education and collaboration with professions like financial planning or financial counselling may be beneficial to therapists who work with similar populations. Many psychologists are taking on the task of helping couples to deal with their financial distress. Although money-related stress is not a new phenomenon, resolving this through therapy is a relatively new phenomenon. There is now more awareness among psychologists that money-related stress is a critical issue to look into (Voelker 2012). In response to the growing need for psychologists to raise money management issues in sessions with their clients, Atlanta-based financial psychologist, Mary Gresham, started an advocation for the establishment of an APA division for financial psychology (Voelker 2012). Currently, there are 56 divisions in the

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APA4; however, there is no division for financial psychology. A petition has been submitted to the APA to consider a Financial Psychology division to serve researchers, practitioners and students with interest in financial psychology, financial therapy and money as a topical issue in psychotherapy.

1.9.1 Social Inequalities Social inequalities perpetuate poverty on individuals and families and results in limited opportunities to create wealth. According to Adamkovič and Martončik (2017), poverty has a negative impact on financial decision-making social. This is because there is a positive relationship between poverty and cognitive overload, and cognitive overload in turn is associated with pervasive suboptimal decision-making (Carvalho et al. 2016; Haushofer and Fehr 2014). Gale et al. (2020) posit that such suboptimal decisions may be taken with the hope of addressing a certain sense of despair and hopelessness. From a purely financial perspective, while some financial behaviours of impoverished communities may be suboptimal, if the case is not analysed within the proper context, one will likely overlook the fact that such communities adopt different modes of financial and social interaction to overcome financial constraints (Jones and Luo 1999). Lacking a deeper psychological and systemic understanding of social barriers may lead to inadvertently obstructing progressive measures of change as a result of the therapist’s own blind spot(s) (Gale et al. 2020). Engaging clients based solely on the premise of individual responsibility and autonomy may therefore lead to the ‘right answer being wrong’ (Gale et al. 2020). Gale et al. (2020) provide an example of the right answer being wrong in a case where in a in financial counselling session, the client – a black single mother – disclosed her plan to use her tax refund to purchase a large screen television. The client was told there were better ways of spending the refund; this could, for example, be placed into some investments for her children. The client then responded that ‘In my neighborhood, it is dangerous for my boys to be out at night. I want them inside so they will stay alive. A large TV will help me keep them inside and safe’ (Gale et al. 2020: 88). This scenario shows how the internalised money scripts of financial therapists may inform their approach to therapy to certain clients. It is therefore important to explore clients’ meaning of finances and spending, to enable the financial therapist to contextualise the lives of their clients for a more equitable and just practice (Gale et  al. 2020). In this regard, when dealing with clients’ financial issues, it is also important to bring in critical theory, such as gender, cultural, race and queer theory, to better attend to a broader context than just the induvial, family and community. This is because ‘the unit of treatment isn’t just the person … it is the set of

 See: https://www.apa.org/about/division

4

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relationships in which the person is embedded’ (AAMFT 2022), and in so doing, financial therapists can examine societal structures to spot and disentangle systems of oppression and privilege in the lived experiences of their clients, thus resisting pathology at the individual level (Gale et al. 2020). As a result of the classist cultural narratives and the perceptions people might have formed about money, personal finances remain largely a sensitive topic and may even evoke feelings of shame, embarrassment and guilt. People may also not be willing to discuss their financial situation; therefore, it may become necessary for the therapist to contextualise the therapy session as a holistic exploration of the different aspects of a person’s life. Given these sensitivities, financial therapists must ensure they also address their own money biases and their level of comfort with discussions around money (Britt et al., 2015b; Klontz et al. 2016a, b). The results from Ford et al. (2020) have critical implications for financial therapy and the broader mental health profession. Clients suffering from depression may also be experiencing financial distress, and depression may be significant for clients experiencing financial distress. Close to 57% of the participants in the study were experiencing clinically significant financial distress. Therefore, to effectively treat depression, mental health practitioners should consider adequately equipping themselves to help resolve financial distress or working together with a suitable financial services professional. Since personal finance content are usually not part of their training programmes, for therapists who feel that personal finance issues are beyond their scope, it will be prudent to establish a good referral network of financial councillors, coaches and planners. In the same vein, it is also important for financial councillors, coaches and planners to establish a strong referral network of metal health practitioners for cases where they believe the client is experiencing major psychological distress or disorder.

1.9.2 Ethical and Legal Considerations for Financial Therapy A New York Times article published on 25 September 2008 report that Brad Klontz and others believe that regarding financial planners who double as financial therapists, the ethics are still murky as it could be in violation of the ethical standards of the mental health profession if a financial planner trained as a therapist crosses the boundary and moves into the realm of providing therapy (Kreshaw 2008). While some financial planners may team up with therapists to provide financial advice and therapy services to clients, some financial planners do not see any need for a therapist on their team. They argue that in client meetings, they usually hear about issues with families, marriages and spending, and with an established years-long professional relationships, they are now skilled to provide informal life advice. Morris Armstrong, a financial planner in Danbury, Connecticut, for example, stated that, while he believes referring clients to other professionals when it becomes necessary, there is no need for everybody to have the ‘Dr. Phil of financial planning’ (Kreshaw 2008).

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Ethical considerations are very crucial and especially so with respect to interdisciplinary professions and the concomitant legal and ethical issues relating to the delineation of roles. Since the practice of financial therapy may include mental health practitioners with training in financial planning and/or financial therapy and financial planners with training in financial therapy, it is important that roles are clearly defined at the beginning of any relationship with clients. It may also be helpful for a financial therapist to have contacts or work closely with an expert that complements his/her expertise. Standard 3.09 of the APA Code of Ethics, for example, states that where it is professionally appropriate, psychologists may work with other professionals to effectively and appropriately serve their clients (American Psychological Association 2017). In this context, mental health practitioners with training in financial planning and/or financial therapy may add more value if their services incorporate a suitable referral process to a financial planner. On the other hand, financial planners with training in financial therapy may add more value to their services if they incorporate a suitable referral process to a psychotherapist. For example, along with cognitive therapy, clients with gambling disorder can benefit from the advice of a financial counsellor, to help resolve financial problems and maintain their motivation to abstain from gambling (Ladouceur et al. 2002).

1.9.3 The Financial Therapy Association Standards of Practice and Codes of Ethics On 31 August 2017, the Board of Directors of the Financial Therapy Association (FTA) publicised the FTA Standards of Practice and Code of Ethics (Financial therapy Association 2018) to serve as a guide to financial therapy practitioners and researchers. True to its nature as an interdisciplinary profession, the code of ethics was influenced by codes and practices of existing professions with related practices such as American Counseling Association (ACA), the American Association for Marriage and Family Therapy (AAMFT), American Psychological Association (APA), Association for Financial Counseling and Planning Education (AFCPE), Certified Financial Planning (CFP) Board and the National Board for Certified Counselors (NBCC). There are nine sections within the Standards of Practice and Code of Ethics. The sections are as follows: Section I: Responsibilities to Clients Section II: Confidentiality Section III: Professional Responsibility Section IV: Compensation/Fees Section V: Evaluation and Assessment Section VI: Responsibilities in Teaching, Training, And Supervision Section VII: Research and Publication

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Section VIII: Technology Section IX: Resolving Ethical Issues Section I (2) acknowledges that financial therapy is interdisciplinary and entreats practitioners to commit to the highest standard required in the mental health professionals and the standard of care required in financial planning. Given that financial therapy is still an emerging field and not currently regulated in any country, in providing financial therapy services, it is important for the therapist to be conscious of his/her background, making sure s/he does not sway into issues beyond his/her area of expertise. Section I (13) however recommends that financial therapists should refrain from entering or immediately terminating a service relationship when it becomes clear that the problems presented are beyond the practitioner’s scope of practice. Practitioners are advised to rather provide an appropriate referral for the client in such situations. Section III (1) entreats financial therapists to be cognisant of their scope of practice and should only operate within their level of competence. Section III (4) further entreats financial therapists to seek professional assistance when issues arise that can lead to possible impairment of judgement or performance. Given that client may open up to financial planners about non-financial issues in the course of the advisory process, financial planners, coaches and counsellors who double as financial therapists should be conscious of the delineation of their roles and ensure that the necessary information is provided to the client before any therapeutic relationship is established. Although clients may open up on certain nonfinancial issues to the advisor, the advisory relationship should not switch automatically into a therapeutic relationship without notifying the client. Section I (4) states that during the initial engagement session, financial therapists should inform their clients in writing through a ‘consent for services and engagement document’ and inform the client of the nature of the relationship, the practitioner’s approach to financial therapy, and the services that clients can expect, given the practitioner’s scope of practice as a financial therapist. Where the client is not legally capable of giving informed consent, the financial therapist must secure permission from a legally authorised person where it is legally permissible. The FTA Standards of Practice and Code of Ethics covers a broad range of issues, and financial therapists and other professionals who employ financial therapy in their practices are required to familiarise themselves with the standards and codes as well as the regulatory requirements of the jurisdictions within which they practice. This is very important because, while in some countries such as Australia, there is no law that requires a therapy practitioner to have either experience or qualifications, in other countries such as the United States and South Africa, practitioners are required by law to be licensed to practise counselling or psychotherapy. In South Africa, for example, Board Notice 101 of 2018, Regulations Defining the Scope of The Profession of Psychology, states that no person may carry out the profession of psychology without first being registered in terms of the Health Professions Act and in the appropriate category of psychology. It is therefore important for practitioners

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to be cognisant of legislative requirements in the jurisdictions in which they provide their services. For non-mental health professionals such as financial planners who are trained in financial therapy, it is important to inform their clients that although financial therapy techniques and theories may be employed, the practitioner is providing advisory services and not psychological services for a mental health disorder (Britt et al. 2015a). Section I (8) requires financial therapists to be conscious of their potentially influential position and try to avoid dual relationships with clients if it has the potential to impair their professional judgment or increase the risk of harm to clients. Where a dual relationship is not prohibited by another regulatory body, the necessary steps must be taken to ensure that judgment is not impaired and clients are not exploited.

1.10 Conclusion Financial therapy is a multifaceted field that borrows extensively from the field of mental health and financial planning and other related fields. While mental illness and treatments have traditionally been the domain of mental health, financial anxiety can lead to serious mental and physical health problems. There is a prevalence of comorbid depression and financial distress and a significant and positive correlations between financial distress and depression. When there is an intersection of mental and financial health issues, there is a need for financial therapy. Theories and techniques in financial therapy can also be integrated into any of the financial and mental health professions within the constraints of the scope and ethical standards of practice of each profession. Ethical considerations are very crucial and particularly so with respect to interdisciplinary professions. Since the practice of financial therapy may include mental health practitioners with training in financial planning and/or financial therapy and financial planners with training in financial therapy, it is important that roles are clearly defined at the onset of a relationship with clients. It may also be helpful for financial therapists, financial planners, coaches and counsellors and metal health practitioners to have contacts or work closely with experts that complement their expertise in helping clients to achieve financial and/or mental well-being.

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Shields JD (1996) Hostage of the fee: Meanings of money, countertransference, and the beginning therapist. Psychoanalytic Psychotherapy 10(3):233–250. Sortino FA, Satchell S, Sortino F (2001) Managing downside risk in financial markets. Butterworth-­ Heinemann, Oxford. Strauß B (2015) Risiken und nebenwirkungen von psychotherapie. PiD-Psychotherapie im Dialog 16(04):16–19. Sweet E, Nandi A, Adam EK, McDade TW (2013) The high price of debt: Household financial debt and its impact on mental and physical health Social Science & Medicine 91:94–100. https://doi.org/10.1016/j.socscimed.2013.05.009 Theodoridou A, Schlatter F, Ajdacic V et al. (2012) Therapeutic relationship in the context of perceived coercion in a psychiatric population. Psychiatry research 200(2–3): 939–944. Thomas ML (2006) The contributing factors of change in a therapeutic process. Contemporary Family Therapy 28(2):201–210. Trachtman R (1999) The money taboo: Its effects in everyday life and in the practice of psychotherapy. Clinical Social Work Journal 27(3):275–288. Voelker R (2012) Money matters: Psychologists are helping young couples stay afloat financially in increasingly turbulent economic waters. https://www.apa.org/monitor/2012/10/money-­ matters. Accessed 11 May 2022. Wampold BE (2013) The great psychotherapy debate: Models, methods, and findings. Lawrence Erlbaum Associates Inc., New Jersey. Wampold BE (2019) The basics of psychotherapy: An introduction to theory and practice. American Psychological Association, Washington, DC. Wampold BE, Imel ZE (2015) The great psychotherapy debate: The evidence for what makes psychotherapy work. Routledge, New York. Welch M (2005) Pivotal moments in the therapeutic relationship. International Journal of Mental Health Nursing 14(3):161–165. Wilkins EJ, Whiting, JB, Watson MF et al. (2013) Residual effects of slavery: What clinicians need to know. Contemporary Family Therapy 35(1):14–28. World Health Organisation (2021) Depression. https://www.who.int/news-­room/fact-­sheets/detail/ depression. A cessed 18 April 2022. Zaslow J (2003) Another thing to blame on parents: Hang-ups about handling money. https://www. wsj.com/articles/SB106443552037561600. Accessed 19 May 2022.

Chapter 2

The Brain and Financial Decision-Making Paul Nixon

2.1 Introduction Why is making good financial decisions so difficult? The AON 2018 global survey of financial well-being found that firms are increasingly including financial well-­ being programmes as part of their employee value proposition. More encouraging is that firms are beginning to view smarter financial choices of employees as well as debt management as part of their responsibility to the extent of providing low-cost solutions. Concerning, however, is the relatively low participation rate of employees from 92% of the 159 multinational organisations participating in the study. These firms all reported that the majority of their employees are not taking up the proposition. Equally troubling findings were made by Nixon et al. (2021) in their study on South African investment behaviour during the Covid-19 pandemic. They found that investors lost in excess of R100 million in 2020 from moving over R1.5 billion around in their discretionary unit trust investments amidst the ensuing market volatility. The net result was an average behaviour tax (sacrificed investment return) of 6.5% for the year. A lack of knowledge is not the problem. The latest DataPoints Finpsyche report for 2021 revealed that 77% of the nearly 1600 financial planning clients surveyed agree that daily market fluctuations should be ignored (Datapoints 2021). We often know the correct answer but struggle to weave this knowledge into our information-­ processing algorithms. For example, after creating a ‘backwards bike’, Destin Sandlin, the producer of the popular YouTube Channel, Smarter Every Day, was presented with a ‘simple’ challenge by his friends: Ride the bicycle. The trick, however, was that the controls were reversed: turning the handlebar to the left steered the bicycle right and vice versa. They provided Destin with the requisite knowledge P. Nixon (*) Behavioural Finance, Momentum Investments, Momentum, Centurion, South Africa e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 P. Sarpong, L. Alsemgeest (eds.), Perspectives in Financial Therapy, https://doi.org/10.1007/978-3-031-33362-0_2

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to ride the bike, but he could hardly string two complete pedals together. This illustrates that knowledge does not equal understanding (Robertson 2016). To grasp this idea, we need to understand the brain. The cerebellum at the back of the brain is responsible for coordination and balance that would be crucial for riding a bike. This is part of the intuitive or automatic brain system. Conscious and deliberate brain movement, however, is housed in the cerebrum located in the front of the brain. With the requisite repetition, the algorithm becomes entrenched in the cerebellum, and even when contrary information is presented to the cerebrum (‘steer the opposite way’), it is difficult to override (Robertson 2016). The requisite knowledge is often difficult to implement. Scanning the neural activations in an experiment where subjects were playing a game that resulted in making or losing money revealed some startling findings. When these brain scans were compared to those taken from drug addicts high on cocaine, the results were almost identical – particularly in those participants who were winning money. Renowned neuroscience researcher, Dr Brian Knutson, reminds us that nothing has the same effect on people as money does. Nothing makes the brain light up in the same way: neither naked bodies nor corpses. The issue is that our neural hardware is designed and optimised to process primary rewards like food and sex, via effective reward and reinforcement mechanisms such as the dopaminergic pathway in the brain. When used to decode and process secondary rewards like money, however, there are often processing errors. The subject of neuroeconomics that bridges the disciplines of neuroscience, psychology and economics is in its infancy, considering the history of its constituents. The rise and prominence of non-invasive human neural imaging techniques such as functional magnetic resonance imaging (fMRI) have provided fertile ground for behavioural economists and neuroscientists to embark on a journey of discovery with the aim of ascertaining whether a biological foundation for economic theories of choice exists (Bossaerts and Murawski 2015). The aim is ultimately to examine how decisions are biologically executed and, in doing so, identify the neural circuitry involved in the process as well as the associated algorithms that are employed. This chapter provides an account of the journey of neuroeconomics and the formation of prominent offshoots such as neurofinance. The ultimate aim is to provide recent thinking on a working model of financial decision-making and the constituent parts thereof that assist in explaining financial decision-making.

2.2 A Brief History of Neuroeconomics According to Glimcher and Fehr (2013), neuroeconomics stemmed from two areas: in events following the neoclassical economic revolution of the 1930s and in the rise of cognitive neuroscience in the 1990s. In the 1930s, a famous trio of economists, Paul Samuelson, Kenneth Arrow and Gerard Debreu, embarked on explaining the mathematical structure of people’s preferences and behaviour in markets. What followed was a strongly normative approach that focused on the most efficient

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allocation of resources ignoring the incorporation of more descriptive psychological principles into human behaviour. Samuelson (1938) revealed preferences mathematically through axioms or statements that inferred utilities. This formed the foundation of additional theories around preferences with uncertain outcomes, such as Von Neumann and Morgenstern’s (1947) expected utility theory (EUT). Glimcher and Fehr (2013) contend that to understand the origins of neuroeconomics, it is essential to be cognisant of the tensions around EUT that emerged in the 1950s. French economist Maurice Allais prepared a number of comparative choices revealing preferences that would contradict the ‘independence’ axiom of expected utility theory. The ‘Allais Paradox’ would be the start of a contrarian viewpoint on the axiomatic approach. Another approach emerged simultaneously in the late 1950s. The concept of ‘developed by Simon in 1957 proposed that our limited attention span and information processing capability make bounded rationality’ accurate belief formation particularly challenging in respect of the computation-heavy traditional utility approach. Simon’s work could however not be translated into the traditional language of economic choice theory, and so the notion of ‘satisficing’ or settling for a more convenient option did not progress much further in later economic literature. It was not until the late 1970s that psychologists Daniel Kahneman and Amos Tversky would provide further contrary evidence to the axiomatic approach, particularly that of ‘descriptive invariance’ or the idea that preferences should not depend on the manner in which they are described (Kahneman and Tversky 1979). The way a situation is framed has a significant impact on preferences. Another key contribution here was the modification of EUT to incorporate the idea of reference dependency. From an investment viewpoint, our preferences depend on whether we are in the zone of gains or losses represented as a ‘kink’ in the utility function. However, the realisation was growing that central to understanding human choice was not mathematical models but rather information-processing algorithms in the brain. Neuroeconomics emerged as a new discipline in the 1990s that focused on the choices people make by deciphering their biophysical execution along with the associated neural algorithms. The decisions people make now become much clearer and understandable in a more relatable way when compared to the approach suggested by neoclassical economics (Bossaerts and Murawski 2015). This approach presented a departure from the revealed preference theorists where behavioural economists were looking for alternative predictive models of financial behaviour. Researchers began collaborating across the disciplines of cognitive psychology and neuroscience to describe the neurobiological hardware of choices, but what was often found to be lacking was a theoretical framework to place the results in context. This need led to the incorporation into neuroscientific literature of the familiar economic concepts ‘expected value’ and ‘utility’ (Glimcher and Fehr 2013). The net result was the formation of two communities. The first was a group of behavioural economists and cognitive psychologists who used techniques like neural imaging to propose and verify alternatives to neoclassical economic theory. The second was a group of physiologists and cognitive neuroscientists who focused on

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Fig. 2.1  Increase in papers on decision-making in neuroscientific literature (1988–2006). (Source: Adapted from Glimcher and Fehr 2013:16)

economic theory but aimed to uncover links to the neural hardware behind human preferences. This development created a rich landscape for collaboration where previously held rigid beliefs were set aside in the hope of discovery. Neuroeconomics in the late 1990s and early 2000s was abuzz with activity evidenced by the rapidly increasing number of papers published in neuroscience, as illustrated in Fig. 2.1. What followed were important contributions and collaborations in understanding economic and financial choice. Glimcher and Fehr (2013) put forward the interaction of normative models and neurobiology, specifically the relationship of dopamine in reward processing. Kosfeld et al. (2005) showed that increased levels of the neuropeptide oxytocin had an effect on trust levels in a game setting. Investors with greater oxytocin levels sent more money to trustees, but the level of oxytocin did not have an effect on their willingness to take risk. Fox and Poldrack (2009) found that many core behavioural biases that underpin prospect theory, such as the aversion to losses, the effects of framing on choices and probability weighting distortions, are rooted in neural processing. These findings provided practical pointers to theorists that these anomalies are real. Frydman et al. (2011) found important links between genetic variants and risky behaviour. Carriers of the MAOA-L gene are predisposed to taking risk in a financial context, more so than MAOA-H carriers, with the caveat that this disposition primarily occurs when it would be beneficial given their risk preferences. More recently, however, Bossaerts and Murawski (2015) suggest caution on approaches that retrofit neuroeconomic models to data about financial choices. For example, economists have thought of human emotions as a hindrance to so-called rational decision-making and have clearly delineated cognitive and affective processes. These ‘dual-self’ theories are discussed later. When a biological approach is

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used, however, it quickly becomes clear that emotions are actually central to reasoned decision-making. This was discovered by Damasio (1994) when studying patients with prefrontal and amygdala brain lesions. Being devoid of emotion resulted in severe impairment in making the simplest daily decisions like deciding on a time for meeting. For this reason, Bossaerts and Murawski propose a more central role for biology in human choices. Despite the evolving views on the integration of disciplines, it is clear that both traditional and behavioural economic approaches together with neuroeconomics and neurobiology have shifted towards a choice-centred approach. The emergence of neuroeconomics has undoubtedly been bolstered by development in non-invasive brain imaging techniques used in research. Neuroimaging techniques like MRIs have been a game-changer. A recent study showed that it was possible to predict whether subjects would pick shares versus bonds by examining activation in the nucleus Accumbens (NAcc). This region is involved in distilling motivation and emotion and is central to the brain’s reward circuitry (Sehgal 2019). Glimcher and Fehr (2013) point out that while the field of neuroeconomics has managed to notch up many impressive accomplishments, it remains at best a decade old (closer to two decades at the time of writing) and so has yet to fully realise its true potential in the arenas of neuroscience, psychology or economics. At the same time, other fields are emerging, such as neurofinance, which is focused on neural links to finance theory. Neurofinance, for example, draws from other social sciences, such as the disciplines of psychology and sociology, to show that financial decision-making is indeed impacted by biases, emotions and stress and that the impact thereof varies among individuals (Miendlarzewska et al. 2017). This description of neurofinance demonstrates that the field is closely related to the field of neuroeconomics with the notable exception of building on traditional finance theory such as the efficient markets hypothesis proposed by Eugene Fama in the 1960s as opposed to traditional economic theory. There is no clear attribution in neurofinance to any individual or at least not as clearly as is attributed to Paul Glimcher in the rise of neuroeconomics from 1989 when he joined New York University.

2.3 The Triune Brain Baker and Ricciardi (2014) note that in neuroeconomic literature, there are significant statistical correlations between human biology (e.g. genetics, neural activations and personality traits) and behaviour (preferences and financial decisions). The underlying neurophysiology such as changes in blood flow and electrical activity and even human neuroanatomy (brain structures and hormone levels) further contributes to our understanding of financial choice. Wharton Business School (Nave 2020), for example, clearly demonstrated that increased cortisol produced during the stress response predisposes individuals to using their ‘gut instinct’ and in doing so to bypass their logical thinking centre. While useful in

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our general evolution, our neurobiology predisposes us to poor decisions on some occasions in a financial context. Neuroscientist Paul MacLean conceptualised a model of the human brain in the 1960s that describes the gradual evolution thereof over time. He describes three distinct evolving regions of the brain that have been termed the ‘triune’ brain (MaClean 1990). Although this is clearly a simplistic view of neural activity and organisation, it serves as a good departure point from which to build on our understanding as we progress though the discussion. The reptilian brain is responsible for our survival function like breathing, heart rate, body temperature and our orientation in space that is important for defence and wellbeing purposes. The limbic system is referred to as the ‘emotional’ brain and operates at speed. Montier (2009) gives the example of walking through a snake park and leaning in to examine a snake in their glass enclosure and jumping back when the snake strikes at the glass. This happens despite the knowledge of the glass enclosure and demonstrates that the limbic system operates instinctually. The limbic system is our centre for fear and risk, and we will be returning to it shortly in the context of financial decisions. Finally, the new cortex is the directive part of our brain that accounts for higher-order conscious activity (e.g. language, abstract thought and creativity). It also contains much of our memory that is stored for talking, writing, walking and other familiar activities such as riding a conventional bicycle. The four lobes (frontal, parietal, temporal and occipital) form the cerebrum that was mentioned earlier in the ‘backwards bike’ example. They are part of the cortex. The frontal lobe would be the most important for stored cognitive functions associated with movement. The parietal lobe processes information about temperature, taste, touch and movement, while the occipital lobe is mainly responsible for sight. The temporal lobe processes memories and connects them with sensations of taste, sound, sight and even touch. Baker and Ricciardi (2014) remind us that, since the age of the Greeks and Aristotle, scientists and philosophers alike have recognised the influence of hedonics (pleasure-seeking) and loss avoidance in human behaviour. This is of particular relevance to financial decision-making. Activation of these two systems of reward and loss avoidance in financial decisions forms the focus of the next sections.

2.3.1 Reward Neurons are the brain’s messengers. They carry information using electrical impulses and chemical signals to transmit this information between different areas and between the brain and the rest of the nervous system. In this case, the chemical of interest is the neurotransmitter (chemical messenger) dopamine. According to Arias-Carrión et al. (2010), our motivation is strongly related to reward experienced in the past and, therefore, to the cues that lead to these rewards. Once stimulus-­ reward relationships have been formed, they may become automatic and habitual, and so dopamine is important in the learning and memory process. Baker and Ricciardi (2014) show that one of the five main dopamine pathways in the brain

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Fig. 2.2  The brain’s reward system. (Source: Adapted from Baker and Ricciardi 2014: 383)

houses the reward system. The mesolimbic pathway is demonstrated in Fig. 2.2 and spans from the brain’s base to the grey matter contained in frontal lobes. The pathway passes directly through the NAcc in the ventral striatum that is part of the limbic system. Daniel Kahneman, the Nobel Laureate and widely considered as the father of behavioural economics, together with Hans Breiter of the Harvard Medical School, conducted a study using fMRI that investigated monetary rewards. Breiter recognised the imaging that was returned with significant activation in the NAcc, extended amygdala and hypothalamus that he had witnessed to this extent in an earlier study on cocaine addicts (Breiter et  al. 2001). Dopamine release in both instances reinforced the behaviour.

2.3.2 Loss Avoidance The loss aversion or avoidance circuitry identifies threats or potential dangers. Emotions like anxiety, fear and panic (particularly familiar in a financial context) are generated from the loss avoidance system. The brain’s avoidance system however is far less defined when compared to the system for rewards (Baker and Ricciardi 2014). It traverses several regions of the brain’s limbic system (amygdala and anterior insula), and activity in the system is managed by the neurotransmitters serotonin (mood stabiliser) and norepinephrine (associated particularly with the flight or fight response). Acute activation of this system manifests in a stress response with resultant anxiety. Loss aversion is a central tenet of prospect theory. Tom et al. (2007) comment that people typically require a gain of twice that of the sum at risk to make them indifferent or without a clear preference. In other words, in order to place $100 at risk, the potential reward should be at least $200. In a fascinating neuroeconomic stress test of prospect theory, Tom et al. (2007) calculated

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a behavioural measure of loss aversion (sensitivity to losses) that was published in Science, in 2007. The result was consistent with a median of 1.93. ‘Indifference’ in this case is measured as the slowest response rate or greatest deliberation time in deciding whether to accept a gamble. Most interesting, however, was the result of the participants’ associated brain region activations under an fMRI.  Initially, the intent was to monitor the reward regions of the brain discussed earlier (ventral striatum/NAcc, MPFC, ACC and associated dopaminergic pathways) and risk regions separately in response to increasingly risky gambles. Activation of the risk system is associated with brain regions such as the amygdala and anterior insula, and as such, it would be expected that these regions would respond when faced with fear of losses. Furthermore, as the quantum of losses increase, it would be expected for the activation to increase accordingly. This was not the case, however, as the risk system did not show any significant activation even as the potential losses increased. Instead, the reward system showed decreased activity. This means increased and decreased activities in the ventral striatum (reward system) were experienced for monetary gains and losses, respectively. Paulus et al. (2013) found that activation in the right anterior insula is indeed associated with selecting a ‘risky’ over a ‘safe’ response. Furthermore, the degree of insula activation was linked to the personality trait of ‘neuroticism’ that will be explored later in this chapter. Canessa et al. (2013) also demonstrated the presence of a loss-specific pattern in brain regions displaying distinct loss-related activations in the amygdala and insula. They posit that the finding by Tom et al. (2007) was a result of a methodological issue regarding the relatively smaller spectrum of proposed losses that was not sufficient to activate the amygdala. The discussion above reinforces the view that our understanding of the brain in a financial context is developing. Dopamine, for example, is well known for being strongly associated with reward. However, Bromberg-Martin et al. (2010) suggest that dopamine is also associated with nonrewarding experiences such as aversive and alerting events and that these signals are not packaged as one but are distinct and linked to different brain structures. Elevated dopamine has also been linked to excessive risk-taking in the context of gambling because of reward saliency. In this case, elevated reward status of the behavioural outcome (successful gamble) results in greater acceptable risk (Rigoli et al. 2016). It is clear that holistically speaking, the loss avoidance system does indeed affect the entire body because of hormones released through the bloodstream. Perceiving a threat activates the hypothalamus-pituitary-adrenal axis, resulting in an epinephrine or adrenaline release (Herman et al. 2011). The hypothalamus responds to signals like elevated adrenaline levels by secreting corticotropin into the bloodstream that in turn provokes activity of the sympathetic nervous system central to the flight or fight response and resulting in symptoms such as elevated heart rate (Chrousos 2009). The signal arrives at the pituitary gland and is passed on through adrenocorticotropic hormone (ACTH) secretion via the adrenal cortex to the distribution mechanism (adrenal glands) located just above the kidneys. ACTH

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Fig. 2.3  Structures in the brain’s loss avoidance system. (Source: Adapted from Baker and Ricciardi 2014:388)

binds to receptors on the surface of the adrenal cortices, causing the adrenal glands to secrete glucocorticoids like the hormone cortisol. Cortisol secretion has been linked to the experience of market volatility in trading activity (Coates and Herbert 2008). Subsequently, Nave’s research (2020) showed how elevated levels of cortisol predisposed participants answering puzzle questions to respond instinctively without much deliberation. Finally, it is important to note that experience gained during economic decision-­ making is stored in the area of the brain responsible for memory (hippocampus). In terms of financial decisions, a similar view is held in that these decisions draw from learned experiences stored in the hippocampus (Frydman and Camerer 2016). Figure 2.3 demonstrates the structures referred to in this section and shows that the majority of structures are located in the limbic system (blue area) that is the centre for fear and risk. The locus coeruleus located near the brain stem produces much of the brain’s noradrenalin which has also been closely associated with arousal and attention (Bari et al. 2020).

2.3.3 Neuroimaging Some neuroimaging of the associated risk and reward structures in the brain discussed in the previous section is reproduced in Fig. 2.4. The ventral tegmental section and ventromedial prefrontal cortex (vmPFC) are part of the dopamine pathway system detailed earlier in this chapter and are associated with the reward system. They are shown on the left of the diagram. On the right, the regions associated with the risk system are shown. These include the amygdala, the dorsal striatum, the dorsomedial prefrontal cortex that extends into the ACC and the anterior insula.

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Fig. 2.4  Brian structures in risk and reward processing. (Source: Miendlarzewska et al. (2017:6)

Miendlarzewska et  al. (2017) describe the evolutionary challenge of money rewards, which are secondary to the primary or survival rewards of food and sex, for example. Our ‘hardware’ has not evolved to account for secondary rewards and as such is trying to decode and maximise them in the same manner as primary rewards. For example, reinforcement learning via the secretion of dopamine in reward for a favoured outcome is the opposite of what we know about financial markets. Doing what has worked in the past is a relatively poor investment strategy. In similar vein, market crashes are relatively infrequent, and so our inexperience leads us to underweight associated probabilities as the as the time lapse from a crash increase while overestimating the same probability shortly after a crash. Added to the fact that cortisol secretion predisposes people to bypass rational thinking and distorts risk perception, humans are just not wired for making the best financial decisions.

2.4 Nature over Nurture: The Role of Genetics Techniques from neuroeconomics and the genetics of behaviour are combined to ascertain the effects that genetic encoding has for carriers of the monoamine oxidase-­A (MAOA) gene as well as for the serotonin transporter (5-HTT) and dopamine D4 receptor (DRD4) on financial decision-making. This assists greatly in providing a biological link to investment behaviours, and their associated psychological processing errors demonstrated further down in Table 2.2. The MAOA gene manufactures a protein that breaks down and processes noradrenalin and serotonin (Baker and Ricciardi 2014). Associated traits and behaviours are those linked with impulsivity and aggression in the context of risk-taking. Carriers of the MAOA gene take more financial risks, but they also appear to show higher expected utility; in other words, they generally appear to benefit from such risk-taking behaviour. Furthermore, MAOA-L gene carriers were found to exhibit more optimal financial

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behaviour when compared to MAOA carriers, because they are able to make better financial decisions under conditions of risk. The ‘L’ simply refers to the level of enzymic activity associated with the gene, so ‘MAOA-L variant’ means the genetic variant with low associated enzymic activity while ‘MAOA-H’ would denote high enzymic activity. Behavioural differences among the 5-HTT and DRD4 carriers have been reported in a genetic study by Kuhnen and Chiao (2009) who found that 25% more risk was taken by subjects with the DRD4 gene and 28% less risk by those with the short serotonin transporter gene 5-HTT. Data from the Swedish Twin Registry also led researchers to confirm that 25% of individual risk-taking may be attributed to genetic factors (Cesarini et al. 2010). These differences in genetic variation were also found to extend to differences in how investments were executed, for example, preferences for active versus passive investing styles. Nagel et al. (2018) reported on the largest genome-wide association study of the genetic links to the personality trait of neuroticism to date. The study identified 136 significant loci associated with 599 genes. ‘Locus’ is a term used in genetics to reveal where a specific gene is on a chromosome. Only 16 loci were identified prior to this study. The plural of locus is loci, and a greater number are indicative of a stronger genetic link to the personality trait. The personality trait of neuroticism has been shown to be an important factor in both mental and financial well-being. Personality traits from a psychology standpoint are discussed in the next section.

Table 2.1  The genetic basis for investment biases Investment behaviour Insufficient diversification Excessive trading Disposition effect

Performance chasing

Skewness preference

Psychology mechanisms Ambiguity aversion Familiarity Overconfidence Sensation-seeking Prospect theory Loss aversion Mental accounting/ framing Excessive extrapolation Hot hands fallacy Representativeness Cumulative prospect theory

Gene(s) DRD5; ESR2 SLC6A4 Multiple SNPs in 4 dopamine genes

Evidence Chew et al. (2012)

DAT1; STin2

Zhong et al. (2009)

Cesarini et al. (2012)

Lakshminarayanan et al. (2011) Cesarini et al. (2012)

MAOA

Source: Adapted from Cronqvist and Siegel (2014:218)

Zhong et al. (2009)

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Table 2.2  Comparison of dual system of information processing System 1 Does not require working memory Autonomous Fast High capacity Parallel Non-conscious Biased responses Contextualised Automatic Associative Experience-based decision-making Independent of cognitive ability

System 2 Requires working memory Cognitive decoupling Slow Capacity constrained Serial Conscious Normative responses Abstract Controlled Rules-based Consequential decision-making Correlated with cognitive ability

Source: Adapted from Kannengiesser and Gero (2019:5)

2.4.1 Genetics and Biases Many links exist in literature that relate information-processing errors or biases to genetics. Table 2.1 provides an account of the genetic basis for investment biases. The evidence column in Table 2.2 above draws attention to the relative recency of the study of molecular genetics when linked to psychology and personality neuroscience. The genome-wide analysis approach has proved fruitful in recent years and points towards reliable genetic associations even though more work is needed in this area. It is fascinating, however, to consider that as much as 45% of the variation in popular investment biases listed in Table 2.2 was shown by Cronqvist and Siegel (2014) to be explained by genetics. They propose that such biases may in fact be linked to innate, ancient and evolutionary facets of human behaviour.

2.5 Nature over Nurture: The Role of Personality Meta (2015) asserts that investing is 80% psychology. A strong body of research exists on the link between personality traits and financial behaviour that will be detailed in this section. According to Boyle et al. (2008), Gordon Allport is considered a founding father of trait psychology. Allport defines a ‘trait’ as a generalised neuropsychic structure that renders many stimuli as functionally equivalent. A trait-­ anxious person, for example, would consistently interpret and respond to a set of stimuli as threats. Traits generate a consistency in response and as such are stable in nature. Along with Raymond Cattell and Hans Eysneck who are considered co-­ pioneers with Allport, the study of personality traits has advanced towards what Boyle et al. (2008) refer to as a ‘normal science’. Trait theory has evolved to a point

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where researchers share a common set of core beliefs supported by empirical evidence. The Five Factor Model (FFM) of Digman (1990) and MCrae and John (1992) is still the most widely accepted and practically applied theory of personality despite having attracted healthy debate and critique (Boyle et al. 2008). McCrae and John (1992) identified two prominent systems for naming the five factors derived from the lexical and questionnaire traditions, respectively. The ‘adequate taxonomy of personality attributes’ (Norman 1963) was essentially a factor analysis based on Raymond Cattell’s natural language (dictionary) trait terms. This is where the FFM began. Three of the five factors that remain today were contributed by Norman and are described as ‘extraversion’, or the degree of socially confident and social or outgoing behaviour; ‘agreeableness’, which is the extent of the individual’s amiable, altruistic or cooperative nature; and ‘conscientiousness’, which is associated with the degree of awareness of one’s own behaviour and the effect this behaviour has on others. The second system originates from the analysis of questionnaires and is the base from which Hans Eysenck added the dimension of ‘neuroticism’ (emotional instability, anxiety and negative situational framing). Later, Costa and McCrae added the fifth dimension, ‘openness to experience’, which is seen as the propensity to explore together with an external locus of control. The FFM has since been applied widely and tested accordingly over decades in facets such as job performance (Salgado 2003) and personality disorders (Miller et al. 2005). Furthermore, according to Costa and McCrae (2011), these traits have been found to recur across cultures, are strongly heritable and have indeed been shown to be stable over time. Several links have been drawn between the FFM and financial behaviour. According to Lauriola and Levin (2001), the trait of neuroticism or anxiety provides a consistent predictor of risk-taking. Donnelly et al. (2012) found that 19.3% of the differences in the way people manage money may be explained by their respective personality traits. Mayfield et al. (2008) found that anxious investors are less likely to engage in short-term investing while extraverted individuals are significantly more likely to do so. According to Ksendzova et al. (2017), money management is associated positively with conscientiousness and negatively with neuroticism. The strength of personality traits in respect of their financial behaviour predictability is significant, in that, Xu et al. (2015) refer to the personality traits of conscientiousness and openness as human capital. Those who possess these traits or have low levels of neuroticism and agreeableness have been shown to earn higher salaries and consequently avoid or suffer less financial distress. Filbeck et al. (2005) established successful links between the Myers-Briggs Type Indicator (MBTI) and personality trait preferences that are also stable by nature. According to the MBTI, people who prefer ‘feeling’ exhibit reduced tolerance for variance and are thus risk averse. In contrast, those who prefer ‘thinking’ have a greater tolerance for risk. The relationship between the FFM personality traits and financial behaviour as proposed by Van Raaij (2016) is detailed in Fig. 2.5. The middle column puts forward predictors of financial behaviour with links to the FFM of personality traits to the left and resultant financial behaviour to the right. Reading from the top right, for example, shows that risk-seeking behaviour can be traced back to the three

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Fig. 2.5  Relationship between personality variables (FFM) and financial behaviour. (Source: Adapted from Van Raaij 2016:150)

personality factors of extraversion, emotional stability and openness to experience. Note that emotional stability equates to a low level of neuroticism (low trait anxiety). This is evident from the negative symbol associated with the arrows in the diagram. High impulsiveness leads to less carefully considered financial choices in the sense of impulse purchases. Those prone to impulsivity run greater risks because of the lower needs to weigh up the properties of all alternatives. This often leads to financial misbehaviour such as a low savings rate. Moving downwards towards security-seeking or risk-averse behaviour, chronic activation of the loss avoidance system has been associated with the personality trait of neuroticism (Flory et al. 2004). Low emotional stability (neuroticism) leads to trait anxiety characterised by the negative risk-seeking behaviour, which equates to risk aversion. It is also clear that security-seeking behaviour can be traced back to the trait of agreeableness, which is characterised by the desire for trust and the safety of the herd. Finally, sound financial planning behaviours have their roots in the trait of conscientiousness, which enables the benefactor to control impulses and delay gratification. It is for this reason that this trait was earlier put forward as ‘human capital’ as it is clearly a valuable trait to possess. Some evidence was presented in the genetics section of personality traits being passed down in genetic make-up. An extensive literature study was conducted by Boyle et al. (2008) of the overwhelming contributions of genetic factors towards individual differences in the Big Five dimensions of personality.

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2.6 Decision-Making Frameworks Frydman and Camerer (2016) explain that cognition has a marked impact on financial decisions and support the notion that the field of behavioural finance has shown choice anomalies that contain critical implications for investor wealth, share prices and regulatory policy. They also recognise the importance of psychology in patterns of saving and investing. Progress in this arena originates from collaboration between economic and finance theory with behavioural economics theory that incorporates psychological assumptions into decision-making. More recently, however, increasing access to data using fMRI that considers elements of cognitive science, such as hormonal and genetic influences, as well as the impact of the information environment or context via Google searches, for example, is providing a crucial feedback loop into decision-making theory. This chapter is concluded by examining two decision-making frameworks, the second of which serves to connect many of the dimensions discussed in the chapter so far.

2.6.1 The Dual-Self, ‘Elephant’ and ‘Rider’ Decision-Making Framework No account of the neural effect on decision-making would be complete without considering dual-process theory or the two different systems the brain uses to process information. Camerer et al. (2004) explain that the human brain is essentially mammalian with a bigger cortex. Human behaviour may be viewed in light of the interplay between instinctual and primordial emotions with more deliberate and controlled foresight. This suggests a model that is based on duality and one that often operates contrary to the more traditional paradigm of utility in an economic context. Utility-maximising behaviour always presents one option, namely, rationality, as optimal because it always increases utility for the agent. Only one rational ‘self’ is required for this model; however, this is not descriptive of the human condition. Research into the psychological roots of behavioural heuristics and biases has revealed that human decision-making often involves the interplay of these mental processes, as discussed earlier. Fairly recently, this has been put forward as the ‘fast’ and ‘slow’ systems by Kahneman (2011), who also use the terms ‘System 1’ and ‘System 2’. Table  2.2 shows a comparison of the dual system of information processing. The interplay of the two systems is made more practical by Grayot (2019) who expands on Haidt’s (2006:4) analogy of the elephant and rider. The image that I came up with was that I was a rider on the back of an elephant. I’m holding the reins in my hands, and by pulling one way or the other, I can tell the elephant to turn, to stop or to go. I can direct things but only when the elephant

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doesn’t have desires of his own. When the elephant really wants to do something, I’m no match for him. The rider in this case is rational but at the mercy of the elephant who acts more on animal instinct. An interesting fact in the context of neuroeconomics is that violations of standard utility theory that have been tested in human choice experiments have been replicated with animals (Camerer et al. 2004). The key message here is that the machinery we all use is primal and far more suited in the context of survival as opposed to rationality axioms of economic choice theory. 2.6.1.1 The Rider In the context of financial decisions and the volume of published research on the consequences of making emotional financial decisions, it may appear that the aim is to discard emotion or simply get off the elephant. However, neuroscientist Antonio Damasio shows that this is not the case at all. Damasio published The Descartes Error in 1994. The title stems from the seventeenth century French scientist, René Descartes, and his dualism theory of mind and body. Damasio published an extensive history of treating patients with damage to the ventromedial prefrontal cortex (vmPFC), which is responsible for emotional processing. His research suggests that when the connection to secondary emotions is severed, the people affected cannot function properly in society. ‘Mr Elliot’, a famous patient of Damasio’s, was left without emotion when tumour-related surgery damaged his vmPFC. Returning to the analogy, further insights are provided below that will detail key characteristics of the rational and deliberate ‘rider’ from a neurobiology standpoint. Speed Deficiency  Returning to Damasio (1994) and patient Elliot briefly, the author provides an account of the supposedly simple process of setting their next meeting up in a diary: I suggested two alternative dates, both in the coming month and just a few days apart from each other. The patient pulled out his appointment book and began consulting the calendar … For the better part of a half-hour, the patient enumerated reasons for and against each of the two dates: previous engagements, proximity to other engagements, possible meteorological conditions, virtually anything that one could reasonably think about concerning a simple date.

What is happening here is essentially that the vmPFC serves as the communication bridge allowing emotions to influence rational cognition. When that bridge is damaged, the effect is a tremendous loss of efficiency in terms of performing routine tasks. Endurance Deficiency  The cognitive resources of the rider are also fairly limited. One can think of making decisions as a muscle. Like any other, this ‘muscle’ can become fatigued. Grayot (2019) explains that the rider’s role here may be thought of as representing self-regulation that includes executive processes like working memory, attention, decision-making and control over emotions. The primary region

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of the brain responsible for control-related functions such as these is the prefrontal cortex (PFC). Overconfidence  The biggest challenge of the rider system – when considering the context of financial decisions – lies in trusting our future selves. In general, people are convinced that they will choose things that are in their best interests in the future. In other words, we all happily admit that saving is a good idea as long as we do not have to do it now. Similarly, when asked to make a choice between a healthy snack and chocolate next week, 74% of subjects preferred the healthy option. When the future becomes the present, however, a preference reversal occurs, and only 30% of subjects actually choose the healthy option (Read and Van Leeuwen 1998). A remedy proposed and tested by Thaler and Benartzi (2004) showed impactful results in the ‘Save more tomorrow’ programme where pre-committing to increased retirement saving (making tomorrow’s decisions today) resulted in behavioural change. 2.6.1.2 The Elephant In contrast with the rider’s deliberation, the elephant is chiefly concerned with more in-the-moment emotional consequences of actions. In amongst the wide array of considerations, there exist three key considerations that define elephant-system type thinking: myopia, somatic marker processing and loss aversion (Grayot 2019). These considerations are briefly discussed below. Myopia  The term ‘myopia’ refers to being short-sighted and too strongly focused on the short term or ‘now’. In traditional economic models, there is no time preference for rewards because people should have a consistent exponential discount rate (Samuelson 1938). However, this is contrary to evidence showing that people have a hyperbolic discounting function (Laibson 1997). People often assign higher discount rates to future rewards that create the preference for immediate consumption. Said differently, people are happy to save in future but would prefer to spend now. This phenomenon is strongly related to the overconfidence phenomenon of the rider system that overestimates the ability to be rational later. The nature of being myopic is the short-term emotional machinery that initiates the preference reversal when the future becomes the present. McClure et al. (2004) conducted research using fMRI to ascertain the different brain regions that are activated during payoff preferences (‘now’ versus ‘later’). In respect of immediate gratification, the neural imaging using fMRI clearly demonstrated greater response from the reward system associated with dopamine contained in limbic structures. The areas of the brain associated with higher-order thinking and cognition showed greater activation with delayed gratification and lesser activation with the immediate payoff. Somatic Marker Processing  According to the ‘somatic marker hypothesis’ (Dunn et al. 2006), emotional processes guide decision-making because they rely on few cues. Furthermore, these cues are stored as emotional markers, and when a similar

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set of stimuli presents itself, the resultant behaviour is automatic and without cognitive awareness. The net effect is that with relatively limited cues to a scenario for which there is an emotional marker, a complex set of emotions is instantly available and physiologically experienced (Grayot 2019). All of this is based on one’s experiences, and such experiences are referred to as ‘primary inducers’ (Bechara and Damasio 2005). These authors refer to the critical importance of secondary inducers that are imagined hypothetical events, such as winning an award or a sum of money. The idea here is to transform a financial goal into a an emotional one by eliciting emotions via imagery that draws on somatic marker processing to make the associated behaviours more automated. Animal cognition, however, does not relate to language, and so to increase efficacy here, there must be strong mental imagery. Professional sports people utilise the same techniques to try and build automated responses that increase their efficacy by imagining real in-game scenarios over and over (Strean and StrozziHeckler 2009). The significance of the ‘tangibility’ element may have something to do with our neural structures. The vmPFC is the bridging structure that incorporates emotional markers into decision-making and may explain why spending on credit cards is much easier. It is simply more abstract than spending real money (Bechara and Damasio 2005). Somatic marker processing in neuroeconomics is a rich field, and this account has barely scratched the surface. Bechara and Damasio’s (2005) paper, however, provides an excellent account of emotions and the associated neural structures involved when considering the somatic marker hypothesis. Loss Aversion  Fear is a powerful motivator particularly when related to our mammalian instinct. In many instances, nature has selected for those species displaying healthy levels of fear. Extensive research has demonstrated that the amygdala governs reactions rooted in the neural circuitry associated with fear. The vmPFC is the mechanism that ultimately informs the decision-making process where emotion is involved. People with damage to this important region of the brain (vmPFC) were predictably unable to activate circuitry to engage subsequent emotion associated with loss aversion, for example. Shiv et al. (2005) found that when people with damage to their vmPFC participate in an experiment where they are asked to gamble with $20 on a coin flip, they do not exhibit nearly the same degree of loss aversion when compared to those without such damage. These participants made the gamble on 83.7% of occasions when compared to 57.6% in the group without such damage. Interestingly, the ‘normal’ group also showed much greater propensity to take the gamble immediately after a successful bet (61.7%) when compared to the only 40.5% immediately after a loss. Participants with the damaged vmPFC showed a far greater degree of rational behaviour without any discernible difference in making the gambles after winning or losing.

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Environment - Present security, autonomy, needs - History of security, autonomy, needs - Experiences of success and losses

Personality - ‘Big five’ 1. Extroversion 2. Neuroticism 3. Openness 4. Agreeableness 5. Conscientiousness

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Neurobiology - Reward prediction - Delay discounting - Decision bias - Situation encoding - Cognition - Genetics - Hormones

General risk aversion Intelligence / understanding of task

Economic experiences / preoccupations

Financial decision-making

Fig. 2.6  Integrated model of financial decision-making. (Source: Adapted from Prinz et al. 2014:9)

2.7 An Integrated Model of Financial Decision-Making This chapter concludes with a broader and more integrated view of financial decision-­making as presented in Fig. 2.6. To date, much focus has been placed on the middle and right blocks in Fig. 2.6. Personality traits as well as neurobiological structures regulate risk aversion behaviour in a number of ways. The brain’s risk and reward systems have an impact on the way information is perceived and decoded. This is often accompanied with hormonal secretions that the brain releases to try and elicit the correct behavioural response. Often the result is a decision bias. General tendencies in favour of or against risk have also been linked in literature to our personality and the FFM of personality trait theory. However, as explained by Prinz et  al. (2014), other factors (such as environmental influences) also have a marked effect on levels of risk sensitivity. It follows that this may well be mediated by economic experiences and circumstance. Furthermore, the financial decision-­ making process may also be affected by cognitive performance. The shaded blocks in Fig. 2.6 will now be discussed to complete our understanding of the integrated model and its constituents. The first consideration is the environment. The UNICEF Behavioural Drivers Model (UNICEF 2019) considers the environment to be one of three key drivers of human behaviour. The model unpacks a number of dimensions. Our communication environment that is formed from the information, opinions, arguments and stories to which we are exposed has a significant role in shaping our attitudes and interests and so ultimately our behaviour. A further important consideration is people’s exposure to and awareness

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of those who have already chosen a different option. These so-called ‘information cascades’ are of voices carrying a different message and of influences, which can trigger different behaviour. The dynamic of change within a group usually starts with a catalyst or stimulus that is often the beginning of a new wave of herd behaviour. Finally, structural barriers often form in areas of poverty and underdevelopment. Here, it is not the person’s unwillingness to change behaviour but rather the social environment linked to infrastructure, services and types of livelihoods. This is reflected in the model below as ‘security and autonomy’ (UNICEF 2019). The final consideration relating to the environment is how our subsequent unwillingness to take risk (risk aversion) has been linked directly to our outcome experience (whether we’re winning or losing/successes or losses). Investors perceive less risk in situations where they are winning and vice versa (Sitkin and Weingart 1995). The individuals’ current as well as historic economic circumstances and surroundings, which include aspects such as security and independence, have an influence on financial decisions and may also cause bias regarding such decisions (Prinz et al. 2014). Finally, Prinz et al. (2014) also found that cognitive ability as measured by the intelligence quotient or IQ measure is strongly related to explaining levels of risk aversion. Higher IQ levels are often associated with lower risk aversion, likely due to a greater understanding of the elements that underlie economic decisions, such as gains, losses and uncertainties.

2.8 Conclusion Referring to a seminal address in 1665 in Paris by Danish anatomist Nicolaus Steno, Cobb (2020) explains that this address was one of the foundations of the prestigious French Academy of Sciences. In the address, Steno boldly argued that in order to understand the brain, it is necessary to consider it as a machine instead of simply component parts. This notion has dominated our thinking ever since. In the case of vision, for example, it is understood that brain scans suggest that shape, texture and colour are all processed in different regions of the brain. According to the New Scientist (2020), the closer neuroscientists look, the more modular the human visual system appears. We only begin to understand the seamless stitching together of component parts when some unfortunate person experiences brain damage in one of these regions – often resulting in astounding symptoms. In much the same manner, an integrated approach is needed to understand financial decision-making. The symptoms of poor financial decisions remain, but this is likely because we have until recently only considered normative models like economic and finance theory while ignoring the interplay between component biological, environmental and psychological systems. Eagleman (2020) points out that the number of neurons and their connections vastly outstrip the number of potential genetic combinations. Therefore, genetics cannot tell the whole story. The brain is a phenomenal organ that really is wired for adaptation to the world around us. Context is critical. Infants have all the genetic learning necessary, but the

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formation of neural pathways happens through interaction with the world and reinforcement thereof is what makes human beings distinct. We may be tempted to prioritise biology in our approach to understanding decisions, but without a framework proposed by normative economic theory providing guiding principles, we may struggle to know what we are aiming at. This chapter has examined the rise of neuroeconomics and finance and put forward recent thinking on financial decision-making in respect of an integrated model of descriptive financial behaviour so that, as financial planning practitioners, we are able to understand and influence behaviour.

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Chapter 3

Practical Application of Neuroeconomics in Financial Planning Paul Nixon

3.1 Introduction This chapter sets down some guidelines for practitioners as well as the industry on how to implement neuroeconomics practically when providing financial advice as the value proposition for financial advisors moves from managing money to managing people. This is an important shift that the financial services industry needs to make. Almost a decade ago, McDowall (2013) noted that only 12% of investors surveyed by the investment research firm State Street reported they were confident in reaching their goals. Director of behavioural science at Morningstar, Sarah Newcomb, said in a 2021 interview, ‘Financial advisers are trained quite extensively in methods for making a client’s numbers “work,” but they are left to their own devices when it comes to the emotional reasoning so many of us employ in critical financial decisions. Yes, the numbers have to work, but your life has to work, too’ (Powell 2021). This statement alludes to a disconnect. The technical aspects required for accurate diagnosis in the financial planning process, such as analysing and interpreting the income statement and balance sheet, is only one side of the coin. The extent to which the client will ultimately realise the value of the financial plan hinges on their ability to implement and adhere to the recommendations. This is often where the value unravels because financial advisors have ignored the factors that resulted in the income statement and balance sheet in the first place. The root of the problem often resides in the principles of psychology. Also in a 2021 interview, John M. Loper, a CFP® professional and director of professional practice on the CFP Board, stated, ‘Money is a very emotional topic, … and this is a compelling reason for addressing clients’ psychological issues head-on. P. Nixon (*) Behavioural Finance, Momentum Investments, Momentum, Centurion, South Africa e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 P. Sarpong, L. Alsemgeest (eds.), Perspectives in Financial Therapy, https://doi.org/10.1007/978-3-031-33362-0_3

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If you can’t connect with your client, it’s going to be difficult for them to take your advice’ (Blanton 2021). The medical fraternity has similarly realised that their value lies in treating patients and not just disease (Madduri 2019). A patient should be treated holistically: their anxiety, psychological status, personal, social and spiritual factors all may affect the healing process. The field of neuroeconomics similarly brings together the complex interplay of personality, neurobiology and environmental factors to provide a more holistic framework through which to view the construct of holistic financial well-being. While the industry is some way from agreement as to what this framework should consist of and how it should be applied consistently, this chapter provides some introductory guidance on the thinking to date.

3.2 Moving from Theory to Practice The role of a technology as a ‘decision prosthetic’ will be discussed at the end of this chapter. For now, it is clear that technology will continue to disrupt the financial advice industry through the increased productivity and efficiency it enables. Furthermore, the processing of large amounts of data with artificial intelligence, technological integration and automation is shifting the financial planner’s value proposition. Considering also the drive towards commoditisation of asset management through index funds and robo-advisors, financial planners are further being challenged to demonstrate their value beyond traditional financial planning. To provide value for the cost of working with a financial planner, clients will require financial planning services that are interconnected with all aspects of their financial lives (Fortin et al. 2020). The concept of an integrated financial identity or fingerprint that is a function of one’s experience, environment, personality and biology has arrived. The reason is simple: necessity. Returning to McDowall (2013), in a study called the ‘Folklore of Finance’, 60% of the asset management industry’s resources were reported to be spent on generating alpha in the United States. However, a mere 12% of people surveyed reported reaching their financial goals. A profitable industry is in reality not successful. Ultimately this breeds the ‘3 Ds’ of dissatisfaction, distrust and ultimately disintermediation where consumers will find alternative distribution channels leaving financial planners behind. The current financial planning environment is not serving people well simply because when left to their own devices, people constantly violate the tenets of traditional finance and economic theory in making decisions against their own best interests. This is summarised in Table 3.1 by author and journalist, Jason Zweig. The emergence of neuroeconomics in the last two decades has taught a number of practical lessons about the way people relate to their money (Zweig 2007):

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Table 3.1  Theory versus the real-world in investments In theory The primary benefit investors get from their investment portfolios is ‘utility’, and the portfolio they choose is a trade-off of risk and return. People have clear and consistent financial goals. People can accurately calculate the odds of success or failure. People know exactly how much risk they are comfortable taking.

In practice Investors get expressive and emotional benefits from investing (Statman 2019). People think picking winners makes them a winner and people want investments that align with their value system. People aren’t sure what their goals are and just when they thought they knew, their goals changed. The stock your brother-in-law told you about was a ‘sure thing’ and now is worth half of what you paid. When cryptocurrency doubled in value you were happy to put in all your savings but it’s crashed now and you don’t like risk at all. People process all available information Things were going great when you bought Steinhoff, to maximise their wealth. but you didn’t see the warning signs in their financial statements. The smarter people are, the more In 1720, Sir Isaac Newton was wiped out by a stock money they make with investing. market crash, and it’s been happening to smart people ever since. People that follow the news about their stocks earn The more closely people follow their less over time than those that pay almost no attention investments, the more money they at all. make. Source: Adapted from Zweig (2007: 2)

• A monetary gain or loss may result in a biological change that has intense physical effects on the body and brain. These gains or losses are therefore not only expressed in psychological or financial outcomes. • The same dopamine pathways and neuronal connections that are activated when someone is high on cocaine or morphine are active when making money in financial markets. • The same thing happening twice in a row (such as stock price increasing, even slightly) results in the unconscious and automatic expectation of the same event happening a third time in succession. • If someone is expecting something to happen, like a stock price increasing in value, the brain will respond with alarm (activating the risk system) if that pattern is broken. • Losses that affect our financial situation are processed using the same machinery used to react to life-threatening danger. • Predicting a positive outcome and actually realising that outcome manifest in different neural structures. This explains why ‘money doesn’t buy happiness’. • The expectation of something good or bad happening is often way more intense than the actual event. The above list reflects how we approach the world instinctively. Often, when we use cognitive machinery designed to process primary rewards (that are instinctive by nature) for the secondary reward that is money, this instinct results in suboptimal behaviour in a financial context. Changing these powerful neural connections

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requires cognitive behavioural therapy. Furthermore, human decision-making, like any muscle, can get fatigued and will need exercise to remain fighting fit. In the sections to follow the importance of psychology is examined briefly followed by proposed models and ideas of how to incorporate neurobiology and neuroeconomics/neurofinance into financial planning.

3.3 The Importance of Psychology In a double-blind randomised control experiment, participants were assigned into one of two groups with the aim of increasing emotional engagement with savings behaviour (Klontz et al., Klontz et al. 2019). The control group was provided with standard financial education about the benefits of saving, the power of compound interest, as well as education about various savings strategies in tax efficient retirement vehicles, for example. The experimental group however received no financial education but were presented with emotion-based exercises designed to elicit positive memories and feelings followed by linking these emotions to their underlying values and future savings goals. Three weeks later, the groups reported back on their savings behaviour, and the results were dramatically different. Each group increased their saving behaviour as a percentage of net income, but the experimental group increased their savings by 73% compared to the 22% of the control group. Importantly, however, the experimental group reported a greater confidence towards saving and a greater degree of financial health indicating a greater connection to the savings behaviour, which may result in a more sustainable change in behaviour although this remains to be seen. This study highlights that while financial education is necessary, it is not sufficient or as effective in bridging the gap between our intentions and actions. The discipline of psychology empowers the financial planning practitioner with the ability to create a stronger emotional connection between their clients and investment goals that will increase the likelihood that these goals are realised.

3.4 Integrating Neurobiology into Financial Planning The concept of interpersonal neurobiology seeks to create an understanding of the interconnections among the brain, the mind and our interpersonal relationships (Siegel 2012). It draws from anthropology, biology, psychology, sociology, systems theory, neuroscience and other fields to identify patterns that can be used to support holistic approaches to well-being (Siegel 2019). It is clear from the literature that many of the multi-disciplinary approaches, such as neuroeconomics, have a commonality that alludes to the concept of wholeness through self-awareness. Interpersonal neurobiology recognises that the brain, mind and interpersonal relationships have a distinct impact on each other (Fortin, 2020).

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3.4.1 The Brain Financial planners need to be able to facilitate and leverage from neuroplasticity, the brain’s unique ability to be rewired. The human brain that was once seen as being fairly constant is now recognised as a dynamic organ capable of change as a function of experience and learning (Kolb et al. 2003). The brain can be rewired, and new neural pathways formed. Perceptions and beliefs about money have been shown to have direct links to financial outcomes, including income, net worth, credit card debt and financial behaviours (Klontz et al. 2015). Financial planners can change these perceptions and beliefs of clients by ‘practising’ market downturns through visualisation and discussing responses to potential future downturns. Just like professional athletes, who, through visualisation techniques, take advantage of somatic marker processing to make certain responses automatic and instinctive. This approach can also be applied in a financial planning context.

3.4.2 The Mind The mind is viewed separately from the brain, which is the physical structure that supports and enables the mind. The mind may be conceptualised as a process of energy regulation that emerges from both the body and our relationships and so relates to our inner subjective experience and the process of being self-aware. In essence, it is the dynamic integration of the brain and experience (Fortin, 2020).

3.4.3 Interpersonal Relationships Relationships involve the sharing of energy and information between two or more people as they connect and communicate with each other. Interpersonal interactions influence our brain through moulding the formation and growth of neural connections and regulation of brain regions responsible for control of emotional systems (Siegel 2012). The mind can be harnessed to regulate energy and information flow in the body as well as in our interpersonal relationships. When the abovementioned three dimensions are integrated, the likelihood of personal well-being is enhanced. Integration in this sense occurs when a coherent mind, integrated brain and empathic relationships exist that ultimately result in this holistic sense of health. Stated differently, when what we are thinking matches what we are saying, our behaviour and interactions result in a sense of well-being.

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3.5 Implications of Neurofinance and Neuroeconomic Research for Practitioners Ultimately, the translation of neurofinance and neuroeconomic literature into a financial planning context would require agreement on a diagnostic technique as well as a framework to apply these principles in a financial planning context. Failure to do so will only serve to create more unwanted variation in the investment advice arena particularly. Furthermore, the fields of neurofinance and neuroeconomics remain relatively new; as such, disparate findings are emerging, particularly in respect of genetic studies and the resultant insights into financial behaviour. Greater consensus exists, however, relating to the release of the stress hormone cortisol in response to market volatility and the impact this has in respect of the financial decision-­maker (Coates and Herbert 2008). In this regard, decision-makers may benefit from the development and conceptualisation of a decision-making framework paired with a human coach to manage behaviour in the context of this framework. Baker and Ricciardi (2014) propose behavioural reflections to moderate intrinsic emotive reactions as well as many awareness exercises (including reframing, self-awareness and reappraisal) that reduce the negative cognitive effects of responsive hormones. It is well known, for example, that mediation, reflection and contemplation have been used for thousands of years to manage cognitive states by being self-aware. Evidence exists in the investment arena that traders who monitor and practise self-­ awareness perform better than peers who do not. Baker and Ricciardi (2014) mention a number of prominent figures in the asset management industry who indicated that they use daily meditative practices that make them more aware of their thoughts and feelings, the potential damage thereof and how these emotional pitfalls may be avoided. A useful technique to distance the decision-maker from a decision outcome strongly associated with judgement errors and biases, such as investment losses, is to establish a rule-based approach. Traders, for example, may establish a rule that they would wait 30 min after any major market news to consider the impact thereof carefully before making a decision. In a financial planning context, for example, a rule may be that the planner and client never refer to 1-year volatility or investment returns in the context of a long-term investment goal. In the context of a 10-year investment goal, only 10-year volatility may be discussed. This should negate the conversation about short-term volatility and investment performance. A performance coach may then be employed by the investment professional with a clinical psychology or psychiatry background who is trained to employ cognitive interventions to manage the alignment with this decision-making framework. In a financial planning setting, the financial coach would assist in identifying feelings of discomfort amidst market volatility, referring back to the rule-driven agreement while rewarding consonant behaviour with this framework. In addition to these behavioural strategies, a number of cognitive interventions such as reappraisal, reframing and journaling, are available to improve decision-making.

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Reappraisal Losses are reframed in the broader context as: i. ii. iii. iv. v.

Expected (win some lose some) Low impact (part of portfolio) Routine (risk is reality in my job) Minor (doesn’t change your life) Serial (every day there is risk)

Reframing Losses are seen as a positive opportunity for learning. George Soros holds a ‘belief in fallibility’ that reduces guilt and transforms losses into neural terms of interest.

Journaling Record and review the thought process behind financial decisions (both buy and sell). Ensure a nonjudgmental, curious approach to prevent rumination.

Source: Baker and Ricciardi (2014:397)

The process of cognitive reappraisal is aimed at reducing the impact of loss aversion on decisions by shifting perspective on the concept of losses. It is important to remind investors that losses are to be expected and are in reality low impact in the greater scheme of things. Risks are a part of life. In fact, getting into a car and going to the grocery store involves risk and potential loss. The next strategy involves reframing losses as positive and as important learning opportunities. Every event in life has the ability to teach, and losses may be reframed in this more positive context. This presents a shift in thought of being shamed through being wrong, to that of learning and pride. Journaling has produced recent findings that indicated greater understanding of the undesired behaviour as well as the ability to connect more effectively with a future state that drives motivation to reach this state (Hensley and Munn 2020). Decision journals improve self-awareness by connecting feelings, thoughts and behaviours (Baker and Ricciardi 2014). Another useful and more tactical framework to avoid some pitfalls highlighted by neuroeconomic research is presented by Hatfield (2010). The approach pivots on five dimensions: (i)  Neurolinguistic programming (NLP): NLP allows people to see problems from different perspectives. One of the techniques involves the influence of words on cognition and subsequent behaviour. A good example is that used by noted behavioural psychologist, Robert Cialdini, who refers to the word ‘because’ as one of the most impactful words in the English language. Cialdini recites the example of the person asking if they can cut in line at the copier shop. By simply adding, ‘because I’m in a rush’ increased compliance to the request from 60% to 93%. In a financial planning context, advisors should remember to always give clear and well thought out reasons to client requests when using the word ‘because’. Hatfield (2010) provides the following example: ‘Mr. Client: Although the markets have risk in that they can go up and down, there are other risks for you to consider: Inflation risk and longevity risk. BECAUSE we need to generate enough returns in your portfolio, we can’t use a completely fixed income portfolio given your age and income needs’.

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(ii)  Somatic markers: As discussed in Chap. 2, somatic markers operate as a bookmark or shortcut to a behavioural response when a similar set of circumstances arises. Hatfield (2010) suggests that in order to improve the chances of a client following through with investment goals, the advisor should try to make the client engagement as memorable as possible. The client may then refer back to a specific meeting easily when recalling the discussion. The use of imagery and sounds can create these somatic markers that are associated with their financial goals, for example. (iii)  What is written: Robert Cialdini reinforces the power of the written word by referring to a study that showed how nearly three times the number of volunteers pitched up for an Aids education project where they confirmed in writing that they would do so at the outset. Clients are more likely to stick to financial goals that they physically write down. It is even better if the steps to reaching those goals are likewise written down. Hatfield (2010) provides the following example: ‘I understand that putting my entire portfolio into cash is destructive to the financial goals I have stated to my financial adviser. I also understand this action is against the advice of my financial adviser for the following reasons (cite reasons). Finally, I understand that my adviser will not be required to give me the signal when to re-invest the portfolio in the markets, but rather I will need to clearly indicate this to my adviser’.

(iv)  Case studies: Human beings have benefited as a species from social learning. It is possible to take advantage of this in a financial advice context by the advisor using real-life examples of previous clients that faced challenges or made mistakes and how these may be overcome or avoided. Our programming also predisposes us to pay particular attention when this information is presented in a story format and provides an excellent and effective way of showing how one path is preferred to another (Hatfield 2010). (v)  Short-term neural change: Understanding short-term neural changes and the associated neurotransmitters can provide important insights into managing behaviour. Dopamine, for example, is an important link to the reward system. Practitioners should try to manage a dopamine release in response to a sudden increase in portfolio value by clearly positioning this in the long-term context and investment goals.

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3.6 A Cautionary Note on ‘Noise’ and Investment Advice in South Africa As financial advice evolves and neuroeconomic and finance principles are embedded into the advice process, the industry also needs to be aware of additional ‘noise’ this will create in the system as the search continues for a consistent mental model to measure and apply these principles. In 2020, Momentum Investments in South Africa, together with Oxford Risk in the UK and the Financial Planning Institute of South Africa, set out to study the consistency of investment advice as it currently stands. The results are briefly discussed below. The latest buzzword in behavioural sciences globally is ‘noise’. The father of behavioural economics, Daniel Kahneman, along with co-authors Oliver Sibony and Cass Sunstein, published their bestselling account of ‘noise’ in Kahneman et al. 2021. The past two decades have given much attention to human biases and how our decision-making is affected by cognitive processing errors and emotional over- or underreaction. There is another source of error in our judgement that often draws us off target. This is referred to as ‘noise’, and it is far more unpredictable and random in nature. This is of particular relevance to financial advice where judgement sits at the core of the profession. Ideally, we would like to think that if a client with the same investment needs approaches an advisor on different days, or approaches two different advisors from the same firm, they would get at least similar advice. Each decision is made in a certain context. The decision-maker is either happy or sad and may be in a good or bad mood. Even factors such as the weather or being hungry or coming off a loss over the weekend of the decision-maker’s favourite football team, create different contexts for decisions and in doing so, produce variability in judgement. The chance of variability in judgments from these different contexts is called ‘noise’ (Kahneman et al. 2016). Greg Davies from Oxford Risk in the United Kingdom, who are globally recognised as decision science experts, measured the extent of noise in South African investment advice together with Momentum Investments. They measured this via an entropy analysis, and the results (see Fig. 3.1) showed that the advisor judgements of the clients provided in a case study survey format were much closer to being randomly different than being consistent even when all survey respondents had the same client information (Davies 2021). Three key findings emerged from the study. First, the greatest source of variability was in the assessment of risk capacity. Second, even when provided with client risk tolerance on a scale of one to seven, there was limited consensus on how this translated to a suitable risk recommendation. Four of the six clients received recommendations from ‘very low risk’ to ‘very high risk’. Finally, and unsurprisingly, the resultant asset allocation proposals are similarly scattershot. Recommended equity weights for two clients ranged from 0% to 100% (Nixon 2021). This demonstrates that as things stand, the financial planning industry (investments) has high levels of noise and as neuroeconomic inputs are added this could add to the noise levels.

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Fig. 3.1  Entropy of advisor responses averaged across clients (higher = noisier). (Source: Davies, 2021:21)

3.7 Decision Prosthetics in the New Age of Financial Planning The concept of a decision prosthetic was introduced by Greg Davies (2019). It involves checks and balances that machines can run parallel to the advice process to keep advice more consistent and combat the high levels of ‘noise’ mentioned earlier. In much the same manner as football has the virtual assisted referee (VAR), financial planning can benefit from a similar system where a robo advisor could operate in tandem. Many examples exist of the benefits of using algorithms in decision-making. When patients present with symptoms of a heart attack, medical practitioners need to make a judgement call on whether to order an array of tests. Often, these tests are invasive and costly. To combat this, an algorithm was shown to improve accuracy by over 30% by processing over 2400 variables collected from hospitals all over the United States (Kahneman et al. 2021). In 2004, Michael Lewis published the bestselling Moneyball: The Art of Winning an Unfair Game. The book details the phenomenal account of Billy Beane taking the Oakland Athletics baseball team from obscurity to the big leagues with the help of an algorithm developed by Peter Brand that identified mispriced baseball players. The algorithm was basically outperforming human judgement that overvalued certain player attributes. Human–tech partnerships make a lot of sense simply because there are things that humans are very good at and likewise things that technology excel at. Humans are very good at strategy (the plan to reach a goal), and machines are very good at tactics (processing data to execute and enhance the chances of successfully executing such plans). Another dimension that machines excel at in an information age lies in their ubiquity. A financial advisor cannot be with their clients every time they swipe their credit card, but Google can and likely is. When a prospective buyer is shopping for a luxury SUV, for example, Google may warn them of the potential consequences of this spending, or how much additional savings could be generated

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by forgoing this transaction. At the core of powerful ‘nudging’ is just-in-time financial education and calculating the cost of purchasing trade-offs in respect of forgone retirement income. This human–tech partnership would enhance the probability that financial plans put together by financial advisors are better executed.

3.8 Conclusion Financial knowledge does not necessarily equate to understanding. Having the requisite information at hand about the importance of financial planning is limited in respect of translation into the actual behaviours required to change the situation. To change this situation, financial planning practitioners need to adjust their skillsets to unlock this value for their clients by establishing an emotional connection to a future that is desired and mapping out the steps to get to this future. To date, this adjustment has not been easy, and it will almost certainly continue to be challenging. The financial services industry in South Africa finds itself at a crossroads. The journey to advice-led and advice-paid financial advice (fee-based) has stalled short at advice-led but predominantly product-paid financial advice. A significant barrier to this transition was illustrated in a study from Morningstar that revealed that clients simply do not value financial coaching (Wendel 2019). At least not yet. When asking investors to rank 15 attributes in order of importance, ‘helping me to reach my financial goals’ was, encouragingly, rated at the top. However, it was concerning that ‘help me maximise investment returns’ was near the top (4th), while ‘helps me stay in control of my emotions’ and ‘acts as a coach/mentor to keep me on track’ were dead last and 13th, respectively. There is a faulty belief that maximising investment returns results in the achievement of investment goals. In fact, the relentless pursuit of investment returns often comes at the expense of investment goals. This study assists us in understanding why many financial advisors persist with a value proposition underpinned by picking winning funds for their clients. The responsibility of changing this belief system (maximising returns = reach investment goals) rests with financial planning practitioners. It is encouraging that the CFP board now requires financial advisors to study psychology as part of their syllabus. Incorporating some of the practical techniques discussed in this chapter will assist in providing the support judgement or evidence necessary to change this belief system. The migration of advisor value proposition will be accelerated as client satisfaction and retention increase in line with the practitioner’s ability to increase their own self-awareness, foster deeper interpersonal relationships and understand how clients make financial decisions (Fortin, 2020). It does not end here, however. The consistent application of neuroeconomics will rely on financial technology and tools to assist practitioners in diagnosing and managing client behaviours at greater scale. Failure to use financial technology designed to minimise variation in judgement will result in even more noise than exists in the current landscape. Needless to say, we are still near the beginning of this transformation, but the journey is underway.

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References Baker HK, Ricciardi V (2014) Investor behavior: The psychology of financial planning and investing. John Wiley and Sons, New York Blanton K (2021) Psychology added to CFP certification. https://squaredawayblog.bc.edu/tag/ behavioral-­economics/. Accessed 2 March 2022 Coates JM, Herbert J (2008) Endogenous steroids and financial risk taking on a London trading floor. Proceedings of the National Academy of Sciences 105(16): 6167–6172 Davies G (2019). Decision prosthetics: The best of both worlds https://informaconnect.com/ decision-­prosthetics-­the-­best-­of-­both-­worlds/. Accessed 17 June 2021 Davies, GB (2021). Under the microscope: Noise and investment advice. https://retail.momentum. co.za/documents/campaigns/effectofcovid/oxford-­risk-­report.pdf. Accessed 31 May 2021 Fortin J (2020). Integrating Interpersonal Neurobiology into Financial Planning: Practical Applications to Facilitate Well-Being A conceptual framework for financial planners to improve client relationships, calm client fears, and gain insight into emotions that lead to financial decisions while promoting well-being. Journal of Financial Planning Fortin J, Jansen M, and Klontz B (2020) Integrating interpersonal neurobiology into financial planning: Practical applications to facilitate well-being. https://www.financialplanningassociation.org/ article/integrating-­interpersonal-­neurobiology-­financial-­planning-­practical-­applications-­ facilitate. Accessed 28 May 2021 Hatfield S (2010) Practical applications of neuroeconomics for financial advisors to improve investor outcomes. https://www.academyfinancial.org/resources/Documents/Proceedings/2010/2C-­ Hatfield.pdf. Accessed 18 June 2021 Hensley LC, Munn KJ (2020) The power of writing about procrastination: Journaling as a tool for change. Journal of Further and Higher Education 44(10):1450–1465 Kahneman D, Rosenfield A, Gandhi L, Blaser T (2016) Noise: How to overcome the high. https:// hbr.org/2016/10/noise. Accessed 10 March 2022 Kahneman D, Sibony O, Sunstein CR (2021) Noise: a flaw in human judgment. Little, Brown Spark, New York Klontz BT, Sullivan P, Seay MC, Canale A (2015) The wealthy: A financial psychological profile. Consulting Psychology Journal: Practice and Research 67(2): 127–143 Klontz BT, Zabek F, Taylor C, Bivens A, Horwitz E, Klontz PT, Tharp D, Lurtz M (2019). The Sentimental Savings Study: Using Financial Psychology to Increase Personal Savings. Journal of Financial Planning 32(10): 44–55 Kolb B, Gibb R, Robinson, TE (2003) Brain plasticity and behavior. Current Directions in Psychological Science 12(1):1–5 Madduri S (2019) Health care is not just treating a disease; It is taking care of a human being. Missouri Medicine 116(4): 285 McDowall R (2013) The Folklore of Finance. Folklore 124(3): 253–264 Nixon P (2021) Noise, financial advice, and Snow Whites eighth dwarf “Risky” Finweek, (28 May – 10 June, 2021): 22 Powell R (2021) CFP Board adds psychology of financial planning to exam topics. https://www. thestreet.com/financial-­advisor-­center/cfp-­board-­adds-­psychology-­of-­financial-­planning-­to-­ exam-­topics. Accessed 3 March 2022 Siegel DJ (2012) Pocket guide to interpersonal neurobiology: An integrative handbook of the mind (Norton series on interpersonal neurobiology). WW Norton and Company, New York Siegel DJ (2019) The mind in psychotherapy: An interpersonal neurobiology framework for understanding and cultivating mental health. Psychology and Psychotherapy: Theory, Research and Practice 92(2): 224–237 Statman M (2019) A second generation behavioral finance: In: Venezia I (ed) Behavioral finance: The coming of age. World Scientific, Singapore

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Accessed 7 February 2022 Zweig J (2007) Your money and your brain: how the new science of neuroeconomics can help make you rich. Simon and Schuster, New York

Chapter 4

Models, Resources and Tools Employed in Financial Therapy Prince Sarpong

4.1 Introduction Developmental theorists describe human development as a definable and predictable sequence of stages with the former stages providing foundations for later evolution (Cornell 1988). The events of the first years of a child’s life, therefore, have a significant influence on the subsequent years of life (Erikson 1963; Freud 1938, 1949). American psychologist and personality theorist, Silvan Tomkins, developed Script Theory, which posits that human behaviour generally falls into patterns (scripts) and is analogous to written scripts, which provide programmes for action. Scripts are usually developed as a means to cope with disruptions in critical and dependent relationships, which continually fail to satisfy important developmental needs. These scripts are formulated, elaborated and reinforced over different developmental stages due to repeated relationships ruptures with significant others. According to Fosshage (2005) and Erskine (2008), life scripts are unconscious systems of psychological self-regulation and organisation, which are developed mainly from implicit memories and emanate from cumulative failures in significant, dependent relationships. They are manifested in the form of physiological discomforts, minimisations or escalations of affect and the transferences that transpire in everyday life (Erskine 2018). Psychological distress around money emanates from money scripts, which are extensions of money attitudes developed in early childhood, unconsciously carried through to adulthood and sometimes passed on from an older generation to a younger generation (Klontz and Britt 2012). Money disorders is a term used to describe self-defeating and recurring issues people may have with money. They tend to be predictable and persistent patterns of self-destructive financial behaviours that result in serious emotional stress and can P. Sarpong (*) School of Financial Planning Law, University of the Free State, Bloemfontein, South Africa e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 P. Sarpong, L. Alsemgeest (eds.), Perspectives in Financial Therapy, https://doi.org/10.1007/978-3-031-33362-0_4

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be damaging to various aspects of life. It is important however to differentiate between random financial mistakes and money disorders. People with money disorders are unable to change their financial behaviour even though they are cognisant of the implications (Klontz et al. 2008b). The following section describes some of the common money scripts and money disorders identified in financial therapy.

4.1.1 Money Scripts There are four main money scripts identified in financial therapy, namely, money avoidance, money worship, money status and money vigilance. This section provides a brief description of each money script. For a detailed discussion on money scripts, see Lawson et al. (2015). 4.1.1.1 Money Avoidance People with money avoidance script believe that money is bad, induces fear and is associated with feelings of disgust (Taylor et al. 2015). They may associate money with a certain level of evilness and hold the belief that rich people are greedy or corrupt. Money avoiders view discussions around money as a taboo and may even shy away from dealing with their money problems (Lawson et al. 2015). Generally, people with money avoidance script do not take responsibility for their financial behaviour and tend to blame other people for their financial woes. They sometimes spend money unconsciously or avoid spending even on things they need. Money-­ avoidant people may feel a certain level disgust around money. This money script can lead to heightened levels of anxiety in people. 4.1.1.2 Money Worship The money worship script is based on the belief that more money leads to more happiness and that accumulating more money is very crucial to one’s advancement in life. Money worshippers hold the belief that their needs can never be fulfilled and thus end up in a vicious spiral of chasing a certain level of wealth or buying certain assets, which they believe will bring them more happiness. 4.1.1.3 Money Status People who exhibit the money status script tend to associate self-worth with net worth. They believe that money provides status in society and tend to engage in conspicuous displays of wealth. They are also materialistic and very competitive, and so they strive to be wealthier than people around them. Money status differs

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from money worship in that, while people with money worship script revel in the positive emotions money provides them, people with the money status script are more interested in the conspicuous display of wealth as a means of signalling their status in society (Klontz and Britt 2012). 4.1.1.4 Money Vigilance People with money vigilance scripts are very watchful and guarded about issues relating to their finances. They usually do not tell other people how much money they make or have and believe that money should rather be saved and not spent. The money vigilance script is mainly about security and the fear of running out of money. People with high money vigilance scores also tend to have higher levels of financial health. However, money vigilance may also lead to anxiety around money and being secretive about one’s finances. Such anxiety and secrecy can have negative impact on personal health and happiness. Money vigilance can inhibit people from enjoying their wealth and miss out on the feeling of financial security that money can provide, since their feelings of anxiety around money tend to be stronger (Klontz et al. 2011).

4.1.2 Money Disorders The money disorders identified in financial therapy are gambling disorder, compulsive buying disorder, workaholism, financial denial, hoarding disorder, financial enabling, financial enmeshment, financial dependence and financial infidelity. The following section presents a brief description of each disorder. For a detailed discussion on money disorders, see Canale et al. (2015). 4.1.2.1 Gambling Disorder Gambling disorder is a repeated, chronic gambling behaviour that creates the illusion of easy money and an uncontrollable habit of gambling, which usually leads to destructive financial consequences. A person with gambling disorder becomes addicted to gambling and this addiction interferes with daily life. However, there may be periods where a person with this disorder may not show any symptoms and therefore not appear as a problem between periods of severe symptoms (Heinz et al. 2019).

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4.1.2.2 Compulsive Buying Disorder An activity is described as compulsive if there is a continual repetition of such activity even if it has negative consequences. Compulsive buying disorder (CBD) refers to an excessive shopping cognition and buying behaviour, which results in distress or some kind of impairment (Black 2007). Although approximately 80% of clinical subjects on studies on CBD are women, it is possible that this gender difference may be artifactual (Black 2007). 4.1.2.3 Workaholism Workaholism is an addiction, a compulsion and an uncontrolled drive to work relentlessly (Oates 1971) and leads to the commitment of a lot of energy and time to work to an extent that it leaves no time for leisure and becomes detrimental to one’s health and relationships (Andreassen et al. 2012). 4.1.2.4 Financial Denial Financial denial is a coping mechanism for anxiety and stress surrounding money and entails the unwillingness to talk about money or a refusal to deal with issues relating to one’s finances (Klontz et al. 2016). People in financial denial deal with anxiety around their finances by simply rejecting or avoiding their current financial situation. This is a usually a defence mechanism to avoid any psychological distress relating one’s finances. 4.1.2.5 Hoarding Disorder Hoarding disorder refers to a persistent difficulty in letting go or discarding one’s possessions. This is mainly due to a burning need to save such possessions, and any attempt to discard any possession leads to a feeling of extreme distress, which can be resolved only by retaining such possession. In the financial context, money hoarders may feel extreme anxiety about running out of money, and this may even lead them to skipping the most basic activities of self-care if it requires expending money. Money hoarders find it very difficult to enjoy the benefits of accumulating wealth (Klontz and Klontz 2009). 4.1.2.6 Financial Enabling Sometimes, providing financial support may have unintended consequences where people may unintentionally harm themselves or the ones they are trying to help. This may lead to a form of money disorder referred to as financial enabling and can

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have negative consequences on both the enabler and the enabled. The inability or unwillingness to say no when asked for money on a recurring basis can create financial problems for enablers as they attempt to cater for their expenses as well as that of the enabled. The relationships of enablers may become so entangled in money to a point that they confuse emotional investments with money (Klontz and Klontz 2009). This can have a negative impact on the financial health of the enabler and also the enabled as it may engender financial dependence. 4.1.2.7 Financial Dependence Financial dependence describes the indefinite or continual need for non-work income such as financial support from spouses or parents, trusts, gifts, etc. An indefinite financial dependence on another person could be a sign of serious money disorder, which can lead to serious and negative consequences. Studies have shown, for example, that financial dependence is one of the major reasons why domestic abuse victims remain in abusive relationships (Anderson et  al. 2003; Cruz 2003; Mshweshwe 2018). 4.1.2.8 Financial Enmeshment This money disorder is evident when parents discuss intimate financial matters with children who are not emotionally and cognitively matured enough to cope with the information and also not in a position to provide any tangible support to the parent. Parents therefore only engage in financial enmeshment just for their own emotional benefit. This money disorder was initially called financial incest (Klontz et  al. 2008a), and although this is not form of physical abuse, it is classified as a psychological abuse and can have a negative impact on the coping skills and development of children (Klontz et al. 2012). 4.1.2.9 Financial Infidelity This money disorder describes the act of consciously and secretly engaging in certain financial behaviours when one is aware that the spouse or partner will not be happy with such behaviour (Garbinsky et al. 2020). Although relationships (particularly romantic relationships) are built on trust, partners may not always be honest about their financial behaviours and may hide debt, savings and spending from one another. This secrecy over money can have a negative effect on relationships when the other spouse or partner becomes aware of such financial behaviour (Garbinsky et al. 2020).

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4.2 Models in Financial Therapy Since financial therapy is an amalgamation of the fields of psychotherapy and financial planning, the models in financial therapy are mainly the application of models in psychotherapy with a focus on dealing with distress related to finances. Some of the models also incorporate techniques in financial planning. Furthermore, financial therapists may employ more than one model in helping their clients. The following section provides a brief description of various models employed in financial therapy.

4.2.1 Cognitive Behavioural Financial Therapy (CBFT) This approach involves the use of cognitive-behavioural theory (CBT) in financial therapy to treat money disorders. This approach to financial therapy employs CBT techniques, such as schemas, automatic thoughts, underlying beliefs, thought records behavioural techniques and homework, to treat disorders such as compulsive buying disorder, hoarding disorder and gambling disorder (Nabeshima and Klontz 2015).

4.2.2 Experiential Financial Therapy This approach to financial therapy entails the integration of experiential therapy with concepts in financial planning. It is premised on the argument that true changes in behaviour happens through active and direct ‘experiencing’ of what the client is going through and feeling at any given period in therapy (American Psychological Association 2022). Experiential financial therapy can be employed in treating money disorders (Klontz et al. 2021) and money scripts (Klontz et al. 2015).

4.2.3 Systemic Financial Therapy Systemic financial therapy employs family systems theory in financial therapy and premised on the argument that all issues addressed in therapy intersect with financial issues. This model situates the individual, couple and family within a broader context, which includes the historical, social, racial, political, ethnic, gendered, sexual orientation and other contexts, which have an influence on the individual (Gale et al. 2020).

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4.2.4 Relational Financial Therapy This is an intervention model for couples experiencing both relational and financial stress. This model utilises a co-therapy approach involving financial planners and marriage and family therapists in working with couples (Kim et al. 2011) to resolve the intersection of couples’ financial and relationship issues (Seay et al. 2015).

4.2.5 Narrative Financial Therapy Narrative financial therapy integrates practices of narrative therapy with the six-step financial planning process and provides a foundation for a manualised approach to financial therapy (McCoy et al. 2013). By unearthing ‘problem’ stories (scripts) in the lives of clients and retelling these stories in more empowering ways (Gardner and Poole 2009), financial therapists can employ this model in dealing with money scripts and money disorders. This approach can also be integrated with relational financial therapy in providing financial therapy to couples (McCoy et al. 2013).

4.2.6 Ford Financial Empowerment Model This model integrates skill building and financial education with popular relational therapies as well as cognitive-behavioural and narrative approaches to enable clients achieve financial success and empowerment. This model reinforces the empowerment standpoint that people are naturally strong and possess the ability creative, resourceful, and productive; therefore, people can be empowered to assert themselves and to fully utilise their inherent strength (Ford et al. 2011).

4.2.7 Stopping Overshopping Model The stopping overshopping model draws from dialectical behaviour therapy, mindfulness, psychodynamic psychotherapy, motivational interviewing, acceptance and commitment therapy and cognitive behaviour therapy to resolve the habit of overshopping that results in compulsive buying (Benson 2013; Benson and Eisenach 2013).

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4.2.8 Acceptance and Commitment Financial Therapy for Women This model employs acceptance and commitment therapy (ACT) to establish a manual for treatment to assist women in adopting financial behaviours that are aligned with their values. This model is aimed at helping women to be conscious of and accept their emotions and financial beliefs and to assist in moving towards value-­based financial goals (Wada and Klontz 2015).

4.2.9 Feminist Financial Therapy This model is premised on the argument that the experiences of women in society are not only real, but also different from that of men. Feminist financial therapy stresses that women are capable of making moral decisions and controlling their destinies (Tuana and Tong 1995) while acknowledging that, although the experiences of women as a whole are central, they are also diverse. A feminist approach to financial therapy is emancipatory as it reveals the oppressive social structures that perpetuates the cycle of inequality and, particularly, patriarchy (Roy and Mitchell 2015).

4.2.10 Financial Therapy from a Self-Psychological Perspective This approach to financial therapy is based on self-psychology. The model aims at integrating context and understanding the full scope of individual money dynamics and incorporates a developmental process around money as well as the beliefs, symbolism, attitude and emotions embedded in issues around money. Financial therapy from a self-psychological perspective aims at providing a better understanding of the internal forces involved in external money decisions (Baker and Lyons 2015).

4.2.11 Psychodynamic Financial Therapy This model of financial therapy approaches financial management from a psychodynamic perspective (Trachtman 2015), with a primary focus on the client’s unconscious psyche on issues relating to money. This approach aims at alleviating inner conflict or psychic tensions within the mind of the client, created in a situation of emotional hardship or extreme stress, and often leading to unconscious, suboptimal and sometime destructive financial behaviours.

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4.2.12 Humanistic Approaches to Financial Therapy This approach to financial therapy emphasises the importance of the client being true to him/herself in order to lead a fulfilling life. Humanistic financial therapy is based on the principle that each person has a unique perception of the world. Humanistic approaches to financial therapy are based on the principles of self-­ mastery, self-expression and self-exploration and aimed at helping clients to be more self-trusting, independent and building greater trust in their relationships with others (Johnson and Takasawa 2015).

4.2.13 Stages of Change and Motivational Interviewing in Financial Therapy This model integrates the Stages of Change and Motivational Interviewing models in financial therapy. It is based on the argument that in the process of stopping unhealthy behaviours or adopting healthy ones, people go through five stages, namely, precontemplation, contemplation, preparation, action and maintenance (Raihan and Cogburn 2021), with the aim of creating an action plan to assist clients in taking and committing to positive financial behaviours. In this approach to financial therapy, motivational interview therapy is also employed to help clients resolve insecurities and ambivalent feelings to garner the internal motivation required to make the needed behavioural change.

4.2.14 Solution-Focused Financial Therapy This model of financial therapy is present and future-oriented and applies the principles of solution-focused therapy (SFT). Solution-focused financial therapy does not fixate on the past or the problem and places emphasis on working with the clients’ current resources and strengths and therefore deals with the current situation and what clients can do, going forward, to achieve their financial goals. Solutions-­ focused financial therapy incorporates the principles of positive psychology and focused on helping clients to change, by constructing solutions instead of focusing on problems (Archuleta et al. 2020).

4.2.15 The Changes and Grief Model for Financial Guidance This model incorporates financial therapy approaches and inquiry methods, with the grief process and the change cycle to identify a client’s stage of grief and to employ a suitable financial therapy approach to support the client (Biever et al. 2021).

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4.3 Resources and Tools That Can Be Used in Financial Therapy There are various tools that can be employed in financial therapy practices to gather financial, behavioural and emotional information with the aim of pinpointing client needs and thought processes that are causing emotional distress and negative financial behaviours. These tools can be used to identify options for treatment and to assist in resolving distress and harmful behaviours and to ensure that suitable interventions are employed to help the client. Furthermore, these tools can help the financial therapist to uncover additional issues that the client may not even be aware of and may not be evident at the initial meeting with the client. Some of the tools discussed in this section may also be used regularly to monitor the client’s progress and/or to ensure that the client stays on course to remedying a negative or harmful financial behaviour. Ultimately, the level of success in helping clients resolve their financial distress or harmful financial behaviour will depend on the tools in the financial therapist’s possession to evaluate, monitor and track the progress and outcome of therapy process (Sages et al. 2015).

4.3.1 Personal Financial Analysis Personal financial analysis is a systematic approach to compiling the financial data of a client to draw out meaningful information about a client’s financial situation that can be used in guiding the client towards a healthy financial lifestyle. Personal financial analysis entails determining the client’s financial health, the level of financial anxiety and distress and compiling the client’s financial statements, which include income statement (income and expenses statement), balance sheet (assets and liabilities statement) and budget. There are many free and bespoke tools available over the internet that the therapist and the client can employ in personal financial analysis.

4.3.2 Financial Health A properly constructed financial health index can be used in financial therapy to capture important socioeconomic metrics of the client, readily communicate results and can also be used as regular monitoring device. A financial health index is like a personal finance thermometer, which indicates the absence or presence of a problem and its severity. Although such a financial thermometer will not provide a diagnosis to the problem, or a solution, it can be a useful approach to determine whether the financial situation of the client requires deeper diagnosis. In addition, a financial health index can shine a spotlight on the client’s financial problem areas.

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4.3.3 Financial Anxiety and Financial Distress In situations where clients do not have the ability to handle their money properly, they may experience anxiety and distress. This can impede the ability to make proper financial decisions, which will lead to negative financial consequences and even higher financial stress and anxiety. Financial therapists can administer tests on financial anxiety and financial distress such as the Financial Anxiety Scale, Financial Emotional Stroop Test (FEST) and the modified Dot-Probe Paradigm, to determine the levels of financial stress and anxiety of their clients (Archuleta et  al. 2013; Burchell and Shapiro 2012; Fenton-O’Creevy and Furnham 2021; Sages et al. 2013).

4.3.4 Financial Genogram A client’s current financial behaviour could be linked to the generations in his/her family tree. The financial decisions of many people may be related to values and biases cultivated through their upbringing. Therefore, parents, grandparents, other relatives and close friends can have a huge influence on the financial decisions of a person. Financial genograms can be used to identify patterns of intergenerational financial difficulties. This can be a first step in helping a client to discover, understand and stop a cycle of irresponsible financial behaviour (Smith et al. 2018).

4.3.5 Financial Statements Analysis A review of financial assets and liabilities can be used to identify potential sources of financial stress. Furthermore, this information can provide an indication of the client’s socioeconomic status as well as financial resources and constraints. This will provide the financial therapist with possible courses of action. A statement of income and expenses will help in identifying financial values as well as patterns of financial behaviour and help in collecting data to carry out financial ratio analyses to compare against acceptable benchmarks and to determine the financial health and practices of the client. Financial ratios can help in objectively analysing the financial conditions of the client based on the financial statements. The ratios are used to summarise financial information to guide in financial decisions. Financial statements analysis can provide important insights on a client’s finances, for example, the percentage of income used to pay debt or how long the client can live on current savings. While a single financial ratio can help in understanding the client’s current financial situation, analysing the client’s financial ratios over a given period of time provides a useful barometer of objective financial progress.

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4.3.6 Budgeting Budgeting can be one of the steps in helping clients take control of their financial situations. Sometimes, financial stress may not be due to the lack of money, but poor personal financial management. Once the personal financial analysis is completed, the therapist can then work through a budget with the client, in a quest to guiding the client towards proper personal financial management. Financial planners are all too aware of the inability of some clients to adhere to financial advice. In this regard, it is important to make use of other additional tools in helping the client to remain committed to the agreed upon budget. Some banks, for example, include notifications in their apps that notify clients when they go over their budget. Tools such as the Stopping Overshopping Model or the Stopping Overshopping text messaging programmes may also help to keep the client’s spending habits in line (Benson and Eisenach 2013; Benson 2013). Cognitive behavioural therapy (CBT) and person-centred experiential therapy (PCE) are also reported to be effective in treating compulsive buying disorder (CBD) (Kellett et al. 2021), and both models can also be effectively implemented in online sessions (Alavi and Omrani 2019; Warmerdam et al. 2010; Sharry et al. 2013; Tudor and Murphy 2021; Rodgers et al. 2021). A financial therapist can use the different tools available to help clients in creating newly formulated and suitable budgets that are adjusted according to their priorities. A properly structured budget can be a stepping stone to prepare the client for another important area of financial planning that is also known to be accompanied by significant emotional distress – estate planning. There is a positive and statistically significant relationship between the use of a budget and positive health and financial practices (O’Neill et  al. 2017). Furthermore, budgeting can help to alleviate existential anxiety. According to Zaleskiewicz et  al. (2013), saving money can buffer death anxiety, relieve future-related anxiety and provide people with a sense of control over their fate, thus rendering death thoughts less threatening.

4.3.7 The Economic Model of Mortality Salience in Personal Financial Decisions Mortality salience, a term used to describe an awareness of the inevitability of death, can create a state of anxiety, which triggers a defence mechanism to control the thinking process that affects different psychological processes and human activities (Gordillo et  al. 2017). People may experience significant distress on issues surrounding estate planning. Terror Management Theory (TMT) suggests that the awareness of impending death creates anxiety or ‘terror’, and the central task of various psychological constructs is to manage this fear (Becker 1973; Rank 1958). The Economic Model of Mortality Salience in Personal Financial Decision Making developed by James III (2016) can be useful to financial planners and financial

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therapists especially when apparently disparate decisions involve a common framework. When mortality is salient, similar interventions may be effective across different applications. For example, an attempt to promote estate planning could be informed by experiments with life insurance, annuities, long-term care insurance, advance directives, death-related medical decisions or even conspicuous consumption (and vice-versa) (James III 2016).

4.3.8 The Changes and Grief Model for Financial Guidance Some widows may have lost not just a partner but the financial manager in the family since men tend to hold the role of household financial manager. These widows may therefore experience financial anxiety and unhealthy attitudes towards finances. The Changes and Grief Model for Financial Guidance can be employed in therapy sessions to identify a client’s stage of grief and to apply a suitable financial therapy approach to support the client (Biever et al. 2021).

4.3.9 Resources for Money Scripts and Money Disorders There may be times where the client’s poor personal financial management is due to an underlying psychological phenomenon like money scripts, or money disorders. Clients may have underlying beliefs or assumptions about money that are usually based on half-truths, often based on childhood experiences and unconsciously carried through adulthood. Some clients may also exhibit persistent and predictable patterns of unhelpful financial behaviours that result in anxiety, emotional distress and serious negative repercussions on many aspects of the client’s life. There are a number of established assessment tools that can be employed to identify and establish the nature of money scripts or money disorder. One of the major contributions of financial therapy in the study of financial, mental and overall well-being is the identification and remediation of money scripts and money disorders. Financial therapists can employ the Klontz Money Script Inventory (KMSI) and the Klontz Money Script Inventory-Revised (KMSI-R) to assess clients’ dysfunctional financial beliefs. For the financial therapist and the client, discovering and exploring money scripts is a critical step towards alleviating financial stress and improving financial health. The Klontz Money Script Inventory (KMSI) has been empirically validated and can be employed to identify money scripts (Begina et al. 2018). It is possible that a client experiencing financial stress may have certain underlying money disorders. In helping clients to resolve such distress, the financial therapist can administer the Klontz Money Behaviour Inventory (KMBI) to identify the specific money disorder. Therapists can also employ the Financial Infidelity

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Scale (FI-Scale) developed by Garbinsky et al. (2020), to measure client’s proneness to financial infidelity.

4.4 Conclusion Financial distress may emanate from a purely financial source, may be related to an unresolved issue (script) or may be due to a psychological problem or disorder. In order to help resolve money-related distress, it is important that practitioners are familiar with and suitably trained in the use of various assessment tools in order to identify the source of the distress and to resolve the distress by employing a suitable model of financial therapy, or to refer the client to a duly qualified practitioner in situations where the issue at hand is beyond the scope of practice of the practitioner.

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Chapter 5

Decolonising Assessments in Financial Therapy: The Covid-19 Pandemic and African Context Haruna Maama and Lulu Fortunate Jali

5.1 Introduction The Covid-19 pandemic has restructured all aspects of human life, be it socially, emotionally, financially, politically and culturally. Apart from this, Covid-19 has wreaked havoc on economies around the world, which has aggravated the financial anxiety of individuals. Job losses and changes in working conditions, as well as uncertainties in the future, have taken a toll on the well-being of individuals: financially, physically, emotionally and psychologically (Vieira et  al. 2021; Timming et al. 2021). One aspect of human life that has been significantly affected by the pandemic is personal financial management. Individuals living in Africa have been hit the hardest because of the wobbling foundation of its economy and a lack of financial management tools that suit continent’s distinct features. This has also put the practices of financial therapists in the spotlight because this unexpected change in individuals’ lifestyles is anticipated to increase the demand for the services of a financial therapist. Financial therapy is the process of employing both therapeutic and financial expertise to help individuals think, feel and behave differently to manage their finances appropriately to enhance their general financial security grounded by evidence-informed practices and intercessions (Archuleta et al. 2020). Financial therapy involves counselling offered by financial advisors and therapists to assist individuals in changing the way they perceive and manage money. The end goal of financial therapy is to emancipate individuals from H. Maama (*) Financial Accounting Department, Durban University of Technology, Durban, South Africa e-mail: [email protected] L. F. Jali Department of Auditing and Taxation, Durban University of Technology, Durban, South Africa e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 P. Sarpong, L. Alsemgeest (eds.), Perspectives in Financial Therapy, https://doi.org/10.1007/978-3-031-33362-0_5

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bad financial behaviours. This shows that financial therapy provides not only financial advice to individuals but also offers emotional and psychological assistance needed to manage one’s finances. Unhealthy financial activities needing financial therapy include the following: unhealthy spending (gambling, irrational shopping), overworking to save money, avoiding financial issues requiring attention, obscure financial dealings (hiding finances from close associates), bad savings, spending and working habits. These activities are caused by mental and physical stress. As a result, financial therapy integrates emotional support into finance, to assist individuals in managing their financial stress. In doing so, they rely on well-tested practices and theories across different disciplines such as personal finance, psychology and marriage therapy, to provide individuals with idiosyncratic financial support and advice (Sages et  al. 2015). Sages et al. (2015) maintain that it is long recognised that individuals’ challenging financial attitudes and behaviours are a function of not just a lack of financial knowledge, making the provision of financial advice to troubled clients intriguing. Health practitioners, psychologists and family counsellors also note that the health, psychological, emotional and family-related challenges faced by their clients are related to finances but have no adequate and pragmatic tools to employ to work with their clients effectively. Sages et al. (2015) attempted to address this challenge by providing tools, methods and strategies to help financial therapists provide adequate support and effective advice to their clients. Since financial therapy is connected to emotional and psychological issues, such assessment tools are subject to changes because the factors that affect one’s emotions and psychology can be dynamic. In addition, such assessment tools, methods and strategies can be context-­ specific because factors such as culture, social dynamics, religion, political environment, economic strength and legal framework of a country can influence the effectiveness and applicability. Sages et  al. (2015) acknowledged that financial therapy assessment tools are evolving because the discipline is still developing. With this acknowledgement, it becomes curious whether the assessment tools applied in financial therapy practice are relevant in other parts of the world, especially in Africa, and during unforeseen times such as the Covid-19 pandemic. This interrogation is necessary because Africa has unique social, economic, political, cultural and legal make-up, which would require assessment tools that consider these distinct characteristics. The changing conditions of human life suggest that such assessment tools must be subjected to regular evaluation to determine their relevance, given changing conditions. The emergence of the Covid-19 pandemic has exacerbated individuals’ emotional and psychological conditions, which are linked to financial issues. This arose as a result of the sudden change in the professional, personal and financial plans of individuals with no prior notice. This has had a heavy toll on individuals as some have lost their regular sources of income, whilst others have lost their beloved ones. Expectedly, this would have physical, emotional and psychological effects on individuals, which would transcend their financial arrangements. Grable et  al. (2010) highlight that assessment is crucial in embryonic fields of studies, such as

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financial therapy, to assist in evaluating the effects of therapies on clients and to further establish the discipline of financial therapy as a profession. Given the changing trends in individuals’ financial, emotional and psychological constitution, there is a clear need to revisit the assessment tools, methods and strategies employed by financial therapists and further examine their applicability in different contexts such as during pandemics and in Africa. This chapter looks at how the financial therapy assessment tools can be remodelled in the face of Covid-19 and to fit the heterogenetic characteristics of Africa. Issues relating to assessment tools and methods are discussed in this chapter as well as their reliability, validity and sensitivity assessments. In addition, the assessment tools employed by previous authors such as Sages et al. (2015), Lawson et al. (2015) and Canale et al. (2015) will be re-evaluated to determine their suitability in the African context and during a pandemic.

5.2 Methodology The methodology of this chapter follows the structured critical literature review methodological approach. A structured critical literature review is a research approach for examining a body of scholarly literature to develop insights, critical reflections, potential research routes and research questions (Massaro et al. 2016). The chapter’s literature review follows the approach adopted by authors such as Talan and Sharma (2019), Hasan et  al. (2019), Velte et  al. (2020), and Li et  al. (2020). Following these authors, the chapter performed the following research steps during the review. (i) Undertook a literature review on studies about the assessment of financial therapy. (ii) Developed a classification framework, which involved codifying the papers relating to financial therapy assessment. (iii) Analysis of the literature review. (iv) Identification of research gaps in the assessment of financial therapy and establishing of future research agenda. Research papers on the assessment of financial therapy published in journals that are indexed in the Web of Science and Scopus were targeted for review in this study. Figure 5.1 demonstrates the process involved in collecting the papers for the review. For uniformity and credibility, all papers selected were those that were indexed in either Web of Science or Scopus databases. Certain keywords and phrases were used to search for the papers. The keywords and phrases used to search for the papers included the following: financial therapy, financial planning, personal financial assessment, financial assessment techniques, financial therapy assessments, pandemic and financial planning, pandemic and financial therapy, pandemic and

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Fig. 5.1  Procedure followed to select relevant papers

financial therapy assessment, Covid-19 and financial planning, Covid-19 and financial therapy, Covid-19 and financial therapy assessment, financial management in Africa, etc. There was no particular emphasis on the time the papers were published. However, special attention was given to papers that were published recently.

5.2.1 Flowchart for the Process of Selecting Relevant Papers In all, 179 articles with these keywords and phrases were found. However, eight duplicates were identified, leaving 171 articles for further screening. Seven more papers were rejected because they were not related to the aim of the chapter. The remaining 164 papers were subjected to the structured critical literature review process. The papers were coded according to the established methods of assessing the financial health of individuals. These established methods included financial assets and liabilities, income and expenses and financial ratios. Three other psychological and behavioural assessment methods were also identified from the coding process. These psychological and behavioural assessment methods include Klontz money script inventory, Klontz money behaviour inventory and financial anxiety scale. Finally, cultural, social, economic, historical, political, legal and religious issues specific to Africa that could potentially influence their psychological and financial well-being were also examined.

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5.3 Financial Therapy Assessments Assessment is an essential activity in the financial therapy profession. In financial therapy, assessment entails gathering vital information about persons, their family, financial beliefs and arrangements. Morgan et al. (2019) claim that assessment is employed to understand better and predict an individual’s behaviour. Multiple methods, such as history interviews with a person and their family, behavioural observations and formal tests for gathering information about a person and family, are usually used in financial therapy assessments (Neal et al. 2019). Assessment in financial therapy is vital because, according to Mustaffa et al. (2013), without an assessment, financial therapy practice is akin to driving without a map. In the assessment process, the financial therapist wants to know the personal, professional and emotional history of individuals; their present conditions and where they plan to go in the future (Reynolds et al. 2021). This means that a thorough understanding of an individual’s idiosyncrasies is crucial in a financial therapy assessment. On this basis, individuals from countries with different social, cultural, religious and economic features must be assessed with instruments that are relevant to their context. In addition, changing conditions would require changing assessment tools for the financial therapy practice. Hence, the advent of the Covid-9 pandemic would rattle the assessment tools that have been previously employed. This suggests that financial therapists must pay attention to the conditions present when choosing an assessment tool for their practice. The crucial point to note is that financial therapy services are sought for various reasons. Some individuals may seek counselling to understand why they handle money the way they do. Some may seek financial therapy services to assist prepare for an approaching financial transaction, whilst others may need to find strategies to deal more successfully with their finances. Given the diverse reasons for the services of financial therapists, they must effectively employ assessment tools to collect information, create hypotheses, evaluate treatment progress and outcomes and encourage change in each scenario. As a result, understanding an individual’s approach to personal financial management, beliefs and functioning are critical when establishing therapy strategies for clients. The success of a treatment plan in financial management and individual psychotherapy often rests on a comprehensive assessment of the nature of the problem and the potential for a solution (Tuncel and Aricioglu 2018). In light of this, financial planners and psychologists must focus on crucial elements such as personal beliefs, knowledge, self-awareness, expectations, learning styles and social skills. These elements influence individuals’ financial management, beliefs, patterns, dynamics and level of functioning. Because financial therapists analyse dynamic systems, this technique can be more helpful in understanding one’s financial management challenges. Once again, financial therapy practices in Africa must consider the relational, emotional, cognitive, behavioural and financial composition of the African continent before settling on the assessment tools, methods and strategies to deploy. In addition, the Covid-19 pandemic has also

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influenced the relational, emotional, cognitive, behavioural and financial configuration of individuals; hence, it must be considered when choosing an assessment tool for a financial therapy session. As established, financial therapy assessment is a systematic process that provides a reliable data source about an individual’s financial arrangements. This data can be utilised to develop preliminary assumptions about the nature of the problem, its origins, individual perspectives of the situation and potential areas of strength. Assessment in financial therapy can also be used to assess the progress of the therapy session. It can also be used to evaluate outcomes at the conclusion of the therapy session (Lambie et al. 2017). This makes financial therapy assessment both a product and a process. It is both a guide, a rationale for work and a stand-alone intervention. Mustaffa et  al. (2013) outlined the following as the objectives of assessment in therapy: to determine and understand the nature of the financial and psychological issues; to gain insight into how an individual view their challenges and to paint a clear picture of individual dynamics’ structure, functioning and effects. The foregoing highlights that financial therapy is a complex phenomenon that requires a thorough understanding of the issues being addressed. In this context, the distinctive relational, emotional, cognitive, behavioural and financial features of the individuals involved must be considered. Africa, with unique features coming from the backdrop of colonialism, religious polarisation or indoctrination, cultural entrenchment, economic marginalisation and social uniqueness, needs assessment tools, methods and strategies that address this uniqueness. In addition, when conditions change, as witnessed during the peak of the Covid-19 pandemic, assessment tools and strategies must also be altered to accommodate the changing and distinctive features of the conditions.

5.4 Assessment Methods and Procedures in Financial Therapy The financial therapy assessment process entails collecting, analysing and synthesising pertinent facts about an individual’s financial and personal situations to identify stressors and issues and examining strengths and resources (Thomlison 2009). As previously stated, financial planners, psychologists or therapists must base their theoretical framework on the data gathered through assessment methods on each individual’s risk and protective factors. As a result, they must employ a number of devices and assessment instruments throughout the assessment process. Culture influences how questions on individual evaluations, tools and instrument validity are interpreted (Mustaffa et al. 2013; Gale et al. 2020). Therefore, assessment tools that are not normed for the population under examination may contain cultural, political, social and economic biases. Such tools may provide erroneous results, as well as improper advice, treatment plans and client misconceptions. The

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question of whether the existing assessment tools are still relevant and applicable globally becomes cogent. Given this recognition, financial therapists must use various assessment techniques, including observational approaches, interviews, self-­ reports of individual financial transactions and graphic representations of financial management. The extent to which the data and information gathered are subjective (based on the therapist’s or client’s assessment of the situation) or objective (based on observable data), as well as whether it represents an internal or exterior picture of the issue, are characteristics of the various methodologies (Totenhagen et  al. 2019). These methodologies must be informed by the context under which they are employed.

5.5 Measuring the Strength and Effectiveness of Financial Therapy Assessment Tools Establishing sound assessment instruments is crucial to the financial therapy practice. According to Sages et  al. (2015: 71), ‘to establish sound assessment instruments, three measurement properties of concern must be addressed, including reliability, validity, and sensitivity’. The views expressed by Sages et al. (2015) are compelling because in conducting an assessment in financial therapy, using the appropriate assessment tool is crucial as it allows for the establishment of accurate and effective baseline and benchmarks. This can help financial therapists to assist clients in identifying underlying issues and recognise when their objectives are attained. As highlighted earlier, the reliability of the assessment variables is crucial to the financial therapy practice. Reliability measures the level of consistency of the measuring variables. Consistent assessment in financial therapy measures whether the results will be similar when replicated under similar conditions. In an assessment study, psychologists consider three types of consistencies: over time, across items and across different researchers. The overtime consistency is also called test-retest consistency, employed to measure constructs that are believed to be consistent across time. If this supposition holds, then similar results should be recorded across time when the same assessment method is employed. This suggests that any suitable measure of financial therapy should provide roughly similar results across time. Measurements that provide high inconsistent results cannot be considered a good assessment tool in financial therapy practice. Since financial therapy deals with emotional issues, across time, consistency cannot be a good measure of the reliability of the measuring tools because emotions vary over time. In addition, Covid-19 pandemic has demonstrated the challenges of using across time consistency to evaluate the effectiveness of an assessment tool. This is because the unpredictable nature of the pandemic made it challenging to maintain a consistent level of anxiety, emotions and feelings across time. However, the consistency of assessments based on financial indicators can be measured over time.

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Another technique used to assess the reliability of an assessment tool is across item consistency. Across item consistency is also called internal consistency, which measures the consistency of responses across the items on many responses measured. Generally, internal consistency holds that all items for assessment should reflect similar underlying constructs so that responses on the items should be linked to each other. For instance, in financial therapy assessment, individuals with a high debt ratio should have a low savings ratio. If responses provided by individuals do not correlate with each other, then it would be inappropriate to claim that they all measure the same underlying construct. This is true for financial therapy assessment because individuals with a high ‘money avoidance‘score cannot score high in ‘money worship‘score. This would be internally inconsistent to the extent that an individual would want to avoid money and, at the same time, worships money. Cronbach’s alpha is the most popular statistical tool used to measure internal consistency, where a value of more than 0.80 is generally considered to represent a high internal consistency (Taber 2018). The reliability test relating to across different researchers is also called inter-rater reliability. Inter-rater reliability measures the degree of agreement or consistency among different observers. This measure of reliability is relevant in behavioural measures, which comprise significant opinions from raters or observers. Inter-rater consistency is also measured with Cronbach’s alpha. The validity of the assessment instruments is also an essential factor that is considered when assessing their effectiveness. Validity is the extent to which instruments, data and theory support the proposed interpretation of results. Validity can also be described as the degree to which results from an assessment tool embodies the variables they are proposed to. Validity in financial therapy assessment is crucial because it shows whether the assessment tools indeed measure what they purport to measure (McHenry and MacCluskie 2018). It shows the accuracy of the results. The validity of instruments is closely related to their over time reliability and internal consistency. This suggests that financial therapists should be confident about the effectiveness of assessment tools when test-retest reliability and internal consistency results are high. With this, it can be concluded that the assessment tools measures or represents what they claim. Notwithstanding this, Reynolds et  al. (2021) caution that more examination must be done because a measure can be highly reliable but may not be valid. This implies that apart from reliability measures, other evidence must be considered to enable a reasonable interpretation of results from financial therapy assessment tools. These measures include content validity, face validity and criterion validity. Apart from reliability and validity, another crucial issue considered in assessing financial therapy practice is the sensitivity of the results (Sages et  al. 2013). Sensitivity measures the degree to which a test accurately provides positive outcomes for individuals with similar conditions being examined (Tuncel and Arcioglu 2018; Griffin et al. 2018). Meyer (2020) explains that a highly sensitive test will identify all individuals exhibiting similar characteristics. Another critical concept linked to sensitivity tests is specificity, which measures the ability of an assessment to generate negative outcomes for individuals who do not have the conditions being

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tested for (Morgan et al. 2019). An important point to note is that sensitivity and specificity exist in a state of balance. This means that sensitivity increases at the expense of reduced specificity (Covington et al. 2018).

5.6 Financial Therapy Assessment Tools Various assessments tools for the financial therapy practice have been presented by authors such as Greninger et al. (1996), Altfest (2007), Klontz and Klontz (2009), Klontz et al. (2011), Klontz and Britt (2012), Archulela et al. (2013), Grable et al. (2013), Sages et al. (2015), Canale et al. (2015), Lawson et al. (2015), Archuleta et al. (2020) and Greene (2022). As presented in Appendices 5.1, 5.2, 5.3, 5.4, 5.5, and 5.6, these assessment tools provide comprehensive instruments that financial therapists can employ in their practices. From the Appendices, it can be observed that researchers and practitioners have widely suggested six different tools or instruments. These tools include financial assets and liabilities instrument, income and expenses tool, financial ratios, Klontz money script inventory, Klontz money behaviour inventory and financial anxiety scales. First, the financial assets and liability tools use information in the statement of financial position to assess the likely financial stress that individuals may be facing. This set of information helps the financial therapist gauge a client’s financial resources and constraints, hence allowing the suggestion of a possible course of action. Similarly, the income and expenses tools help track a client’s income sources and how the income is spent. The income and expenses information assists financial therapists in identifying the financial forms and patterns of an individual. Financial therapists are also encouraged to employ ratio analysis in their practice. Ratio analysis is the relationship between two or more financial information. Financial therapists perform ratio analysis to objectively evaluate a client’s financial situation because it uses accurate information relating to their assets, liabilities, income and expenses. Ratio analysis is popular among financial therapists because it provides a summary of a client’s financial information to assist in decision-­ making. The effective way of deploying financial ratio in financial therapy assessment is by comparing the figures across period and with those of other clients. A script is an attitudinal posture a person takes toward an issue, often presenting itself in a specific pattern of behaviour. Money scripts describe an individual’s attitude toward money, as well as how these views present themselves in the usage of money and activities involving money and other tangible resources. Identifying unhealthy, self-destructive or non-prosperous money scripts is a critical step in financial therapy. Social-psychological treatments and financial advice can address these unhealthy practices. Klontz et  al. (2011) created a taxonomy of the most prominent money scripts and associated them with demographic features of financial therapy clients. Klontz and Britt (2012) also demonstrated that these money script patterns could predict disordered money behaviour. According to the authors,

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the Klontz Money Script Inventory (KMSI) can be used by financial therapists familiar with money scripts and their associated financial relationships and behaviours, to examine and intervene in dysfunctional financial attitudes. Authors such as Tang (1992), Klontz and Britt (2012) and Sages et al. (2015) employed the money script inventory tools in Appendix 5.4 to administer financial therapy services to individuals and were demonstrated to be effective. Money disorders are abnormal, compulsive and severe interpersonal issues involving money and objects. Money problems can disrupt daily life, lead to financial disaster and jeopardise a person’s ability to thrive in close personal connections. Klontz et al. (2012) used a sample of 422 people to examine eight money behaviour disorders: compulsive buying, pathological gambling, compulsive hoarding, workaholism, financial enabling, financial dependence, financial denial and financial enmeshment. Despite identifying these disorders, it is established that individuals with money disorder challenges needing help from a financial therapist may go to considerable lengths to conceal them. As a result, financial therapists may not be aware of the existence of a money disorder until they hear about it through a client’s family or friends. Financial therapists who have received training in family therapy might leverage these interpersonal connections as part of their systems-based training to reach out to people who have money problems. The Klontz Money Behaviour Inventory tools in Appendix 5.5 have been employed by several authors, such as Klontz et al. (2012) and Sages et al. (2015). Shapiro and Burchell (2012) describe financial anxiety as a psychological syndrome in which people have a negative attitude toward efficiently managing their finances. The authors explain that financial anxiety is linked to a lack of financial literacy and an inability to handle money. This demonstrates that when people have no ability to manage money, anxiety can be displayed. As a psychological aspect of financial well-being, high financial anxiety can impede an individual’s ability to make sound financial decisions, leading to poor financial outcomes and even higher financial anxiety. Financial anxiety could become severe enough to lead to psychosomatic symptoms, which are physical symptoms such as nausea, heart palpitations or headaches caused by psychological distress. Sages et  al. (2015) emphasise that financial therapists should be aware of the severity of a client’s financial anxiety and refer to an anxiety specialist when symptoms are extreme. The assessment tools presented in Appendix 5.6 were established by Archuleta et  al. (2013) to assess a person’s financial anxiety. From the review of the existing assessment tools for financial therapy practice, it becomes clear that a single assessment tool cannot be effective for different times and contexts. This is because they would suffer from test-retest and inter-rater consistency. In addition, the validity of these tools cannot be guaranteed. Consequently, these tools that potentially would provide high inconsistent results in Africa and changing conditions such as a pandemic period cannot be recognised as a useful assessment tool in financial therapy practice. This is because since financial therapy

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deals with emotional and psychological issues, test-retest consistency of the established tools cannot be reliable. After all, emotions vary over time. The unpredictable nature of the pandemic poses a challenge in using the existing tools because the level of anxiety, emotions and feelings has changed during the period. Apart from this, the emotions, anxiety, feelings and psychology of Africans vary from those in the other parts of the world. In this case, these assessment tools will suffer from validity and consistency when wholly applied in these contexts, because the assessment tools cannot measure or represent what they claim to.

5.7 The ‘Africanised’ Financial Therapy Assessment One of the most noticeable characteristics of the African civilisation and culture is its non-individualistic character. Although African cultures showcase tremendous diversity, they also reveal extraordinary similarities (Ojera 2018). In African thoughts and behaviour, a community of togetherness and belonging are the cornerstones. This emphasises that an African is considered a member of a community, not a gruff individual (Lutz 2008). However, unlike Marxist collectivism, the communal nature of African culture does not imply that the individual’s benefit is subordinated to the good of the group. Individuals pursue their good while pursuing the general good. The emphasis here is that genuine community ethics does not urge individuals to forgo their own good to promote the interest of others but rather to recognise that they can only achieve their true good by advancing the good of others. In Ghana, for example, the concept of communal living is stressed in a proverb in Akan, which states ‘the clan is like a cluster of trees which, when seen from afar, appear huddled together, but which would be seen to stand individually when closely approached’. The proverb emphasises the individual’s social reality; it represents the understanding that the individual has a distinct identity and that, akin to a tree with some branches touching other trees, the individual is rooted separately and is not totally absorbed by the cluster. Similarly, in southern Africa, the traditional belief and understanding that one is genuinely human only as a member of a community is articulated through the philosophy of ‘Ubuntu’. Ubuntu is considered as the basis and edifice of African philosophy (Lutz 2009) and the bedrock of African communal cultural life. Ubuntu acts as a unifying element, bringing people together regardless of their background or access to wealth. The unique feature of Ubuntu is that it expects Africans to be generous, hospitable, friendly, caring and compassionate. This indicates that in the African community, humanity is entangled, irrevocably linked, with one another, making them part of a life bundle, which needs to be considered when establishing systems for financial management in Africa. Africans’ financial management practices resonate well with their culture and way of living, which is influenced by their Africanised (indigenous) knowledge. The term ‘indigenous’ can be an elusive concept. Loubser (2005) describes indigenous communities as communities that lived in the country before it was conquered

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or colonised. Loubser (2005) explained that indigenous knowledge is a body of knowledge rooted in African philosophical thought and social behaviours that have evolved over thousands of years and is inclusive of all cultural groups within the area of interest. In fact, African people have had their management philosophies and practices since early human history, as evidenced by such epochal endeavours as the engineering of the pyramids in the second millennium and civilisations reflected in the Songhai and Mali Empires, among others (Inyang 2008; Oghojafor et al. (2013). Although Ubuntu and the collectivism traits in Africa predates the colonial period, it undeniably serves as the foundation of the African financial management and financial therapy practice. The philosophy of Ubuntu and religion should therefore be a key feature in the financial therapy practice in Africa. Consequently, we urge caution in the sweeping adoption of assessment tools in financial therapy, without regard for the unique African context. The difference between the financial therapy practice in African and Western countries may be due to contextual settings (Sages et al. 2015). The unit of analysis is crucial in illustrating the differences between indigenous African financial management systems and the Western financial management systems. Whereas financial management and financial therapy practice in the Western contexts is generally based on the assumption of individual freedom and unitarity, as demonstrated by Sages et  al. (2015), Canale et  al. (2015), Lawson et  al. (2015), Archuleta et  al. (2020) and Greene (2022), the African financial management is somewhat different. Family, colonialism, religion, Ubuntu (collectivism), and historical commitments influence financial management, planning and financial therapy in Africa. For instance, the current financial planning techniques in north Africa are primarily modelled after their religious doctrines. Many Western financial management practices rely on assumptions and ethos that are incompatible with Islamic principles, such as the usage of interest rates, present values or lease accounting. Furthermore, the Northern African culture, like Ubuntu philosophy, emphasises the significance of ‘community responsibility’ over individual self-interest, which clashes with Western cultural ideals that respect individualism (Hofstede 2001). The situation is not different in other parts of Africa, especially in Western and Eastern Africa. In these regions, the Islamic trade and financial management framework has had an enduring legacy on financial management practices. For instance, in many parts of Africa, the philosophy of Ubuntu manifest in financial management through such schemes as informal mutual savings group called susu in Ghana, chama group in Kenya, isusu in Nigeria and stokvels in South Africa. In this scheme, individuals contribute money to each member in a rotational form. This kind of financial management activity is unique in Africa and is triggered by the Ubuntu spirit. Religion has also played a key role in modelling the financial management practices in Africa. As such, they should be considered when developing financial therapy assessment tools for the region. It is evident here that Africa operates with a unique financial management framework, which makes the wholesale application

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of the financial therapy assessment tools from the Western world in Africa unrealistic and elusive.

5.8 The Suggested Framework for Africanised Financial Therapy Assessment The previous section discussed and highlighted the uniqueness of Africa in the context of financial therapy and financial management. Ojera (2018) documented that before the colonisation of Africa, financial management practices were mostly on trade finance, investment management, trade credit management and accounting. However, evidence exist of how colonialism has modified the financial planning practice of Africa to mimic the Western financial planning practices. This points to the fact that they existed in the first place. Many indigenous African financial practices predated and their Western counterparts, according to Ojera’s findings. However, it is perplexing that this has been largely overlooked, with academics and financial planning practitioners portraying the former as inferior. There is a definite need to address this issue. This explains why financial therapy practitioners must focus on incorporating the unique African features and ethno-finance concepts into the entire financial therapy assessment process. Despite the increased attention on African financial planning practice, little is known about its assessment processes and tools. The worrying trend is that financial therapy practitioners follow assessment practices patterned after Western models; as a result, they may be irrelevant in African contexts. Following the arguments that indigenous financial therapy practices are crucial to the growth and reduction of poverty in Africa, it is critical to advance the concept of ‘Africanised financial therapy’ as a foundation for indigenous financial management practices in Africa. While it is fruitless to argue that Africa is integrally related to the globalisation phenomenon, a wholesale importation of Western financial planning practices and their related assessment tools is not appropriate. The challenge for African financial therapists is to appreciate and embrace local which include Ubuntu (collectivism), religious commitment (dogmatism) and historical obligations (black tax1). Furthermore, financial therapy assessment methodologies can be classified into three main instruments, comprising self-report, observational and diagrammatic methods (Mustaffa et  al. 2013). Typically, a single approach will not convey the entire picture. As a result, Lavee and Avisar (2006) advise that a multi-dimensional

 This term that originated in South Africa and describes money that Black (or other people of colour) professionals provide to their families regularly (usually, monthly). This is outside their own living expenses and usually out of obligation. Black tax is as a result of continued economic imbalance, which can be traced back to colonisation and apartheid. 1

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assessment from the perspectives of the individuals being assessed is required for a financial therapy assessment. As previously stated, the success of financial therapy services is determined by societal and organisational culture. Hence, every culture requires a clear understanding of acceptable therapy frameworks. In fact, in environments like Africa, ignoring the diversity of nationalities, cultures and religions might lead to assessment and therapy failure. If social and cultural dynamics are not considered during a financial therapy session, a disconnection may arise between the client, the financial therapist and the process. When this happens, clients may terminate the session, therapy sessions may be unsuccessful and financial therapy services may become increasingly unpopular or irrelevant. Given this, it is necessary to develop a model for all stakeholders in the financial therapy arena, bearing in mind the general goal of improving the financial therapy practice in Africa. In developing the financial therapy assessment tools for Africa, various individuals (clients) and stakeholders must clearly be outlined, given that Africa also has people of diverse backgrounds. From the foregoing discussion, the following models based on three principles are suggested. 1. Consideration of the philosophy of Ubuntu (collectivism). 2. Attention to religious commitment and/or dogmatism of Africans. 3. Relying on indigenous African financial management practices. Specifically, the following financial therapy assessment tools must be considered in the African context, in addition to the established tools provided in Appendices 5.1–5.6. Religious Commitment/Dogmatic Inventory I am not wealthy because I do not pay my tithe/zakat. I pay my tithe/zakat before I think of savings and investment. God will not bless me financially if I do not contribute financially to the development and growth of my religion. I must spend all my resources on God’s works. I do not have to look for worldly things because they are vanity. I spend my money according to the prescript of my religion. I cannot accept any income from a source prohibited by my religion. I am suffering financially because I am not faithful to God/Allah. Assessed based on a 5-point Likert scale where 5 denotes strongly agree and 1 represents strongly disagree. Philosophy of Ubuntu Inventory (Ubuntuism) I share my resources with the community. I make financial contribution to community development. It is my responsibility to take care of my extended facility. I am financially unstable because my siblings depend on me. It is my responsibility to financially take care of my siblings. I can only save after all my family members are financially taken care of. My dignity is more important that riches and I will not compromise it.

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The values uphold by the society influences my personal financial management. I must share what I have with community members who lacks. There is a joy in sharing what I have with others. Assessed based on a 5-point Likert scale where 5 denotes strongly agree and 1 represents strongly disagree.

5.9 Conclusion The chapter discussed the financial therapy assessment tools and their suitability in Africa and changing conditions. The chapter concluded by recommending a framework for assessing financial therapy in Africa. The discussion highlighted that the existing financial therapy tools largely modelled on the Western world’s individualistic attitudes suffer from test-retest and inter-rater consistency. This suggests that these assessment tools may lose their relevance with time and context, especially in Africa. Financial therapy practice in Africa is progressing but slowly. There is no organised association of financial therapists in Africa. Individuals are operating in silos, denying them the benefits of sharing ideas, methods and strategies. This would impact the effectiveness of the assessment tools and techniques administered to clients. African values are deeply ingrained and distinct from those in other parts of the world, especially the Asian and western ideals. A group orientation of Ubuntu (I am because we are) or an emphasis on being part of a group, a congenial relationship, a concern for image saving and religious orientation are all distinct African values. African financial therapists are likely to face significant obstacles in their practice due to the diverse nature of African values and the diversity of personal values, attitudes and viewpoints based on many cultures and religious values. The choice of strategies and methods in financial therapy in Africa can primarily be affected by the theoretical perspectives used by therapists. As a result, their theoretical approaches may impact various factors, including the therapist’s socio-­ demographic and geographic backgrounds. Although some significant groundwork and critical milestones have been placed for the financial therapy profession to take off from infancy in Africa, numerous hurdles remain. These challenges principally emanate from the identification of various unique assessment tools, strategies and methods relevant to the cultural, political, economic, social, legal and religious dynamics of Africans.

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Appendices Appendix 5.1  Financial assets and liabilities Item Characterization Financial assets Investment These are assets held by individuals to earn properties income through rentals or appreciation in the value of the assets. These assets generate income, appreciates in value, offer tax benefits or provide all the three benefits Liquid assets These are cash and cash equivalents. They are assets that are held in the form of money or can readily be converted to cash within short period Material assets Accumulated assets Labilities Non-current liabilities Current liabilities

Accumulated liabilities Net worth

Material assets are those properties held by individuals for daily use. They are normally assets of necessity or luxuries Total value of everything owned by an individual

Examples Fixed deposits, investment in stocks, properties for rentals, retirement accumulations, mutual funds, commercial properties and cars etc. Cash in hand, 91-day treasury bill, demand deposits, savings, money market investments, certificate of deposits, short term fixed deposits etc. Clothes, furniture, personal car, jewelry, electronics, collectibles etc. Summation of investment properties, liquid assets and material assets

All moneys owed by an individual scheduled Home equity loan, car loans, to be paid in more than a year student loan, mortgages, long-term bank loan Amount owed by an individual payable Bank overdraft, utilities, bills within a year payable, credit cards, payments overdue, salary advance, short-term bank loan etc. All the amount an individual owes Sum of non-current liabilities and current liabilities The amount left after an individual use all Difference between accumulated his/her assets to pay all the amount owed assets and accumulated liabilities

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Appendix 5.2  Income and expenses Statement of income and expenses: monthly and yearly Item Characterization Income Gross income Summation of all income of (nominal income, an individual before taxes are pre-tax income deducted Disposable income, take-home pay or after-tax income Expenses Utilities House rent

Examples

Wages, salaries, investment income, interest received, pensions, gifts, annuities, dividends, gifts, royalties, winnings etc. The income left after taxes are Pay cheque, direct deposit statement deducted. this is the amount of money an individual can spend Payments for utility services Payment made to live in a property

Gas, electricity, water, sewerage, Monthly rent, property taxes, house rates, mortgage insurance, house loan repayment etc. Food Expenses for food consumed Groceries, snacks, lunch, dinner etc. Transportation Expenses to commute from Car loans, fuel, maintenance, one place to another insurance, parking, registration etc. Communication Expenses for communication Phones, internet charges, monthly devices and services service charge Debt servicing Payments to settle money Credit cards, interest payments, loan borrowed repayments, student loans, etc. Clothing and other Expenses on clothes and other Shirts, shoes, trousers/pants, cosmetics, personal expenses personal items hair care, vacation, entertainment, life insurance, etc. Health care Cost of medical and dental Doctor and dentist fees, optometry, care hospitals etc. Child care Payments for the upkeep of Child support, school fees, day care, children baby-sitting, etc. Social and professional Payment for being part of a Holidays, anniversary celebrations, obligations ember of a society or a religious contributions, social profession contribution, association commitments, professional membership fees and dues, etc. Miscellaneous Payments for irregular items. Emergencies, accounting and legal expenses it normally represents 5% of fees, gifts, personal items repair etc. the disposable income Savings Money set aside to be spent in Emergency, retirement, investment, the future Net income The income left after all The difference between net disposable expenses have been paid income and total expenses

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Appendix 5.3  Financial ratios Name of ratio Formula Overall financial status Solvency ratio Total assets Total liabilities Expense ratio Net expense Net income Liquidity Liquidity ratio Liquid assets Annual expense/12 Savings and investments Savings ratio Savings Net income Asset allocation Capital Investment assets accumulation Net worth ratio

Debt payment and housing Debt ratio Total debt payment Net income Consumer dent Consumer debt payment ratio payment Net income

Housing expense

Housing expense + utilities Net income

Standard

Significance

>1.0

This implies that an individual or household is capable of paying their debt The proportion of monthly disposable income spent on expenses

3.0

This depicts an ‘emergency fund capacity’ of assets held. 1 represents a coverage for a month

≥0.10

The proportion of monthly income saved for the future

≥0.25

This ratio represents the financial Well-being and readiness of a household for a retirement. It shows the proportion of household income saved outside housing of equity

≤0.36

This ratio symbolises the proportion of disposal income used to service debt The amount of disposable income used to service consumer debt. It depicts the degree of reliance on credit by a household

≤0.10 safe ≤0.15 reduced flexibility ≤0.25 danger point ≥0.30–0.35 This represents the percentage of disposable income spent on housing expenses and utilities

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Appendix 5.4  Klontz money script inventory 1. Money avoidance I do not deserve a lot of money when others have less than me Rich people are greedy It is not okay to have more than you need People get rich by taking advantage of others I do not deserve money Good people should not care about money It is hard to be rich and be a good person Most rich people do not deserve their money There is virtue in living with less money The less money you have, the better life is Money corrupts people Being rich means, you no longer fit in with old friends and family The rich take their money for granted You cannot be rich and trust what people want from you It is hard to accept financial gifts from others 2. Money worship ( α = 0.80) Things would get better if I had more money More money will make you happier There will never be enough money It is hard to be poor and happy You can never have enough money Money is power I will never be able to afford the things I really want in life Money would solve all my problems Money buys freedom If you have money, someone will try to take it away from you You cannot trust people around money 3. Money status (α = 0.77) Most poor people do not deserve to have money You can have love or money, but not both I will not buy something unless it is new (e.g. car, house) Poor people are lazy Money is what gives life meaning Your self If something is not considered the ‘best’, it is not worth buying People are only as successful as the amount of money they earn It is okay to keep secrets from your partner around money As long as you live a good life you will always have enough money Rich people have no reason to be unhappy If you are good, your financial needs will be taken care of If someone asked me how much I earned, I would probably tell them I earn more than I actually do (continued)

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Appendix 5.4 (continued) 4. Money vigilance ( α = 0.70) You should not tell others how much money you have or make It is wrong to ask others how much money they have or make Money should be saved not spent It is important to save for a rainy day People should work for their money and not be given financial handouts If someone asked me how much I earned, I would probably tell them I earn less than I actually do You should always look for the best deal before buying something, even if it takes more time If you cannot pay cash for something, you should not buy it It is not polite to talk about money I would be a nervous wreck if I did not have money saved for an emergency It is extravagant to spend money on oneself I would be embarrassed to tell someone how much money I make

Appendix 5.5  Klontz money behaviour inventory 1. Compulsive buying ( α = 0.92) My spending feels out of control I obsess about shopping I buy more things than I need or can afford I feel irresistible urges to shop I shop to forget about my problems and make myself feel better I feel guilt and/or shame after making purchases I often return items because I feel bad about buying them I have tried to reduce my spending but have had trouble doing so I hide my spending from my partner/family I feel anxious or panicky if I am unable to shop Shopping interferes with my work or relationships 2. Pathological gambling ( α = 0.95) I have trouble controlling my gambling I gamble to make relieve stress or make myself feel better I have to gamble with more and more money to keep it exciting I have committed an illegal act to get money for gambling I have borrowed money for gambling or have gambled on credit My gambling interferes with other aspects of my life (e.g. work, education, relationships). I have hid my gambling from people close to me 3. Compulsive hoarding ( α = 0.91) I have trouble throwing things away, even if they aren’t worth much My living space is cluttered with things I don’t use (continued)

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Appendix 5.5 (continued) Throwing something away makes me feel like I am losing a part of myself I feel emotionally attached to my possessions My possessions give me a sense of safety and security I have trouble using my living space because of clutter I feel irresponsible if I get rid of an item I hide my need to hold on to items from others 4. Workaholism ( α = 0.87) I often feel an irresistible drive to work My family complains about how much I work I feel guilty when I take time off of work I feel a need to constantly stay busy I often miss important family events because I am working I have trouble falling or staying asleep because I am thinking about work I have made promises to myself or others to work less but have had trouble keeping them It is hard for me to enjoy time off of work People close to me complain that I am so focused on my ‘to do’ lists that I ignore them or brush aside their needs or concerns I have trouble saying ‘no’ when asked to work extra hours or take on extra projects 5. Financial dependence ( α = 0.79) I feel like the money I get comes with strings attached I often feel resentment or anger related to the money I receive A significant portion of my income comes from money I do nothing to earn (e.g. trust fund, compensation payments) I have significant fear or anxiety that I will be cut off from my non-work income The non-work income I receive seems to stifle my motivation, passion, creativity and/or drive to succeed 6. Financial enabling I give money to others even though I can’t afford it I have trouble saying ‘no’ to requests for money from family or friends I sacrifice my financial well Being for the sake of others People take advantage of me around money I lend money without making clear arrangements for repayment I often find myself feeling resentment or anger after giving money to others 7. Financial denial ( α = 0.84) I avoid thinking about money I try to forget about my financial situation I avoid opening/looking at my bank statements 8. Financial enmeshment (α = 0.81) I feel better after I talk to my children (under 18) about my financial stress I talk to my children (under 18) about my financial stress I ask my children (under 18) to pass on financial messages to other adults

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H. Maama and L. F. Jali I feel anxious about my financial situation I have difficulty sleeping because of my financial situation I have difficulty concentrating on my school/or work because of my financial situation I am irritable because of my financial situation I have difficulty controlling worrying about my financial situation My muscles feel tense because of worries about my financial situation I feel fatigued because I worry about my financial situation

References Altfest LJ (2007) Personal financial planning. New York: McGraw Hill Archuleta KL, Dale AK, Spann SM (2013) College students and financial distress: Exploring debt, financial satisfaction, and financial anxiety. Financial Counseling and Planning 24(2): 50–62 Archuleta KL, Mielitz KS, Jayne D, Le V (2020) Financial goal setting, financial anxiety, and solution-­focused financial therapy (SFFT): A quasi-experimental outcome study. Contemporary Family Therapy 42(1): 68–76 Canale A, Archuleta KL, Klontz BT (2015) Money disorders. In: Klontz BT, Britt S, Archuleta KL (eds) Financial Therapy. Springer, New York, p 35–67 Covington EW, Roberts, MZ, Dong J (2018) Procalcitonin monitoring as a guide for antimicrobial therapy: a review of current literature. Pharmacotherapy: The Journal of Human Pharmacology and Drug Therapy 38(5): 569–581 Gale J, Ross DB, Thomas MG, Boe J (2020) Considerations, benefits and cautions integrating systems theory with financial therapy. Contemporary Family Therapy 42(1): 84–94 Grable JE, Archuleta KL, Nazarinia RR (2010) Financial planning and counseling scales. Springer, New York Grable JE, Klock DD, Lytton RH (2013) The case approach to financial planning. National Underwriter Company, Erlanger Greene AJ (2022) Elder financial abuse and electronic financial instruments: present and future considerations for financial capacity assessments. The American Journal of Geriatric Psychiatry 30(1): 90–106 Greninger SA, Hampton VL, Kitt KA, Achacoso JA (1996) Ratios and benchmarks for measuring the financial wellbeing of families and individuals. Financial Services Review 5: 57–70 Griffin BJ, Worthington Jr EL, Davis DE, Hook JN, Maguen S (2018) Development of the self-­ forgiveness dual-process scale. Journal of Counseling Psychology 65(6): 715–726 Hasan MM, Nekmahmud M, Yajuan L, Patwary MA (2019) Green business value chain: A systematic review. Sustainable Production and Consumption 20: 326–339 Hofstede G (Ed) (2001) Culture’s consequences: Comparing values, behaviors, institutions and organisations across nations (2nd ed.). Sage Publication, Thousand Oaks, CA Inyang BJ (2008) The challenges of evolving and developing management indigenous theories and practices in Africa. International Journal of Business and Management 3(12): 122–132

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Chapter 6

Online Therapy: Challenges, Benefits and Implications for Online Financial Therapy Prince Sarpong

6.1 Introduction Technological advances have led to a growing usage of technology in mental healthcare. The global coronavirus pandemic necessitated an immediate shift of many financial services to online, as lockdowns, social distancing and other restrictions made it impossible to carry on with face-to-face interactions. Video calls and conferencing have become part of everyday life, from online education, family calls, shopping and placing orders for takeout to telehealth visits with medical professionals. This has led to the transformation of many aspects of life. A survey by McKinsey and Company reveals that responses to the pandemic have fast-tracked the switch to digital technologies by several years, and this is projected to be the norm (LaBerge et al. 2020). Figure 6.1 shows the average share of products and/or services that have been fully or partially digitised over the period from June 2017 to July 2020. The rate of digitisations has increased years ahead of where they were when prior surveys were done. Globally, the average share of customer interactions that are digital have increased significantly (LaBerge et  al. 2020). In the United States, for example, 90% of Americans report that the internet is now an essential part of their lifestyles. Many Americans reached their families and/or carried out meetings, whether for business or otherwise, through video calls, while 40% reported that they used technology in new ways (Pew Research Center 2021). For therapists, this has necessitated an urgent need to develop the skill of building and maintaining strong therapeutic relationships as they navigate a new online therapeutic environment. The transition to online therapy raises the challenge of how to maintain and foster the therapeutic relationship over the internet. Some P. Sarpong (*) School of Financial Planning Law, University of the Free State, Bloemfontein, South Africa e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 P. Sarpong, L. Alsemgeest (eds.), Perspectives in Financial Therapy, https://doi.org/10.1007/978-3-031-33362-0_6

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ahead of the average rate of adoption from 2017 to 2019

Fig. 6.1  Average share (%) of products and/or services that are partially or fully digitised. (Source: LaBerge et al. 2020)

practitioners have reported challenges with the required technology, exhaustion, a lack of confidence and a sense of professional self-doubt in navigating this new environment (Aafjes-Van Doorn et al. 2021). However, online therapy is not a recent phenomenon, as some practitioners have been providing online therapy long before the coronavirus pandemic (Alleman 2002; Barak et al. 2008; Derrig-Palumbo 2009; Hedman et al. 2011). Providing online therapy alleviates some of the barriers to receiving therapy services that many low-income individuals and people who have limited access to traditional in-person therapy encounter. It can therefore be a reliable, practical and effective way to help people to prioritise their mental health and to provide support and relief. After all, the aim of online therapy, inter alia, is to provide an accessible and safe space to discuss concerns, health conditions, challenges, conflicts and everyday needs and thoughts with a professional. There is also agreement that online therapy can be effective in combating stress and mental health concerns and an efficient means of helping many people achieve and maintain better mental health (Spiegel 2020). While existing stigma around mental health treatment (Bharadwaj et al. 2017; Pedersen and Paves 2014; Corrigan 2004; Glazer et al. 2021) may deter people from seeking help, Bird et al. (2019) report that self-stigma does not affect the attitude toward online counselling to the same degree as in-person counselling, therefore, online therapy may be helpful to people experiencing high levels of stigma. Results from a survey of 1000 Americans currently in online therapy, conducted by Verywell Mind, shows that 91% of people receiving online therapy agree that it will be helpful for others to engage in seeking help online and 92% expressed satisfaction with their overall experience with online therapy (Spiegel 2020). Generally, the main criticisms of online therapy are related to technical impediments to privacy, communication, confidentiality, legal liability and

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boundaries (Morland et al. 2015). The documented advantages on the other hand are mainly related to improved access for underserved populations, a reduction in the cost of treatment and the ability to maintain continuity of the therapeutic relationship after a client has relocated. According to Kocsis and Yellowlees (2018), online therapy can provide an alternative medium to reach out to and develop strong therapeutic relationships with different types of clients. It can also engender therapeutic intimacy in ways that the traditional face-to-face therapy cannot (Kocsis and Yellowlees 2018).

6.2 Online Therapy Online therapy may also be referred to as internet therapy, e-therapy, teletherapy and cyber therapy. This list is not exhaustive, and these concepts tend to be used interchangeably. Teletherapy falls within the broader field of telepsychology, which entails the delivery of psychology services through telecommunication technologies (Joint Task Force for the Development of Telepsychology Guidelines for Psychologists 2013). Telepsychology in turn falls within the broader field of telehealth, defined as the use of information and telecommunication technologies to support the delivery of long-distance health care, public health, education and health administration (Health Resources and Services Administration 2021). Generally, telehealth is aimed at facilitating and enhancing educational, clinical and scientific healthcare and research, especially to under-serviced communities. It entails the use of secure videoconferencing or other similar technologies that enable the replication of in-person consultations (Health Professions Council of South Africa (HPCSA) 2014). Although online therapy has no official definition, there is a common element in all definitions provided, that is, people logging onto the internet for therapy sessions. It provides an alternative to traditional in-person therapy sessions, and practitioners use different kinds of internet communication to provide therapy to their clients. There are three main categories of online therapy, namely: the dissemination of information, peer-delivered therapeutic advice/support and professionally delivered treatment (Griffiths and Cooper 2003). Online psychological services range from sites providing basic information relating to specific disorders to self-help sites that provide assessments on psychological problems, to comprehensive services in psychotherapy that entail assessment, diagnosis and intervention (Rabasca 2000).

6.3 The Different Categories of Online Therapy According to Griffiths and Cooper (2003), the three main categories of online therapy are as follows:

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6.3.1 Information Dissemination These services are mainly aimed at providing education and to raise consciousness on psychological issues. They are usually provided through websites, which provide easily understandable information on a range of psychological problems, self-help checklists and links to other helpful websites.

6.3.2 Peer-Delivered Therapeutic Support/Advice These are sites that are usually created by traditional helping institutions, who provide online support to their clients as an extended service, or an option to in-person interactions. There are several services of online therapy for almost all psychological issues; therefore, a person may, for example, be in his living room and still attend an alcohol anonymous meeting with participants from different geographical areas. There are also general services, usually provided via email only, where people get once-off advice from persons who may not be professionals or practitioners.

6.3.3 Professionally Delivered Treatment These are services provided by mental health professionals over the internet. The services are provided either through email correspondence with the client or in real time in an online video call.

6.4 Some Common Avenues for Online Therapy The practice of teletherapy is rapidly evolving, and currently, many clients receive real-time interactions with highly responsive therapists. One of the main reasons clients seek online therapy is due to the rapid access to a therapist (GoodTherapy 2020). According to GoodTherapy (2020), some common avenues for online therapy are as follows:

6.4.1 Self-Help Programmes Through Apps This is an increasingly popular way of accessing therapy among people who want to improve their mental health. These programmes are mainly developed by therapists or rely on insights of an expert therapist.

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6.4.2 Teletherapy Through Video Chats This approach is almost similar to traditional therapy. However, clients are able to access therapists from any geographical location as long as there is an internet connection.

6.4.3 Text Therapy Some therapists also utilise text messaging as means to providing messages of support or encouragement as part of a larger programme. Other therapists also encourage their clients to send them text messages whenever they need a quick response. It is important to note that text therapy is not a comprehensive approach to treatment and mainly happens as a part of a treatment programme.

6.5 Research on Online Therapy Research on online therapy has been ongoing for about four decades, and over this period, there has been a significant evolution in the methods of delivery, with the advent of webcams in the early 1990s, Skype in the early 2000s and the rollout of faster internet services in many parts of the world (Smith et al. 2021). The use of video-conferencing technologies accelerated dramatically over the period of the coronavirus pandemic and the use of virtual reality technologies in mental health is now a possibility (Bell et al. 2020). The internet can be a good avenue for many forms of self-help. For example, the internet has a disinhibiting impact and minimises social desirability; therefore, internet users do not adjust their responses with the hope of being more socially desirable (Joinson 1998). This engenders a higher level of honesty and thus a higher validity with respect to self-disclosure (Cooper 2001). The internet provides an environment for non-face-to-face interaction, which is perceived to provide anonymity and a nonthreatening or safe environment. Consequently, it encourages ‘socially unskilled’ people, who otherwise would not have sought help in an in-­ person environment, to find help on the internet (Griffiths and Cooper 2003). The benefits of the internet notwithstanding, over the years, there have been many criticisms against online therapy (Békés and Aafjes-Van Doorn 2020; Russell 2018; Barak et al. 2008; Skinner and Latchford 2006). The criticisms are mainly centred on five main concerns. First is the lack of human connection, which may inhibit the efficacy of online therapy. Secondly, there are ethical concerns relating to client privacy and also the ability to provide emergency services during asynchronous/delayed communication therapy sessions. The third concern is on the regulation of the online therapy environment, while the fourth concern is related to the

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practical issue with online communication, including the dependence on electricity and internet access, that is, the digital divide. The fifth concern is on the general effectiveness of online therapy compared to in-person sessions (Smith et al. 2018). In the broader medical field, the World Medical Association (2020) contend that telemedicine must not be misconstrued to be equal to in-person delivery of healthcare. In a narrative review of ethical concerns in online psychotherapy, Stoll et  al. (2020) searched three databases – Web of Science, PubMed and PsycINFO – and found 249 relevant publications. From this study, the researchers report 24 ethical arguments in favour of and 32 arguments against online psychotherapy. The five main submissions in favour of online psychotherapy are: (1) increase in accessibility, flexibility and availability; (2) enhanced communication and therapy benefits; (3) benefits relating to the unique situation of the client (e.g. inaccessible location); (4) increased demand, acceptance, convenience and satisfaction; and (5) economic advantages. The top five submissions against online psychotherapy were: (1) confidentiality, privacy and issues relating to security; (2) competence of therapists and the need for special training; (3) communication issues specific to technology; (4) current gaps in research; and (5) issues relating to emergency situations. Stoll et al. (2020) suggest that their findings are qualitative and argumentative in nature; therefore, additional quantitative research is required to draw a conclusion on the ethical issues relating to online psychotherapy. While some studies found that clients prefer in-person therapy (Berle et al. 2015; Rogers et al. 2009), other studies report that, in general, clients have no preference between the two options (Simpson and Reid 2014). Varker et al. (2019) however posit that there is huge potential in online therapy in overcoming barriers to access in rural areas and can be an effective means to addressing different disorders. In addition to overcoming the access barrier, online therapy may also be cost and time efficient (Simpson 2009). Kocsis and Yellowlees (2018) further suggest that online therapy may provide innovative approaches to building strong therapeutic relationships with different types of clients and can also engender a stronger therapeutic intimacy than with in-person therapy. A survey of some clients currently receiving online therapy revealed that there is high levels of satisfaction among clients. The survey showed that 92% of clients were satisfied with their overall experience and specifically citing cost (82%), security (86%), quality of counselling (90%), response time (91%), privacy (91%) and ease of use (92%) as some of the reasons for their satisfaction (Spiegel 2020). Other factors that serve as motivation to use online therapy include the belief that it can improve the quality of the therapeutic relationship, facilitate heightened autonomy, provide anonymity and offer a way to avoid face-to-face contact (Hanley and Wyatt 2021).

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6.6 A Shift Towards More Egalitarian Power Dynamics In the therapeutic process, the power of dialogue is fully maximised when it emanates from an ‘egalitarian’ dyad grounded in a recognition of the nascent autonomy of the client and his ability to function as a co-directive force in his therapeutic journey (Kinsella 2018). In philosophical literature, autonomy is described as ‘self-­law’, that is, the iteratively realised capacity of a person to govern his own life in accordance with his own authentic motivations and justifications that is not a product of external distortion or manipulative forces (Christman 2020). Egalitarian encounters can serve as a motivation for the client to reflexively endorse his personhood and appreciate himself beyond being just a ‘patient’ and to apply this intra-­personal insight in a directive capacity within the therapeutic relationship. Such a frame of reference of the client is crucial in ensuring that the therapeutic endeavour is more authentic and attainable (Kinsella 2018). Although autonomy is crucial in counselling and psychotherapy, power differentials are a lived reality of therapeutic encounters (Kinsella 2018). Kocsis and Yellowlees (2018) argue that online therapy provided through videoconferencing, also known as telepsychotherapy, can make the therapeutic process more egalitarian than in-person therapy and can be helpful in reducing anxiety in patients. This shift towards egalitarian power dynamics occurs because of a number of factors including: (1) the place where therapy occurs, (2) the virtual space where the therapy occurs, (3) the sense of control that the patient experiences and (4) the option for a ‘hybrid’ model of in-person and online therapy.

6.6.1 Factors that Influence the Egalitarian Power Dynamics Kocsis and Yellowlees (2018) describe how the following factors affect the egalitarian power dynamics in online psychotherapy: 6.6.1.1 The Place Where Therapy Occurs Since patients have the option to receive therapy services from their homes or a familiar environment, the experience can be less anxiety-provoking. Likewise, therapists have the option of providing their services from an environment that is more comfortable for them, for example, from their homes. According to Kocsis and Yellowlees (2018), this geographic relocation may be more relaxing and settling for both the therapist and the client and can foster the development of a more intimate therapeutic relationship.

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6.6.1.2 The Virtual Space in Which the Therapy Occurs There is more eye contact in telepsychotherapy compared with face-to-face psychotherapy. However, the geographic distance between the therapist and the patient can create a psychological distance akin to what patients experience when lying on an analytic couch. The ‘virtual space’ afforded the patient in telepsychotherapy provides an increased psychological and physical distance and provides more safety, which engenders increased intimacy. Furthermore, the client may be emboldened to be more honest and to candidly open up about important issues as a result of the ‘protection’ the virtual space provides while still maintaining intimacy-fostering eye contact (Kocsis and Yellowlees 2018). 6.6.1.3 The Client’s Sense of Control The client experiences a heightened sense of psychological and physical control of telepsychotherapy sessions; consequently, the therapist will be less likely to succeed in adopting any paternalistic approach. For example, in the worst case, the client can simply turn off the computer to end the session, which may be easier to do, than walking away during an in-person therapy session (Kocsis and Yellowlees 2018). 6.6.1.4 The Option for a ‘Hybrid’ Model of In-Person and Online Therapy Some people struggle with accessing and remaining engaged with the psychotherapeutic process. For people with high levels of hypervigilance or anxiety, for example, people who are traumatised, leaving a more familiar environment, like one’s home, to seek therapy may feel extremely difficult. These groups of people may be more willing to engage in telepsychotherapy than in a face-to-face psychotherapy. A gradual integration of face-to-face sessions, after establishing an initial therapeutic relationship from the ‘safer’ online sessions, may be a novel approach to exposure therapy (Kocsis and Yellowlees 2018).

6.7 The Therapeutic Relationship in Online Therapy One of the main concerns with online therapy is the cultivation of a therapeutic relationship or a working alliance when the therapist and the client are separated geographically. This is a major concern because a working alliance, defined as the extent to which the client and the therapist work purposefully, collaboratively and develop an emotional connection, is a key element of successful therapy. Cook and Doyle (2002) carried out a comparison of working alliance score of online therapy participants with in-person therapy participants using a Working

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Alliance Inventory (WAI) made up of four measures namely: tasks, bonds, goals and the overall alliance. Task measured collaboration on specific, technical, in-­ session behaviours and procedures such as role plays, guided imagery and exposure therapy. Goals measured the extent of agreement on the desired impact of therapy, whereas bond measured the human relationship where attachment and trust are cultivated to enable an intimate therapy session. The study reported higher means in the goal subscale and the composite score of the WAI among the online participants, suggesting that an adequate working alliance can be developed in online therapy sessions. Although some practitioners are hesitant to use online therapy because of relational concerns, particularly relating to challenges in developing a strong online therapeutic relationship (Connolly et al. 2020; Roesler 2017; Sucala et al. 2013), these concerns are not empirically grounded (Aafjes-van Doorn et  al. 2021). Research on working alliance, which is one of the most studied elements of the therapeutic relationship, shows that clients have a positive experience and benefit from video therapy (Aafjes-van Doorn et al. 2021). However, among practitioners, there is perception that working alliance in video therapy is not as strong as working alliance developed in in-person sessions (Rees and Stone 2005), although high working alliance has been reported in video therapies (see Norwood et al. 2018) and similar to face-to-face sessions (Watts et al. 2020; Bouchard et al. 2020). This is particularly so when rated by clients (see, e.g., Ruwaard et al. (2009)). A study conducted by Knaevelsrud and Maercker (2006) revealed that participants rated online therapeutic relationship higher than in-person therapeutic relationship. This shows that a therapeutic relationship can be cultivated even in online sessions. A strong therapeutic relationship, in turn, can promote adherence to treatment (Knaevelsrud and Maercker 2006). There is the possibility that it is rather the negative expectations of video therapy, as opposed to real relational deficits, that influences the perception of practitioners on the therapeutic relationship in video therapies (Rees and Stone 2005). Although the realistic and genuine personal relationship is an important element of the therapeutic relationship (Gelso 2011) and has a distinct contribution to the outcomes of therapy delivered in person (Bhatia and Gelso 2018), currently, no study has yet been conducted on this in online therapy (Aafjes-van Doorn et al. 2021). Békés et al. (2021) report that among practitioners, the attitude towards online therapy is most positive for those who had a neutral or strong online therapeutic relationship with their clients, particularly when they experienced minimal professional self-doubt and are below the age of 40 years. Therapists who experienced higher self-doubt, and especially if they are experiencing secondary trauma, were the most concerned about online therapy. Therapists who have low therapeutic relationship with their clients were least likely to employ online therapy in the future. Békés et al. (2021) conclude that self-doubt and the quality of therapeutic relationship with online clients are the most relevant factors associated with the acceptance of online therapy by practitioners. A study by Aafjes-van Doorn et al. (2021) on the experiences of 141 practitioners who shifted from face-to-face to online therapy during the coronavirus pandemic

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revealed that practitioners who have more experience in online therapy and minimal levels of anxiety and self-doubt and therapists who experience a strong online relationship, or believed their clients were receptive to it, were more accepting of video therapy. Although the practitioners were mostly unsure of their chances of employing online therapy in future, those who had prior experience in video therapy were more likely to endorse future utilisation. The authors recommend training in online therapy, particularly for professionals with little experience in online therapy, to create a better experience and to support the effective adoption of online therapy in the future.

6.8 Online Therapeutic Presence Therapeutic presence is also a critical factor in developing a successful therapeutic relationship. Presence is a state of awareness and centredness in oneself while remaining attuned and engaged (Hayes and Vinca 2017). According to Carl Rogers (founder of person-centred psychotherapy), the concept of presence – ‘when my self is very clearly, obviously present’ – is arguably the most important element of therapy (Baldwin 1987: 30)1. Robbins (2000) provides a succinct description of therapeutic presence. In his book, Between Therapists, Robbins (2000: 13) argues that: Being a psychoanalytic therapist creates an ongoing and grueling emotional balancing act. In order to be effective therapists, we must maintain an appropriate objective emotional distance from our patients while, at the same time, we transmit an essence of humanity as we touch our patients’ raw emotional nerves. We also try to be openly receptive to our patient’s communications, offering ourselves as ‘containers’ for such intensely powerful affects as abandonment, rage, loss and love. This state of containment requires an emotional centering of ourselves, and demands that we put aside the stresses of our personal daily lives when we enter the office and confine our patient’s confidential struggle to a very private section of our psyche.

Therapeutic presence has a major impact on the effectiveness of the therapeutic relationship (Geller 2021). Studies in psychotherapy have revealed that therapeutic relationship is a consistent predictor of therapeutic change (Norcross and Lambert 2011, 2019). Literature on psychotherapy also reveals that therapeutic presence is a critical and preliminary step required to create a feeling of safety, to develop a stronger therapeutic relationship and to increase the efficacy of therapy (Dunn et  al. 2013; Geller 2017; Geller and Porges 2014; Hayes and Vinca 2017). It is an emotional centring of the therapist, requiring a shift from the inside to the outside, self to other and from affect to cognition. It also entails allowing the therapist to contain the deep projection of the client, offering an empathetic mirror, which then becomes the cornerstone for a new internalised self/object identification (Robbins 1998). This allows for the creation of an unconscious contract with the therapist, thus  See Baldwin M (1987) Interview with Carl Rogers on the use of the self in therapy. Journal of Psychotherapy & The Family 3(1): 45–52. 1

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enabling them to offer their pathology for containment, and in turn, the therapist processes and organises these materials and offers a mirror that reflects the containment while providing a more adequate picture of the client (Robbins 1998). Therapeutic presence thus entails interacting with a client in a way to optimise the technique and practice of therapy and entails practitioners bringing their whole being to the therapy session and being wholly in the moment at all levels, that is, emotionally, physically, relationally, cognitively and spiritually (Geller 2017; Hayes and Vinca 2017). It involves the process of being grounded in one’s self, being responsive in the moment and openly taking in the nonverbal and verbal experiences of the client (Geller 2019). Therapeutic presence also helps therapists in attuning to their own experiences and the experiences of the client (Geller 2017; Thompson 2018). Colosimo and Pos (2015) describe four primary modes of presence, each connected to behaviours that capture the ways through which therapist can demonstrate presence, namely: ‘here’, ‘now’, ‘open’ and ‘communion’. Being ‘here’ means the therapist is ‘here and only here’, that is, being in the current physical reality of the therapeutic session by focusing all attention on the session. A present therapist being in the ‘now’ can be conceptualised in two different ways. The first concept relates to being attuned to the current therapeutic session and not engrossed in thoughts of what has transpired (the past) or may transpire (the future). Secondly, ‘nowness’ relates to the capacity of attunement to the flow of time, that is, being attuned to the pulse in the narrative of the client, changes over time and tracking the therapy hour. A therapist demonstrates presence by being ‘open’ and ready to receive what is in the ‘here’ and ‘now’. A present therapist is in ‘communion’ by being with the client and for the client. Therapeutic presence involves keeping a healthy interpersonal contact that shows that the therapist is here and now with the client during the therapeutic session (Colosimo and Pos 2015). Some studies suggest that telepresence  – the feeling of being present without being in the same physical space – is a critical factor in online therapy (Fink 1999). However, telepresence is different from therapeutic presence although they may be complementary. Whereas telepresence is used in different services, such as customer service, and in different contexts, therapeutic presence relates specifically to the service of psychotherapy. All the same, studies have found that in online sessions, telepresence is important in creating and developing therapeutic attachment (Bouchard et al. 2000; Berthiaume et al. 2018). Although therapeutic presence and telepresence are different concepts, they both describe internal sensations, through experience or through the feeling of being in the same physical space, which are critical to the success of psychotherapy (Rathenau et al. 2021). It is only recently that therapeutic presence became a topic of scientific research; therefore, there is a need for more research to gain deeper insights into its role in the therapy process (Colosimo and Pos 2015). Although online therapy can present novel ways in developing strong therapeutic relationships and can engender an even stronger intimacy in therapy than in-person therapy (Kocsis and Yellowlees 2018), there are challenges as well as unique features in the online delivery of therapeutic services that must be attended to, in order to bolster therapeutic relationship with presence. This is because online therapy

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sessions are not the same as in-person sessions. Some of the bottlenecks in online presence emanate from the actual setting of the online therapy. For example, the client may be in a home environment with the same person(s) the client has issues with. Again, in an online environment, the client can be distracted. Furthermore, some therapists have technological challenges and report that they experience loss of confidence and professional self-doubt and feel more tired when working in an online environment (Aafjes-van Doorn et al. 2021). There is very limited research on therapeutic presence, especially in the online setting. However, literature in nursing provides some examples where within the broader telehealth relationship, nurses experience therapeutic presence in the nurse-­ patient relationship, suggesting that there can be an online transmission of therapeutic presence (Hafermalz and Riemer 2016; Tuxbury 2013). In an interview with six nurses, Tuxbury (2013), for example, report that therapeutic presence can be experienced through computer and non-video calls, thereby enabling nurses to provide care and establish presence in the nurse-patient relationship in situations where in-­ person consultations are not possible. According to Hafermalz and Riemer (2016), therapeutic presence can be developed even in an online setting if there is adequate training and acclimatisation with the technologies and equipment. Once presence is cultivated, body and mind perceptions can transcend space and time. It is also possible for clients to experience presence which transcends distance, and thus forget that they are not in the same physical space with the therapist (Bouchard et al. 2007). The physical interaction by itself does not necessarily guarantee a high level of understanding and a meaningful engagement. A meaningful therapy engagement is a by-product of cognition, which manifests as a natural connection that binds both cognitive and perceptual actions of interactivity (Fodor 1983). Alvandi (2019) espouses ‘cybertherapogy’ as a model to develop a schema to engage and establish meaningful therapeutic experiences in online sessions. According to this model, therapists should incorporate counselling, cognitive and emotional presence during remote interactions to optimise the effectiveness of the online therapeutic engagement. According to Alvandi (2019), counselling presence entails expressing certain characteristics of presence like trust, listening and compassion, to enable the client to feel heard and understood, and cognitive presence denotes the ability to empathise with the client, whereas emotional presence entails attuning to the emotions of the client and assisting the client in expressing and managing emotions.

6.9 Online Financial Therapy The responses to the coronavirus pandemic have fast-tracked the rate at which people use digital technologies by several years, and majority of these changes are forecasted to be long-lasting (LaBerge et al. 2020). Among financial advisors, there have been a significant upsurge in the use of video-calls, jumping to 48%, up from just 2% prior to the pandemic, and in the year 2020, only 12% of advisors had

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in-­person meetings with clients, according to a study by SmartAsset, and this shift in client communications is likely to be permanent for many advisors (Horan 2021). Consequently, online financial therapy will most likely be the norm rather than the exception, and even if that is not case, a significant percentage of the financial therapy services will be delivered online. Online financial therapy has been reported to help reduce clients’ financial stress and engender a feeling of greater levels of competence in making financial decisions, including the ability to commit to, and adjust budgets when necessary (Smith et al. 2018). According to Klontz et al. (2016), financial stress may lead people to seek financial advice. If such financial stress is not related to a major psychological distress, then traditional financial planning could be all that is required relieve their financial stress to help achieve financial health. However, if the financial stress is associated with psychological distress, financial therapy may be the effective in helping to relieve such financial stress (Klontz et al. 2016). This suggests that, in some cases, financial therapy is concomitant to financial planning, and the client would have approached an advisor based on financial issues/stress although there may be an underlying psychological issue. However, prior to the delivery of financial therapy, whether face-to-face or online, the advisor is most likely to have cultivated trust (a crucial element in developing a therapeutic relationship), before transitioning to the therapeutic process, or applying principles in financial therapy to address the problem. A study by Dubofsky and Sussman (2009) reveals that financial planners may become personal coaches and counsellors to their clients whether they planned for it or not. Regardless of the specific contractual relationship, some clients will open up to their advisors about their non-financial lives. This is because, once the clients truly trust their advisors, they are more open to telling their advisors anything and everything (Dubofsky and Sussman 2009). Poh Li et al. (2013) contend that counsellors and therapists may face certain difficulties, for example, determining whether a client has the mental capacity to consent since there is no pre-existing client-­ therapist relationship beforehand. However, in the case where a financial planner/ counsellor/coach incorporates financial therapy models, or is practicing financial therapist, the relationship between the therapist and the client is developed, and trust is built, long before the beginning of the therapeutic process, thereby allowing for a more effective and successful therapy process. One of the major impacts of the coronavirus pandemic, apart from its fatality and associated health disasters, is the loss of jobs and income by millions of individuals and the economic anxiety experienced globally. Bareket-Bojmel et  al. (2021) describe four sources of anxiety: anxiety generated by social isolation, anxiety associated with change to daily routine, health-related anxiety and economic-related anxiety. In a study in the United Kingdom, the United States and Israel, the researchers report economic anxiety has the same effect as health anxiety, and these two kinds of anxiety surpass isolation anxiety and routine change. Although the pandemic is a health-related crisis, the researchers suggest that there is a need to shift from a generalised idea of anxiety to specific kinds of distress. This is because

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economic anxiety, for example, can lead to severe mental and physical health issues (Bareket-Bojmel et al. 2021). Although there is increasing economic anxiety and psychological stress, there is still a great deal of stigma attached to the seeking psychological help (Bharadwaj et al. 2017; Pedersen and Paves 2014; Corrigan 2004; Glazer et al. 2021). A recent survey conducted by OnePoll, for Vida Health, a virtual health care company based in the United States, revealed that almost half (47%) of the respondents believe that seeing a therapist is a sign of weakness (Robinson 2021). While people may attach a certain level of stigma to seeking the help of a therapist, such stigmas are non-­ existent in seeking financial advice. Since financial therapy may be concomitant to financial advice and the therapeutic process is likely to only begin once the trust and relationship has been built through the advisory relationship, financial therapy presents a unique way to avoid the stigma that prevents people from seeking help, while receiving the needed therapy. Online financial therapy takes this unique opportunity further as therapeutic services delivered online can be beneficial to people experiencing high levels of stigma. While the therapeutic relationship in psychotherapy may sometimes be described as therapist-patient relationship and studies in psychotherapy sometimes refer to the therapy recipient as a patient as opposed to client (Consoli et  al. 2016; Trachsel et al. 2021), some financial therapeutic relationships usually start off as a client-­ advisor relationship; therefore, in transitioning to the therapeutic process, the relationship is likely to be viewed as a client-therapist relationship. Possibly, the client may never even notice this transition from advisory relationship to a therapeutic relationship as clients would talk about their issues anyway to their advisors and not know or care about the transition from an advisory to therapeutic relationship. It is important though for practitioners to prompt clients on this transition and ensure the necessary documentations are processed before proceeding with a formal therapeutic process. Although referring to the recipient of therapeutic services as clients or patients may seem to be just an issue of semantics, referring to the recipient as a patient may further exacerbate the stigma and the perception of weakness associated with seeking help from a therapist. According to Robinson (2021), since there is a common misconception that people who seek psychotherapy are weak, mentally ill or crazy, ‘client’ is the preferred description for a person in therapy and not ‘patient’. Furthermore, referring to the therapy recipient as a patient may worsen the existing power differentials in therapeutic encounters, which according to Kinsella (2018), are a lived reality in therapeutic relationships. However, therapeutic relationships that evolved from client-advisor relationships are likely to be relatively more egalitarian as the client, from the onset, was not viewed as a patient (and thus ‘in need of help’). The power differential is even further minimised in an online therapeutic session where, Kocsis and Yellowlees (2018), for example, point out, if a client feels uncomfortable in a session, he or she can just switch off the computer. This may be relatively easier and more convenient than walking away in an in-­ person session.

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Finally, unlike other forms of psychotherapy, Britt et  al. (2015) suggest that financial therapy is relatively more inclusive and not limited to diagnosing and treating mental disorders that are money related. The authors argue that the term ‘therapy’ is used in different nonmedically based practices aimed at reducing tension. Examples are music therapy, exercise therapy, aroma therapy and massage therapy. Financial therapy can therefore be integrated into any and all of the client-facing financial professions such as financial planning, financial coaching, financial counselling and financial psychotherapy (which targets specific money disorders), subject to the ethical standards and the scope of the particular financial profession. As many financial services professionals are embracing online service delivery, online financial therapy will naturally be a part of such services. This in turn warrants the need for practitioners to seek training to better equip themselves in online therapy for a more successful therapeutic relationship with clients.

6.9.1 Choosing a Platform for Online Financial Therapy There are various means to deliver online financial therapy. In the United States, there are several HIPAA2 compliant telehealth platforms that can be used for the delivery of online financial therapy. It is important for the therapist to select a platform that is secure and accessible to both therapists and client and complies with all relevant regulations. Given the high percentage of individuals who feel stressed about money and the reported comorbidity between financial stress and depression (Ford et  al. 2020), personal financial analysis should be one of the key considerations in online financial therapy. Online financial therapy could be a starting point to delivering services to deal with self-destructive financial behaviours, without worsening the situation by expecting clients to be available in-person for financial therapy sessions (Smith et al. 2018).

6.9.2 Financial Therapy Services that Can Be Done Online While all the activities and procedures for online financial therapy cannot be captured in this chapter, this section discusses a number of financial therapy activities and procedures that can be carried out in an online therapy session.

 Health Insurance Portability and Accountability Act.

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6.9.2.1 Personal Financial Analysis Personal financial analysis is a systematic approach to compiling the financial data of a client to draw out meaningful information about the financial situation of a client that can be used in guiding the client towards a healthy financial lifestyle. Personal financial analysis entails determining the client’s financial health, the level of financial anxiety and distress and compiling the client’s financial statements, which includes a statement of income and expenses, a statement of assets and liabilities and a budget. There are many free and bespoke tools available over the internet that the therapist and the client can employ in personal financial analysis. 6.9.2.2 Financial Health Analysis A properly constructed financial health index can be used in online financial therapy to capture important socioeconomic metrics of the client, readily communicate results and serve as regular monitoring device. A financial health index is like a personal finance thermometer, which indicates the absence or presence of a problem and its severity. Although such a financial thermometer will not provide a diagnosis to the problem, or a solution, it can be a useful approach to determine whether the financial situation of the client requires deeper diagnosis. In addition, a financial health index can shine a spotlight on the client’s financial problem areas. There are a number of tools that can be deployed and administered online to measure financial health. Examples of these tools are the Financial Well-Being (FWB) Scale (CFPB 2015), FinHealth Score (Financial Health Network 2021) and the Klontz-Britt Financial Health Scale (FHS). Once the financial therapist has been able to establish the financial health of the client, there may be a need to also determine the client’s level of financial anxiety and distress. 6.9.2.3 Services Relating to Financial Anxiety and Financial Distress In situations where clients do not have the ability to handle their money properly, they may experience anxiety and distress. This can impede their ability to make proper financial choices, which will lead to negative financial consequences and even higher financial stress and anxiety. Financial therapists can administer tests on financial anxiety and financial distress during online therapy sessions to determine the levels of financial stress and anxiety of their clients (Fenton-O’creevy and Furnham 2021; Burchell and Shapiro 2012; Archuleta et al. 2013; Sages et al. 2013).

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6.9.2.4 Budgeting There are various tools and apps available online that can be employed in drafting a suitable budget for the client. Some banks, for example, include notifications in their apps that notify clients when they go over their budget. Hunt (2010), for example, outlines four online tools that can be used in budgeting. The Stopping Overshopping Model or the Stopping Overshopping text messaging programs can also be employed to help to keep the clint’s spending habits in line. The Stop Overshopping Model can be easily applied by financial therapists and implemented online (Benson and Eisenach 2013; Benson 2013). A financial therapist can use the different tools available online to help clients in creating newly formulated and suitable budgets that are adjusted according to their priorities. The online budgeting process can be very engaging and interactive. Smith et al. (2018), for example, report that even in an online setting, clients can become overtly energised by the budgeting process. It is also important for therapists to do periodic follow-ups either via email, messaging, telephone or video calls with their clients. This can help in ensuring that clients keep within their budgets. 6.9.2.5 Services Relating to Money Scripts and Money Disorders To identify and establish the nature of money scripts and/or money disorders, there are a number of tools that can be easily employed online. Some of the tools are described below. Financial Genogram A client’s current financial behaviour could be linked to the generations in his/her family tree. The financial decisions of many people may be related to values and biases cultivated through their upbringing. Therefore, parents, grandparents, other relatives and close friends can have a huge influence on the financial decisions of a person. In an online financial therapy session, financial genograms can be used to unearth intergenerational patterns of financial difficulties. This can be a first step in helping a client to discover, understand and stop a cycle of irresponsible financial behaviour (Smith et al. 2018). Klontz Money Script Inventory and the Klontz Money Script Inventory-Revised One of the major contributions of financial therapy in the study of financial, mental and overall well-being is the identification and remediation of money scripts and money disorders. In online financial therapy sessions, financial therapists can administer the Klontz Money Script Inventory (KMSI) and the Klontz Money Script Inventory-Revised (KMSI-R) to evaluate and help resolve dysfunctional financial

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beliefs. For the financial therapist and the client, discovering and exploring money scripts is a critical step towards alleviating financial stress and improving financial health. Klontz Money Behaviour Inventory It is possible that a client experiencing financial stress may have certain underlying money disorders. In helping clients to resolve such distress, the financial therapist can administer the Klontz Money Behaviour Inventory (KMBI) in an online session to identify and help clients resolve an underlying money disorder.

6.10 Ethical and Legal Considerations in Online Financial Therapy In the field of psychotherapy, ethics is an important concern. This is because working with clients can present several moral and ethical issues that must be taken into consideration. In delivering online therapy, therapists must inform clients of their qualifications and skills in conducting online therapy. Therapists must draw clients’ attention to the potential risks and benefits of online therapy, the measures put in place to ensure security and the limits of confidentiality and also inform them on what to expect from online therapeutic sessions. In some countries such as Australia, there is no law that requires a therapy practitioner to have either experience or qualifications. Therefore, people without training or skills can call themselves counsellors or psychotherapists. However, to obtain professional insurance and maintain required standards of professional practice, a practitioner should be a member of Psychotherapy and Counselling Federation of Australia (PACFA) and the Australian Counselling Association (ACA) (BetterHealth 2019; Cairnmillar Institute 2020). A 3-year study in Australia concluded that consumer protection is best served by government not introducing regulation over and above the existing self-regulation through the relevant professional organisations (Schofield 2008). There are also no governmental regulations on the practice of psychotherapy in the United Kingdom (Malhauser 2017). Although online therapy allows for the provision of therapy services in different geographic areas, even in jurisdictions with less stringent requirements, a therapist must always put the client’s interest first and comply with the code of ethics in the jurisdiction where the therapist is based and also in the jurisdiction of the client. In other countries like the United States and South Africa, practitioners are by law, required to be licensed to practise psychotherapy or counselling. In South Africa, Board Notice 101 of 2018, Regulations Defining the Scope of the Profession of Psychology, states categorically that no person may carry out the profession of psychology unless that person is registered in terms of the Health Professions Act

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and in the appropriate category of psychology. Any contravention in this regard renders a person guilty of an offence and upon conviction, such person will be liable to a fine or to a maximum of 12 months imprisonment, or to both. It is therefore important for practitioners of online therapy to familiarise themselves with the legislation relating to the practice of psychotherapy in the particular jurisdiction within which the service will be provided. In the United States, each state regulates licensing; therefore, if one is not licensed in a particular state, it is illegal to provide services while physically within that state (Malhauser 2017). When providing online therapy, practitioners must comply with all applicable regulations and laws, both in the therapist’s jurisdiction as well as the client’s jurisdiction, including internationally. Temporary practice laws however permit therapists licenced to practice in one state to provide services for a limited period in a different state (e.g. 20 days a year). Rules relating to temporary practice may also stipulate further requirements, for example, obtaining a temporary license or permit. However, not all states permit temporary practice. A therapist may also be able to provide therapy across state lines through the Psychology Interjurisdictional Compact (PSYPACT) (American Psychological Association (APA) Services 2021). Therapists should also ensure that information relating to clients are kept safe and prevented from unauthorised access. In devising legislations on the protection of personal information, many countries also have specific regulations or legislations relating to the health information of the patient. In the United States, the Health Insurance Portability and Accountability Act of 1996 (HIPAA) sets the standards to protect sensitive information relating to the health of a patient from being disclosed without the knowledge or consent of the patient. In Australia, Health Records and Information Privacy Act 2002 (HRIP Act) regulates health privacy, and in South Africa, the National Health Act regulates the protection patients’ confidentiality, information and the disclosure of information, among other rules. For therapists practicing outside of their geographical area or jurisdiction must take note of cultural differences. There could be instances where the therapist’s experience is inadequate within a certain culture. There may also be a language barrier that can inhibit the helping process and result in competence issues. In general, a lack of knowledge about the culture of the client can limit the therapist’s credibility and can ultimately lead to inappropriate interventions (Sampson Jr et al. 1997).

6.11 Guidelines for the Use of Online Financial Therapy All the practical, ethical and legal considerations relating to in-person financial therapy sessions are also applicable to online financial therapy sessions. It is important for financial therapists follow the guidance provided by the Financial Therapy Association (FTA) Standards of Practice and Code of Ethics (Financial therapy Association 2018) in delivering online financial therapy in addition to other relevant guidelines on online therapy to ensure an effective and compliant delivery of online

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financial therapy. The Joint Task Force for the Development of Telepsychology Guidelines for Psychologists (2013) recommend that, since the application of technology to the practice of psychology is dynamic and evolving, telepsychotherapy guidelines provided to practitioners is not exhaustive and cannot capture all other possible considerations and should not take precedence over the practitioner’s judgment or applicable regulations and laws that guide the practice and profession of psychology. Below are some guidelines on the practice of online financial therapy based on the Joint Task Force for the Development of Telepsychology Guidelines for Psychologists (2013), Evans (2018), Health Professions Council of South Africa (HPCSA) (2014), GoodTherapy (2020) and Martin et al. (2020).

6.11.1 Ensure Competence with the Technology and Its Impact Before engaging in online therapy in one’s practice, financial therapists must take reasonable steps to achieve competence in the use of the technologies employed and knowledge on the potential impact of the technologies on the client and the effectiveness of the therapy session.

6.11.2 Professional Duties Financial therapists should endeavour to maintain high professional and ethical standards of care and practice throughout the process. Professional duties include acting in the best interest or well-being of the client at all times, respecting the privacy and dignity of the client, providing clients the information about their conditions and maintaining confidentiality at all times.

6.11.3 Obtain and Document Informed Consent Financial therapists must seek client agreement to the effect that the decision on whether the condition being diagnosed or treated is appropriate for an online consultation lies with the therapist. It is important to obtain and document-informed consent regarding the specific concerns relating to the online therapy services provided. In doing so, the therapist must be cognisant of the relevant laws and regulations, as well as the organisational regulations on informed consent in this area.

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6.11.4 Quality, Security and Safety In online sessions, financial therapists must take responsibility for the quality of service delivered and implement security protocols to protect clients’ information from unauthorised access or disclosure. Practitioners must also ensure that nonregistered personnel providing technical or auxiliary services comply with the quality, security and safety requirements and strictly adhere to them. Therapists must not resort to teletherapy if they cannot ensure that the equipment and accessories employed are optimal and operational. There should be periodic tests on quality control as well as the servicing of equipment and a system of record keeping for verification of adherence. To protect client identities when transferring their information, it is essential to ensure the network is secured, personal identifications removed and the information is encrypted. If the therapist participates in or deploys a teletherapy app, it is important for the therapist to know the app’s policies and also ensure the client is aware of the policies. The therapist must further ensure that the policies comply with the laws in both the client and the therapist’s jurisdiction and also with the practice norms of the therapist. Therapists must only deploy apps that can secure client information and that employ treatment strategies that are ethical and evidence-based.

6.11.5 Disposal of Information When disposing information, therapists must take reasonable steps, and the technologies employed must be used in a manner that prevents unauthorised access and accounts for appropriate and safe disposal.

6.11.6 Professional Boundaries Financial therapists must maintain a high level of professionalism irrespective of the medium of communication used. It is also important to make sure that clients are aware of the limits to availability (such as working hours) and negotiate the purposes of the different avenues of communications used. For example, emails for administrative purposes and videoconferencing for therapy sessions. The therapist must also provide clarity on the anticipated response times for instances where the medium of communication is asynchronous.

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6.11.7 Financial Arrangements Online therapy may differ from traditional therapy on how services are structured, and this can create confusion around the billing of teletherapy services. Financial therapists should therefore ensure that they discuss all the fees for the various services provided before providing the service and also have in place secured methods of payment. Depending on the services offered, some financial therapists, particularly those who deal with money disorders, may be required to have the appropriate medical indemnity cover in place, and this cover must also include cover for telemedicine (World Medical Association 2020). Furthermore, online therapy should not be introduced with the main objective of cutting costs or as a veiled means to over-service clients and to increase earnings (World Medical Association 2020).

6.11.8 Psychological Assessment Whenever psychological tests are conducted online, financial therapists should make sure the integrity of the test such as the validity and reliability, and the guidelines for administering the tests as stipulated in the manual are preserved. It is also important to be conscious of the risks that may come with the administration of unsupervised tests and take active steps to mitigate these risks.

6.11.9 Crisis Management While the majority of issues dealt with in online financial therapy may not border on suicidal tendencies, financial therapy clients may be dealing with a certain psychological distress, which is leading to maladaptive financial behaviours; therefore, financial therapists must be mindful of the difficulties that can arise in managing emergency situations such as suicidality, during online therapy sessions. This is because clients are usually not in the same location as the therapist; therefore, there must be provisions made for future emergency situations. This can be done by collaboratively developing a plan for crisis support with the client and obtaining the contact details of a close relative or a preferred personal emergency contact of the client. It may also be necessary to identify, together with the client, local health-care providers and local supports that can be contacted in case of an emergency. It is also important to determine the medium of communication in times of emergency and also ensure their availability.

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6.11.10 Know Your Clients Since people seeking financial therapy, just like any other client seeking psychotherapeutic help, may come with different issues. If a client is experiencing a specific distress, which the therapist is not trained, licenced and/or equipped to treat, it is important that the client is referred to the appropriate therapist. Financial therapists must therefore be mindful of scope of practice issues. It is also important to obtain basic information like the name and contact information of clients and explain how this information will be used. Based on the facts and the jurisdiction, a therapist could be liable for harming a client and/or may be liable for the harm a client causes, if the therapist does not comply with the ethical requirement to report abuse and warn of potential danger.

6.12 Conclusion As the shift to online delivery of financial services is projected to be permanent, it is likely that online financial therapy will form a major part of the therapeutic landscape. While there are many benefits to online financial therapy, there are still existing concerns about the efficacy of the online delivery of therapeutic services. There are also ethical and legal considerations that require the attention of practitioners who deliver their services online. Overall, studies have shown that online financial therapy can just be as efficient as in-person sessions. However, it is important for therapists to be cognisant of its limitations. Furthermore, practitioners who provide online financial therapy should ensure that they have the requisite technologies to effectively deliver the service while protecting the client. In this regard, it is important to develop the necessary skills needed to deliver successful online therapy. Once practitioners have built the skill and have in place the requisite technologies, online financial therapy could be a means to enhance the practice of financial therapy and reach underserved populations.

Appendix: Online Therapy Consent Form Template This is a template provided by the Psychological Society of South Africa. https:// www.psyssa.com/wp-­content/uploads/2020/03/Template-­Online-­therapy-­consent-­ form.pdf.

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Chapter 7

Understanding the Different Generations as Part of Financial Therapy Liezel Alsemgeest

7.1 Introduction Financial therapy assists people in realising their financial goals by exploring the client’s cognitive, behavioural, emotional and other relational aspects around money and addressing these attitudes and behaviours to advance their financial health (Archuleta and Lutter 2020). This form of therapy can empower individuals, couples and families to become aware of the effect of money on their lives. Also, young persons can become aware of their conscious and unconscious emotions and their connections with money and the messages received by parents (either implicit or explicit messages) through financial socialisation (Baker and Ricciardi 2014). As part of financial therapy – or therapy in general – it would be vital for a therapist or counsellor to be able to create rapport with a diverse group of clients, whether the diversity is due to different races, genders, age groups or generations (Hicks et al. 2018). Most research on generations and their differences falls within the ambit of leadership and organisational matters, specifically how to manage different generations within the workplace (Angeline 2011; Kapoor and Solomon 2011; Mahmoud et  al. 2021; Mencl and Lester 2014; Wiedmer 2015). Therapy and counselling research includes several studies on the different generations, in most cases focused on cross-­generational counselling and family therapy (Bruns 2011; Freeman 2013; Hicks et al. 2018). In the financial therapy literature, specifically, some research is available on parental money socialisation (Furnham et al. 2014), the use of Money Genograms (Mumford and Weeks 2003). Some authors (e.g. Archuleta and Lutter 2020; Britt 2016) have reported on the use of family systems theory in financial therapy, which L. Alsemgeest (*) School of Financial Planning Law, University of the Free State, Bloemfontein, South Africa e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 P. Sarpong, L. Alsemgeest (eds.), Perspectives in Financial Therapy, https://doi.org/10.1007/978-3-031-33362-0_7

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briefly refers to generational differences between family members. However, there is a distinct lack of research that focused on what shaped the different generations’ attitudes regarding money and their views and perceptions concerning their personal finances or money. There are currently five different generations that would be important to a discussion of these issues: the Traditionalists, the Baby Boomer generation, Generation X, the Millennials and Generation Z. This chapter aims to provide a concise summary of what shaped the different generations and how those developments and life experiences could influence how each generation feels, thinks about and behaves around money. The chapter explores why it is essential in financial therapy to understand the different generations: a detailed discussion on the life experiences and development of the different generations is provided, with an ensuing examination of each generation’s relation to personal finances and money. Lastly, the concept of financial gerontology is discussed briefly.

7.2 The Importance of Understanding the Different Generations Each generation develops and distinguishes itself from another generation through shared social and historical life experiences. These contrasting developments can affect members of a generation’s personality, work ethic, values and beliefs, goals, and their evident traits and preferences (Wong et al. 2008). Growing up and maturing in similar conditions (for instance, similar economic and historical conditions) or being exposed to comparable cultural or environmental events or being affected by the same forms of technology could influence individuals to think, perceive and act in the same way (Dolot 2018). With these generational differences in mind, it is important for therapists working with different generational groups or individuals to understand and learn strategies to reach stated therapy objectives and serve their clients better (Hicks et al. 2018). It has been established that, during their childhood and formative years, people adopt certain attitudes, beliefs and feelings about money and personal finances. Money can be seen as a gateway to power, or to security, but it can also cause stress and worry. It can also become an obsession. These attitudes, beliefs and feelings regarding money could cause one person to become very thrifty, while another might want to spend as much as they can (Noble et al. 2009). Therefore, it is vital to develop an understanding, not only of the development of each generation but also how people have changed as they aged. The concept of generation is a cultural construction consisting of symbols, values and practices formed in the course of the specific generation’s experiences during adolescence. Particularly, when the transition to adulthood happens in times of turbulent change (for instance, during wartime), a social identity tends to be created

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for people who lived through those times. What is important, though, is that generations will not remain the same but will change as they age (Vincent 2005). Academics are currently debating whether generations really differ in their attitudes, views and approach to life. There are questions on whether it is worth considering generation differences in the workplace and other contexts and how appropriate it is to make gross generalisations across the board for every individual that may fall within a specific generation (Paasi 2005; Reeves and Oh 2008; Thomson 2014). Although each generational cohort has specific common characteristics that could help financial advisors, therapists, educators and leaders to understand its members’ attitudes, preferences, differences and similarities, some might argue that this kind of classification could be regarded as a crude generalisation of human beings who inherently are individuals. However, to better understand and support these individuals, it can be highly beneficial to understand the collective social, economic and political environment each generational cohort grew up in – the environment that ultimately shaped them (Wiedmer 2015). Birth years are only one of the factors used to distinguish between generations, and different studies differ slightly in the birth years that they assign to different generations (Dolot 2018). Therefore, some other studies could have defined the generations slightly differently than the birth years used in this chapter. Generations are shaped more by history than by the chronological birth period, and three factors are perceived to be superior in determining within which generation cohort an individual will fall. These three factors are (1) the individual’s perceived membership of which generation they belong to; (2) the shared beliefs and behaviours regarding matters such as family, career, religion and politics and the choices they made about marriage, children, crime or even drugs that characterised that specific generation; and (3) the individual’s common location in history, which refers to specific historical events (for instance, war) or trends (moving from, for instance, liberal to conservative politics) during the formative years of the particular generation (Reeves and Oh 2008).

7.3 Financial Socialisation Children observe and learn from socialisation agents such as parents, siblings, other family members, peers, school and religion and transfer this knowledge, attitudes, standards and behaviour to their adult lives (Ullah and Yusheng 2020). Danes (1994) defined financial socialisation as the process of learning and developing values, knowledge, standards and attitudes that lead to behaviours that foster financial well-­ being and sustainability. The family – specifically parents – remains the key socialisation agent for a person to learn about finances, as the family sifts, categorises and clarifies the vast amount of information available in the outside world (Koochel et al. 2020). Parents shape their children’s attitudes towards savings, credit use and how financial information is collected. As a result, children tend to adopt their parent’s

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behaviours towards financial management (Furnham et al. 2014). Parents tend to influence children through explicit or implicit financial socialisation. The former – explicit financial socialisation – refers to direct teachings, reinforcement and purposive behaviour modelling. However, the chances are that children are influenced more by implicit financial socialisation, namely, through observation, unconscious communication and subtle cues from the parents’ behaviour (Gudmunson and Danes 2011). Therefore, different generations play a significant role in the development of the generations that follow, especially within a family. This emphasises the need to understand each generation better, specifically, regarding how they think, feel and behave around money.

7.4 How the Different Generations Were Shaped Different generations are formed collectively through their shared personal experiences of specific historical events. The individuals that form part of a generation have lived through similar events and are a product of these experiences. These events are very often traumatic (such as World War II), or are collective memories of rituals (such as Woodstock) or adversarial political situations (such as the apartheid regime in South Africa) (Vincent 2005). This section will provide a broad overview of the most important aspects, state of affairs and circumstances that each generation might have been subjected to and how these events could have shaped their collective attitudes, values and general outlook.

7.4.1 Traditionalists The traditionalists were born between the years 1928 and 1945 and should be between 77 and 94  years of age (Hicks et  al. 2018). Currently, these individuals constitute a tiny percentage of the workforce, if at all, because of their age. However, as they form part of greater family structures – as great-grandparents, grandparents and parents, also because of financial socialisation – knowledge of this generation will still be applicable. Their impact might still be felt in families, specifically their Baby Boomer children and Generation X grandchildren. Traditionalists are also known as the Silent Generation, the Greatest Generation, Radio Babies, Builders, Industrialists and the World War II Generation (Wiedmer 2015). In the 1920s, the world experienced the Great Depression (from approximately 1929 to 1939) and just after this World War II broke out in 1939 until 1945. These events were two of the most influential events of the twentieth century. Therefore, the Traditionalists might have experienced many hardships in their early formative years and were also raised by parents who greatly emphasised conformity, self-sacrifice, discipline, duty and hard work (Hicks et al. 2018).

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Different individuals would have experienced World War II very differently, depending on their location, age and gender, to name a few aspects, but they individuals will still share a common identity as the ‘War Generation’. This generation, in many cases, uses the war as a reference point (orientate themselves ‘before the war’, ‘during the war’ and ‘after the war’) when talking about specific issues or telling stories (Vincent 2005). Traditionalists tend to be the least educated generation, as it was possible during that time to secure a job with very little tertiary education. Most people got married and had children, and it was common practice for the wife to remain at home and for the husband to be the only breadwinner (Bialik and Fry 2019). They believe in hierarchy and are, in general, resistant to change. However, they are willing to accept change if it happens gradually. Members of this generation are inclined to cling to tradition and are very loyal; therefore, they tended to remain with one company throughout their entire careers and to stay faithful to specific companies and institutions. Also, they are predisposed to having respect for their leaders and authority and generally accept the status quo, hence the moniker the Silent Generation (Gutierrez and Klein 2017).

7.4.2 The Baby Boom Generation The Boom Generation, also called the Baby Boomers, is generally accepted to be born somewhere between 1946 and 1964. Currently, they are either already retired or very close to retiring (Reeves and Oh 2008). After World War II, soldiers returned home, settled down and returned to work and family life. There was an increase in economic growth and income after years of unemployment, poverty, war and restraint. Their parents – the Traditionalists – started to experience feelings of optimism and confidence. Consequently, reproduction dynamics changed during this period, marriage rates accelerated, fertility rose and there was a substantial increase in the number of births, not just in the United States but in almost all Western industrialised countries (Van Bavel and Reher 2013). With the invention of the ‘Pill’ (oral contraception), this generation came to an end (Fischer 2015). Thus, Baby Boomers generally grew up in times of prosperity and a peaceful time in world history. However, the United States experienced the Cold War, the Vietnam War and other turbulent historical events such as the assassinations of John F. Kennedy, his brother Robert Kennedy and Martin Luther King (Wiedmer 2015). Baby Boomers experienced many societal changes, such as Women’s Rights and the Civil Rights Movement (Ozanne 2009). They also experienced technological advancements such as the first moon landing (Beutell and Wittig-Berman 2008). As mentioned previously, Traditionalists were the least educated generation but had immense regard for education and higher education, in particular. As a result, Baby Boomers were encouraged to further their education, and they reached heights in their careers that their parents never did. Baby Boomers are ambitious and motivated by success, money, power and authority. Their identities are very much tied to

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their job, profession and position (Gibaldi 2013). This generation lives to work, and they could be workaholics (Gursoy et al. 2008). Their self-worth is very much tied to their careers and work-life (Wiedmer 2015). Baby Boomers were consistently told to aspire to more than what their parents had achieved. With their more advanced education than that of their predecessors, they tended to have better work opportunities and have better lifestyles than their Traditionalist parents (Gutierrez and Klein 2017). Boomers are known for their idealistic thinking and spirituality and their rebellious, nonconformist behaviour; they are more interested in themselves than in the community as a whole (Brosdahl and Carpenter 2011). Younger generations have described them as the ‘selfish’ generation (Leach et al. 2013). Baby Boomers perceive Generation Xers as being much more ‘laid back’ than themselves, while accepting that Millennials are more technologically adaptable. As Boomers respect authority and hierarchy, they expected that they would have to work their way up the career ladder  – by starting at the bottom. They also fully expect to be promoted due to seniority, as they view seniority as more important than merit. They tend to be detail-orientated and like having hands-on experience; however, they often struggle with technology and multitasking (Gursoy et al. 2008).

7.4.3 Generation X Generation Xers are also called the Post-Boomers, the Baby Busters, the New Lost Generation, the Latchkey Kids, the MTV Generation and the 13th Generation. Some of the notable historical events that shaped this generation were the fall of the Berlin Wall and the split of the Soviet Union, Margaret Thatcher becoming the first female British prime minister, AIDS being identified, the advent of personal computers, Y2K and the emergence of music videos (Wiedmer 2015). These persons were born between 1965 and 1980. For the most part, Generation X’s parents are baby boomers. As children, they experienced fairly high levels of broken homes, divorce and absent parents, from there the labels the ‘lost’ generation and ‘latchkey’ kids (Hicks et al. 2018). These children were often subjected to day care or having to look after themselves, much more so than previous generations where the father was the breadwinner and the mother stayed at home for the most part. Consequently, Generation Xers tend to be more cautious when it comes to starting families; they try to avoid broken homes and make sure that their children grow up with at least one parent available (Wiedmer 2015). The word that best describes Generation Xers is scepticism. They rely on themselves much more than they would on any individual, organisation or employer (Reeves and Oh 2008). The Generation X cohort values extrinsic work values, such as job security, promotions, high earnings and recognition, more than intrinsic work values. On average, they have an entrepreneurial spirit and are regarded as self-reliant, adaptable and rational. They value direct and honest communication and want authentic and ethical leaders (Shobha and Kumar 2020). They are regarded as hardworking,

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focused, result-oriented, adaptive to change and willing to learn new ways of doing things. They are the first generation to have used computers at home (Tolani et al. 2020). Generation Xers tend to be very impatient and do not necessarily value seniority. As a result, they are not as willing to wait for promotions and raises, and if they perform, they expect immediate recognition and instant gratification. This generation works to live, which is the opposite of the Baby Boomers who live to work. Their life outside of work is very important to them, and they do not want to spend too much time at work, but instead want a work-life balance and are not willing to sacrifice their life for a company (Gursoy et al. 2008). The core belief of this generation is that happiness and life satisfaction rely on enough leisure time, social relationships and staying active (Miller 2011). Generation Xers are generally quite comfortable with change and diversity and would be more likely than previous generations to leave a job for a better position, higher salary and benefits (Wong et al. 2008). They are goal-oriented and fast-paced and want their work to be interesting, engaging and fun. Because they crave work-­ life balance, they also tend to be efficient at work and prefer not to spend too much time working. They want to be independent, abhor micromanaging and expect freedom (Wiedmer 2015).

7.4.4 Millennials Millennials were born between 1981 and 1996 (Dimock 2019) and represented the first generation that grew up with rapidly changing technology. Some of the events that shaped Millennials in their formative years were the release of Nelson Mandela from prison, Princess Diana’s death (Wiedmer 2015), the 9/11 terror attacks, infamous school shootings like that of Columbine High School and disasters like the Indian Ocean Tsunami (Shobha and Kumar 2020). These events have led to Millennials becoming service- and community-oriented, being more active in voting and politics and mistrusting the media (Hughes 2008). Apart from the continuously advancing technology, they have also been exposed to notable socio-economic and cultural changes, and these shifts account for considerable differences in beliefs, values, attitudes and preferences (Duh 2016). They are highly tolerant and open-minded about different lifestyles that the previous generations were not necessarily open to (for instance, homosexuality and single-parent households) (Noble et al. 2009). This generation has an optimistic outlook on life, much more than that of the previous generations. They value individuality very highly; however, they still need to be part of a group. Notably, this generation is very socially conscious and is focused on equality (Hughes 2008). This generation’s lives are spent surrounded by the internet, computers, video games, cell phones, instant messaging and other digital tools and toys (Prensky 2001). Millennials grew up with the internet, and they prefer to communicate by texting and instant messaging. They are also very

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comfortable with online banking and shopping (Cudmore et  al. 2010). They get bored quickly and are good multitaskers (Wiedmer 2015). Millennials also have other well-known monikers, including Generation Y, Generation Next, the Net Generation and the Echo Boomers (Hicks et al. 2018). They are sometimes called the Echo Boom generation because they are considered the genetic offspring and demographic echo of their parents or – in most cases – grandparents, the Baby Boomers. They are currently the largest cohort generation, a title that previously belonged to the Baby Boomers. Millennials have replaced this previous generation as a financial power within the economy (Cudmore et al. 2010). Millennials grew up very differently from previous generations, and it has been found that approximately one in four people in this generation was raised in disruptive, divorced, single-parent and/or non-intact homes. Unfortunately, the consequences of this phenomenon could be a childhood of stress, economic hardship and low self-esteem (Noble et al. 2009). Millennials thrive for work-life balance and value leisure and family time more than work, which corresponds with the attitude of Generation X. This cohort, however, is more focused on their community; they expect cordial relationships, are confident and are team players. The other side of the coin is that they are sheltered (known as trophy kids), have high self-esteem, constantly seek recognition and can be highly narcissistic (Shobha and Kumar 2020). Their parents were available to them (more so than those of the Gen Xers), and as a result, they expect more supervision, direction and structure. They seek meaning in more significant contexts; they are motivated by a sense of purpose and seek to belong to communities they perceive as meaningful (Wiedmer 2015). Millennials believe that rules are there to be broken, and like the generation before them (Gen X), they are not very loyal to institutions or organisations. In contrast to Generation Xers, however, who will leave one company for a similar one when they are not happy, they are comfortable developing new career paths or even have more than one career. Work is not always a priority, and they value friends and family more than work. However, they are hardworking, but not workaholics as the Baby Boomers were (Gursoy et al. 2008).

7.4.5 Generation Z Members of Generation Z were born between 1997 and 2012 (Dimock 2019). They are known as digital natives as they have never known a world without the Internet. They have not known a world without smartphones, laptops, flat-screen televisions, tablets and social media. They have only ever known a world that is always connected. This generation can operate easily within the real world as well as the virtual world. Generation Z is known as a generation that grew up in wartime. The eldest members of Generation Z would have been very young during the 9/11 terrorist attacks in New York in 2001 but will have been aware of the subsequent wars in Afghanistan and Iraq (Turner 2015).

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No other generation has as many monikers as Generation Z. These include iGeneration, Gen Tech, Online Generation, Post-Millennials, Facebook Generation, Switchers and the ‘always-clicking’ generation. Also, the C Generation – where the ‘c’ stands for connected, computerised, content-centric, community-oriented, changing and communicating – all these terms relate to characteristics assigned to Generation Z. Another interesting name assigned to this generation is the R Generation that relates to the specific attribute of ‘responsibility’ that this generation is also known for (Dolot 2018). They are even more diverse than the Millennial generation. The majority of this generation grew up or are growing up in urban areas, exposing them to various cultures, communities and lifestyles while making them more accepting of the different cultures, communities and lifestyles (Turner 2015). Many of the characteristics of this generation are yet to be determined as this generation is still young. However, certain traits have already emerged (Wiedmer 2015). Generation Z is the first-ever global generation (Homo Globalis). They are developing and maturing and exposed to similar cultures, fashion, food and places because they are interconnected on the internet and social media. Another important aspect that reflects globalisation is that their language differs from those of previous generations, as they use different expressions and words or abbreviations (Törőcsik et al. 2014). Learning takes place for this generation primarily on the Internet (e.g. Google) and through videos (e.g. YouTube), instead of using textbooks or other physical manuals (Hicks et al. 2018). Their attention span tends to be short, and educational content needs to be up-to-­ date, short and visually interesting (Törőcsik et al. 2014). It is to be expected that because this generation is the youngest, there would not be as much information available as professional literature on previous generations, as Generation Zers have either just entered the labour market, are still studying or are still children (Reeves and Oh 2008). There are, however, four trends that have been identified that are predicted to characterise Generation Zers. They will place a significant emphasis on innovation, insist on convenience and have an inherent need for security. They will also be susceptible to escapism, for instance, through playing video games or spending time in virtual worlds or on social media (Wood 2013). What is not yet known is how this generation that grew up being ‘always on’ will be affected in the long term (Dimock 2019).

7.5 The Different Generations and Money This section will explore the various ways in which the five generations, in general, tend to deal with money.

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7.5.1 The Traditionalists Generally, this generation takes pride in self-sacrifice, hard work and determination. They also desire tangible rewards and recognition (like medals, certificates and bonuses) and want to be supported and recognised by their employers and superiors. Similarly, they give their loyalty and respect to institutions, leaders and especially higher education, most probably because a small number of this generation pursued higher education (Hicks et al. 2018). They tend to keep their work and family lives distinctly separate (Wiedmer 2015). Traditionalists are motivated by money and position and tend to perceive the concept of taking on debt or having debt obligations as embarrassing (Wiedmer 2015). They are financially conservative and pride themselves on living thriftily (Gutierrez and Klein 2017). A term often used is that they were the ‘make do and mend’ generation (Leach et al. 2013). The momentous events that shaped this generation during their formative years (the Great Depression and World War II) are cited as reasons why these individuals tend to be more frugal regarding money management and spending. Traditionalists are generally risk-averse and lean more towards conformity than their Baby Boomer children (Lehto et al. 2008). They are described as very conformist in their thinking, needing to get married, have children, raise their family and work hard (Brosdahl and Carpenter 2011) to ensure a steady income.

7.5.2 The Baby Boom Generation Like their Traditionalist parents before them, Baby Boomers are hardworking and diligent; they are likely to remain loyal to organisations and value a stable and secure working environment (Wong et al. 2008). In the 1960s, when the Baby Boomers started banking, the world of financial services looked very different. In those days, banks focused on close relationships with their customers, and advice was provided in person and at a branch. Another difference was that only the most basic and straightforward financial products were available; therefore, they experienced very little search fatigue (Carlin et al. 2019). Because of their large numbers, Baby Boomers were the first generation to be targeted by marketers who focused on their specific needs and wants. Television ownership and viewing in the home became widespread for this generation (Hicks et al. 2018). Baby Boomers see themselves as the bridging generation, with one foot in the ‘make do and mend’ frugal mentality of their parents and the other foot in the ‘excessive consumerism’ culture of the younger generations (Leach et  al. 2013). Baby Boomers tend to be much more wasteful, whether with money or other resources, than previous generations. They lived above their means in young adulthood, thinking that their earnings would increase as they aged and climbed the career ladder. As a result of these expectations, they usually did not start saving early, but took on debt and spent this money on their families and entertainment.

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This behaviour can be attributed to Baby Boomers not being worried about the future, as their traditionalist parents were, thus spending money on immediate wants rather than saving for the future (Fischer 2015). A general view is that Baby Boomers did not save enough for retirement and are known as the ‘spend now, save later’ generation. However, the opposite could also be true, as some assert that this generation is much better off financially than any previous generation. They are healthier, better educated and wealthier than previous generations (Fischer 2015). In some cases, Baby Boomers tend to have a high financial net worth, mostly attributed to the equity tied up in their homes. The problem, however, is that it seems that the majority have not accumulated any other wealth apart from their home. That has a significant impact on retirement preparedness, as many Baby Boomers would either have to continue working or would have to lower their lifestyles drastically (Lusardi and Mitchell 2007). On average, Baby Boomers are regarded to be risk-averse (Fischer 2015). However, some studies have indicated that they are willing to take risks (Jianakoplos and Bernasek 2006; Lehto et al. 2008). Boomers were provided with the opportunity to be more free-spirited and broad-minded  – whether it was about political, racial or gender-related issues  – than their predecessors. It has been found that Boomers tend not to let their age define them and want to be active during their twilight years and enjoy travel, adventures and leisure activities (Lehto et al. 2008).

7.5.3 Generation X The Generation X cohort has witnessed quite a few economic downturns, such as the dot-com bubble and the Great Recession. Consequently, they tend to be quite cautious when it comes to money. They have more of a long-term perspective on money; they are more conservative and choose to save for the future, as they prefer stability (Tolani et al. 2020). Generation Xers are self-reliant and, as a result, tend to do their own research when it comes to decision-making regarding savings and investments. However, Generation Xers claim that they are concerned about whether they will have adequate retirement savings but are not necessarily deliberate in their behaviour in addressing this issue. The possible reason for this inaction is either a lack of financial literacy or a lack of discipline in deferring consumption to save for this future objective (Schooley and Worden 2003). Another reason stated for this generation’s low level of retirement savings is that they might perceive that they are still young enough and that there is still enough time to start saving – however, this is not an accurate assumption to make (Qi et al. 2021). This generation tends to see money as a ‘means to an end’: Xers want to use their money to create the work-life balance that they crave. That need could result in their retiring early, changing careers for a more fulfilling job or taking a sabbatical (Olson 2008). Generation Xers are self-reliant, pragmatic and results-driven; they try to work smarter, not necessarily harder, and have an entrepreneurial spirit. Xers want to look after themselves (Fishman 2016). Unfortunately, Generation X is also

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known as ‘Generation Debt’ because they were the most aggressive borrowers leading up to the Great Recession. Most of the debt taken on by Generation Xers was mortgage debt (Emmons and Noeth 2014), probably because of this generation’s need for the secure family life they missed in their childhood and their focus on work-life balance and, therefore, their need to take on significant debt to secure a family home.

7.5.4 Millennials Millennials operate in a complex financial world with a myriad of investment, savings and debt instruments but often with very little financial literacy  – even though many financial literacy programmes are available to them (Cudmore et al. 2010). On average, Millennials find it difficult to plan for the future. This results in a struggle to control lifestyle expenses, and consequently, debt also becomes a problem (Shobha and Kumar 2020). A study by Duh (2016) found a positive relationship between low family resources and stress experienced due to disruptive family events (for instance, divorce or single-parent households) in childhood, with affective consumption tendencies of millennials in adulthood. Affective consumption tendencies include increased consumption, a materialistic focus, unmanageable debt levels, filing for bankruptcy and developing negative emotional issues such as depression and becoming unsatisfied with life. As mentioned previously, a large part of this generation grew up in non-intact households and could be more susceptible to these negative financial attitudes and behaviours. Millennials are also known as the first generation of digital natives. Digital natives can best be described as those who grew up around computers, video games and the internet and therefore are ‘native speakers’ of the digital language (Prensky 2001). Also, this generation is currently the largest generation moving into their prime spending years, and therefore, their attitudes, general behaviours, and spending and saving behaviour are important (Carlin et al. 2019). Millennials are highly materialistic (Duh 2016) and with their constant connection to social media networks (Hicks et  al. 2018)  – and corresponding social media marketing targeted to this specific cohort (Silvia 2019)  – could lead to a debilitating level of spending. Millennials could feel pressurised to portray a luxurious lifestyle on social media where everybody tries to outdo the other, and this has been identified as a contributing factor towards staggeringly high levels of debt amongst the youth (Krause et al. 2019). High debt levels seem to be the norm for this generation, with many turning to credit whenever the going gets tough. As this generation tends to have very little savings, any adverse financial situation will increase debt, as they generally have no savings safety net. They, therefore, have to rely on credit to supplement any shortfall they might have. Consequently, there exists a vicious cycle of poor financial literacy, very little or no savings or investments, a need for money and a subsequent debt increase (Cudmore et al. 2010).

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However, and most importantly, these persons still have a distinct advantage that previous generations do not have, and that is time. They still have the necessary time left before retirement to make significant changes to their financial behaviour and situation. Millennials have seen what has happened to older generations in the Great Recession and probably do not want to go through something similar (Fischer 2015).

7.5.5 Generation Z Generation Zers might have been very young during the Great Recession that started in 2008, but they would have felt the impact of the economic crisis at home. They were more than likely witness to the financial stress experienced by their parents. Therefore, they would realise the importance of money and that savings are vital as a security net (Turner 2015). One of the predicted characterisations of Generation Z is that they are likely to have an inherent need for security (Wood 2013) and that could most likely also translate into having financial security, for instance, savings and emergency funds and not just physical safety. Children who grow up in difficult financial periods, such as recessions, tend to be less confident, settle for lower-paying jobs – just to have a secure job – and are also more fearful of financial problems. In quite a few cases of financial difficulties, there tends to be an emphasis on education – to protect the earning potential of the future generation  – and behaviours such as increased savings and decreased and more frugal spending. Therefore, it is possible that members of Generation Z might be more cautious and discerning as to where they spend their money, as they are pragmatic and more scarcity-oriented (Wood 2013). This likelihood is echoed by Pandey et al. (2020), indicating that Generation Z consumers are likely to feel anxious about money, exhibit frugal behaviours and wish for financial security. Generation Z is the generation of digital natives, and therefore, they are adept at accessing anything, from consumer goods to financial institutions (Rosdiana 2020). They also have access to any knowledge – such as financial literacy – but do not necessarily engage with that knowledge. However, this could be due to their age, and they might still be dependent on their parents (Gupta and Nihalani 2021). Generation Zs are often compared to Millennials because of the limited information available on this generation and because both cohorts are almost always connected and communicating on the Internet and social media (Wiedmer 2015). Therefore, they are also similarly targeted by marketers of the previous generation, which could lead to increased spending and the possibility of increased debt (Krause et al. 2019). However, on the positive side, this generation, sometimes referred to as Generation R (which stands for responsibility) (Dolot 2018), is much more focused on sustainability and the environment. An Ernst and Young report (Merriman 2015) indicated that Generation Z emphasises their role within the global ecosystem and their responsibility to make the world a better place. The vast majority (93%) of Generation Zers have a direct say in decision-making on family spending, and

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almost 60% indicated that they would rather save money than spend it. Therefore, it seems as if this generation would be more focused on saving and would also be more mindful of how the money they spend would impact the world around them. Table 7.1 provides a summary of the five different generations. The table sets out the years in which they were born, the most important events that shaped their early developmental years, their general beliefs and attitudes and, lastly, their money mindset. Table 7.1  Summary of the different generations Traditionalists Between 1928 and 1945 Important Great events in Depression formative World War II years Born

Hierarchy Believe in/tend to Resistant to change be Loyalty Tradition Hard work

Baby Boomers Between 1946 and 1964 Cold War Vietnam War Assassinations of JFK, his brother Robert Kennedy and Martin Luther King Emergence of Women’s Rights and the Civil Rights Movement The first moon landing

Generation X Between 1965 and 1980 Dotcom-bubble Fall of the Berlin Wall Margaret Thatcher as the first female prime minister Emergence of AIDS Personal computer

Generation Y Between 1981 and 1996 Nelson Mandela’s release from prison Death of Princess Diana 9/11 terror attacks School shootings Indian Ocean tsunami Grew up in disruptive, divorced, single-parent/ non-intact households Equity Self-reliant Ambitious Identity tied to Pragmatic and Communityand job, position, rational Entrepreneurial service-­ profession spirit Self-worth oriented tied to career Comfortable Highly tolerant with change Lives to and Impatient work – open-minded Work-life workaholics Optimistic Motivated by balance Value power, money Scepticism individuality Job security and status Instant Authenticity communication Multitaskers Team players Not loyal Sheltered Work-life balance Comfortable to create new career paths

Generation Z Between 1997 and 2012 Afghanistan and the Iraq wars Digital natives Great Recession

‘Always on’ and connected Convenience Diverse: a global generation Operate in the real and virtual world Inherent need for security Believe in sustainability and environmentalists

(continued)

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Table 7.1 (continued) Money mindset

Traditionalists Debt is embarrassing ‘make do and mend’ mentality Financially conservative and conformist Frugal Generally risk averse

Baby Boomers Buy now, pay later More spendthrift Not afraid of debt Have the majority of wealth tied up as equity in their home – not much else Tend to be more wasteful Live above their means Spend money on family and entertainment

Generation X Cautious, conservative and prefer stability Have a long-term perspective Like to save Money is a means to an end Use money to create work-life balance Have quite a bit of mortgage debt in effort to create a secure family home

Generation Y Financially illiterate Struggle to control lifestyle expenses Increased consumption Very little/no savings Very high debt levels Materialistic focus Use social media to convey a certain image to the outside world

Generation Z An intense need for financial security Savings are very important Feel anxious about money and therefore frugal Mindful spending

7.6 Financial Gerontology As important as it is to have an overview of how the different generations developed and their specific attitudes, perceptions, and behaviours, it is equally important to acknowledge that as people age, they tend to change as they mature. Although personality characteristics tend to remain stable, psychosocial and biological ageing can lead to changing views, attitudes and behaviours (Parry and Urwin 2011). As people age, their preferences and needs will also change, and that change could be reflected in how they deal with and think about money. For instance, it has been established that older persons generally spend more money on their families, medical services and other services for their homes, such as cleaning and yard work. Another significant expenditure for older persons is that they want to travel (Dunne and Kahn 1997). Gerontology has been described as ‘the scientific study of the biological, psychological and social aspects of ageing’ (Quadagno 2011). Social gerontology is a subfield of gerontology that focuses on retirement, caregiving, family relationships, health and finances. This subfield draws on different social sciences disciplines. Financial gerontology explores the specific ageing and financial services within the subfield of social gerontology (Timmermann 2018). Financial gerontology addresses issues such as retirement, financial support systems, housing and living arrangements, health care, caregiving and leaving a legacy. It might seem that these topics only become a concern at a much later stage in life, but it also affects younger generations (Timmermann 2018). Specifically,

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issues such as retirement should be an important consideration for even the youngest generations, such as the Millennials and Generation Z (Cutler 1992). It is important to realise that financial gerontology is not just applicable to the older generations, namely the Traditionalists and the Baby Boomers. It centres on the process of ageing – which is relevant to all generations. Understanding generational differences and the effect of ageing and maturity on financial decisions can assist a financial advisor, counsellor or therapist in providing adequate advice or guidance for clients in their pre-retirement years, through to their retirement years (Migliaccio 2021). The literature has indicated from the comparisons drawn between each generation and the next one, that each generation’s attitudes towards money tend to differ from those of the previous generation. The Traditionalists are highly frugal and are the ‘make-do-and-mend’ generation, while their Baby Boomer children have an attitude of spending now and paying later. Generation X are all about saving money, while Generation Y (the Millennials) just want to spend and keep the illusion of a luxury lifestyle. Therefore, it is possible that Generation X will follow the same reactive trend and be more frugal and save – in direct contrast to the Millennials. Awareness of how each generation’s attitude might influence their decision-making in money matters can increase the quality of guidance provided by financial advisors, counsellors or therapists and contribute to the financial well-being of their clients.

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Chapter 8

Couples and Financial Therapy Liezel Alsemgeest

8.1 Introduction Marital conflicts around money have been found to be more stressful and threatening than any other type of conflict in marriage and have also been observed to last longer, were repeated more often and also had a more significant negative impact on couples’ long-term relationship (Papp et al. 2009). Financial advisors are trained to provide in-depth knowledge and advice regarding financial issues. However, the sensitivity of the information provided, as well as emotions that may be tied to certain financial decisions, makes it necessary for financial advisors to recognise and understand that providing counselling or coaching on financially related emotional and relationship issues might become an important part of the service they offer (Archuleta et al. 2012). In a study carried out by Dubofsky and Sussman (2009), it was found that the financial advisors indicated that in 66% of the cases, it was the client that requested this non-financial service. Typically, individuals will seek the services of a financial advisor when important life transitions transpire, be it starting to work, getting married, having children, getting an inheritance, retirement, possible divorce or a death in the family. All of these life events are intensified because of the emotional elements attached to it (Kahler 2012). Financial conflicts are, on the whole, the most frequently occurring conflict in marriage or a relationship and have also been found to be characteristically different from other types of conflict (Dew and Stewart 2012). Financial issues can have an immense impact on couples’ relationships, with specific studies substantiating that financial issues were a predictor of conflict between couples (Britt et al. 2010) but also that there are definite negative correlations between financial conflict and L. Alsemgeest (*) School of Financial Planning Law, University of the Free State, Bloemfontein, South Africa e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 P. Sarpong, L. Alsemgeest (eds.), Perspectives in Financial Therapy, https://doi.org/10.1007/978-3-031-33362-0_8

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relationship commitment and respect (Dew and Stewart 2012). It was also found that conflicts about finances, compared to conflicts on other issues, were considered much more intense and lasted longer (Papp et al. 2009). This chapter aims to explore in detail the different financial conflict issues that a financial advisor could encounter when working with couples. This chapter is divided into three distinct areas. The first section will discuss the financial advisor’s changing role and the non-financial services provided to clients. The second section will provide more detail into the concept of couples and relationship finances and how that impacts the quality, satisfaction and conflict within the relationship. The last section will focus exclusively on the different conflict areas, specifically focused on financial conflict, that couples may face.

8.2 The Changing Role of the Financial Advisor 8.2.1 How Things Have Changed The financial services industry is ever-changing and developing due to advances in technology and the industry’s complexities as a whole (Jackson et al. 2016). In the past, the function of a financial advisor has been thought of as being a traditional broker who sells financial policies. However, the industry has significantly changed over the past 20 years, specifically in South Africa, where the industry was professionalised in 2002 (Rabenowitz et al. 2019). The focus has shifted increasingly to being a one-stop-shop for a client by providing holistic financial advice and planning strategies to achieve life goals and building a life-long trusting relationship (FPSB n.d.). When dealing with individuals or family’s comprehensive financial concerns, personal information will inevitably be made available and shared with the financial advisor, which would not necessarily have been disclosed to a broker selling policies. These personal and non-financial issues that financial advisors have been dealing with are diverse and range from spiritual issues to health, to conflict in relationships (Dubofsky and Sussman 2009). When working with clients, financial advisors are confronted with personal and emotional issues such as death, disability, marital conflict and mental health, to name just a few. Financial advisors’ role has evolved to include becoming a life coach (Jackson et al. 2016). Therefore, it is a vital necessity that in moving with the times, financial advisors should realise this shift in the industry and prepare themselves to provide these non-financial services that clients are in desperate need of. With the emergence of robo-advisors and do-it-yourself financial planning, the likelihood of a financial planner being replaced is unlikely if additional non-financial services are provided (Harris 2019). This notion is supported by Lawson et  al. (2015), who state that technology platforms like robo-advisors would more easily reach younger, technologically savvy people. It is thus essential that financial advisors change the way they operate and the services they provide in an effort to offer something of value to these clients, as the clients are also more likely to do their own

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research with the myriad of information available. Therefore, financial advisors’ ‘extra’ services that include life/financial coaching will provide vital support to individuals and couples that could prove to sustain the rapidly changing technological landscape of future financial planning.

8.2.2 Two Distinct Areas of Expertise On the one hand, some professional therapists are experts in a specific field where they guide clients through relationship and emotional issues and provide individual, couple and family therapy. On the other hand, the financial advisor is a professional who has been trained and has experience in improving the client’s financial health. The financial advisor has something specific and specialised to offer a client; however, these services could not substitute for family therapy provided by a qualified therapist. The two services provided by a therapist and a financial advisor are very distinct, and a financial advisor is not necessarily qualified to treat relationship and emotional issues. The same goes for a therapist, who would not have the expert knowledge to guide a client through financial difficulties. Nonetheless, both of these services are intertwined in providing clients with their financial and relational needs (Archuleta et al. 2012). Both the therapist and financial advisor must have basic knowledge of each other’s areas of expertise that could help them with their own clients. However, the professionals must be aware of their specific professional boundaries and not leap into an area where they can do more harm than good. A financial professional should know when to refer a client to a therapist and vice versa. It might even be a good idea for a financial advisor to start a working relationship with a therapist where both could work together in ensuring successful financial therapy for clients (Britt et al. 2008).

8.2.3 The Role of Trust Across disciplines, whether that of a coach, therapist or financial advisor, there is no dispute that a trusting environment is of the essence in establishing a successful and long-term relationship (Archuleta et al. 2012). If a client trusts a financial advisor and is willing to open up about financial issues, they most likely will be more than willing to talk about other private matters (Dubofsky and Sussman 2009). Meyerson et al. (1996) have found a direct correlation between the trust that a person feels and their willingness to share personal information, either to another individual or an institution. For a financial advisor to effectively perform his/her duties in providing adequate financial advice, it is of the essence for the client to feel comfortable enough to provide sensitive and personal financial information (Robert et al. 2009). The relationship between a client and financial advisor can be regarded as special and endearing, as are those relationships between parent and child, parishioner and

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minister, patient and physician. For a client to discuss intensely private issues on financial assets, debt, future plans, life goals and possible financial issues, the client needs to trust the financial advisor implicitly, as this information renders the client vulnerable. Consequently, the financial advisor becomes a confessor and therapist of sorts, whether they planned to – or were trained to be – for their clients (Dubofsky and Sussman 2009). In order for financial advisors to have a greater positive impact on their clients’ lives and affect real change, it might become necessary to revise what it means to be a financial advisor and modify, adjust and improve the services provided to clients. Clients need the tools and skills to be empowered in their financial lives, reach their goals and adjust mindsets to reach higher ideals (Harris 2019). In order to understand the new and changing role of the financial advisor better, it is necessary to understand certain concepts and their applicability to financial planning and the financial industry. Important terms to understand are behavioural finance, interior finance, financial coaching and financial therapy.

8.3 Definitions of Terms This section covers the descriptions of behavioural finance, interior finance, financial coaching and financial therapy.

8.3.1 Behavioural Finance The field of economics assumes that consumers always make rational decisions, have perfect knowledge and are self-restraint in a predictable market. However, these assumptions do not explain human behaviour in the least. Therefore, as a field of study, behavioural economics or behavioural finance acknowledges that human beings are very often irrational, have incomplete knowledge, lack self-control and participate in imperfect financial markets (Smith et al. 2017). Behavioural finance looks at how the investor’s psyche operates in making financial decisions, as these decisions might tend to be irrational and inefficient, specifically related to making investments in stock markets. Behavioural finance focuses on the macro issues related to investors and institutions’ beliefs, attitudes, thoughts and emotions and how that influences their decision-making and, ultimately, the markets (Kahler 2012). For instance, according to behavioural finance literature and theories, investors might start to panic in times of bearish markets or with share prices that fall due to unexpected events (the Global Economic Crisis of 2008/2009 or even Covid-19) and would then want to sell their shares when the market is down. However, the rational thing to do would be to wait out the stock market slump, not panic and not sell. Unfortunately, because of the investors’ emotions, many decide to sell when prices decline significantly (sell low) and only buy after witnessing significant price appreciations (buy high).

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8.3.2 Interior Finance Interior finance focuses on the micro-level of an individual’s thoughts, beliefs, feelings and emotions around money with the goal of using this knowledge to facilitate financial health through behaviour change – in essence, to help a client with emotional, financial baggage (Kahler 2012). An individual’s past stories, beliefs and experiences are explored to share their future actions and behaviours in financial decision-making (Klontz et  al. 2016). Financial coaching and financial therapy focus on interior finance. On the other hand, exterior finance concentrates on the mechanics of money, what can be seen and touched – for instance, assets, liabilities, investments, tax returns and retirement planning (Klontz et  al. 2016). Therefore, financial therapy for couples will emphasise the interior finance of both individuals and their partnership.

8.3.3 Financial Coaching Financial coaching is based on providing mentoring or advisory services. It describes the services provided to clients that fall between financial planning and financial therapy to help them attain financial goals and be financially healthy (Klontz et al. 2016). Financial coaching is also a solution-based approach and intervention aimed at the client’s strengths and possible solutions. It does not necessarily focus on the root of the problem but instead on goal setting, creative action and concentrating on the present and the future. Financial therapy – on the other hand – focuses on the past, present and future (Delgadillo and Britt 2015).

8.3.4 Financial Therapy Financial therapy can be defined as a therapy that promotes financial health by combining cognitive, emotional, behavioural, relational and economic viewpoints. Financial therapy provides a holistic perspective that includes all these aspects onto the individual, the family or the couple’s financial situation (Archuleta et al. 2012). According to the Financial Therapy Association, financial therapy is a ‘process informed by both therapeutic and financial competencies that helps people think, feel, communicate, and behave differently with money to improve overall well-­ being through evidence-based practices and interventions’ (Financial Therapy Association n.d.). In comparing financial therapy with financial coaching, it is clear that financial therapy addresses dysfunctional money attitudes and disorders and aspires to heal past traumas and pains concerning financial issues (Delgadillo and Britt 2015).

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8.4 Couples and Their Finances The concept of money is a pervasive concept of everyday life, and apart from its practical functionality, it also has been shown to have symbolic meanings like that of power, shame, status, security, freedom, love and guilt (Lowrance 2011). Krueger (1986) goes as far as to say that money is an exceptionally emotionally charged subject and that only feeling towards subjects such as sex and food can come close to it. Studies have found that conflict about financial issues is one of the most frequently reported types of conflict in marriages and relationships (Britt-Lutter et al. 2019; Lee and Dustin 2021), in addition to one of the top causes of said conflict (Britt et al. 2010; Dew and Stewart 2012). The factors that could play a role in the financial conflict in a relationship that has been identified is how resources are allocated within a household, the strategies chosen in managing household finances, the types of money personalities in the relationship and the partners’ preferences towards charitable giving (Britt et  al. 2010). It has also been established that many individuals are attracted to a partner who has the opposite money personality, which can cause possible conflict in the relationship (Rick et al. 2011). Personal finance is an intimate part of married life, and therefore, it is inevitable that disagreements might ensue (Smith et al. 2017). An individual can experience social, physical and psychological issues triggered by any event that causes financial hardship (divorce, unemployment, debt, income loss or medical emergencies). Because these events will impact an individual’s life, the larger family system will also be disrupted (Kim et al. 2011). If a family member experiences financial problems, the entire family will be affected (Smith et al. 2017).

8.5 Relationship Quality Relationship quality is a multidimensional construct. Most financial-related research has focused on relationship satisfaction, relationship conflict and relationship stability as the factors that impact relationship quality (Dew 2016). These four constructs will be discussed in more detail.

8.5.1 Relationship Satisfaction Relationship satisfaction has been one of the most examined topics in family studies and therapy fields. It can be defined as the ‘subjective evaluation of those interactional patterns that reflect the degree of contentment’ in a relationship (Cepukiene 2019). According to Kim et  al. (2011), economic pressure leads to depression, anger, hostility and irritability. It will lead to increased conflict, which directly impacts relationship satisfaction and stability of the relationship. However, it has

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been established that an individual that is happier in relation to their financial situation is more likely to be happier in their intimate relationship. Three possible reasons could explain this phenomenon: that it is a social norm that asserts that a relationship should be financially stable, that individuals expect to secure financial gains from the relationship or that dissatisfaction about finances could extend to other areas of an individual’s life (Dew 2016). A key to marital conflict is the degree of the resolution reached by the couple or the extent to which any conflict is worked through. This level of conflict resolution and problem-solving has a substantial impact on relationship satisfaction (Papp et al. 2009). Ward et al. (2021) found that the more financial conflicts there are in a partnership, the less an individual would experience relationship satisfaction and partner support. This was also true for individuals who base their self-worth on financial success. The more an individual viewed financial success as part of their self-worth, the more frequent and intense financial conflicts were experienced. As a result, relationship satisfaction decreased.

8.5.2 Relationship Conflict Money is a central issue in a couple’s relationship, from the early years of their relationship, until the end of the relationship, divorce or otherwise. Conflicts about money are directly linked to relationship distress and possible dissolution of partnerships. Both husbands and wives have indicated that financial conflicts lead to depressive behaviour such as fear, sadness, withdrawal and physical distress, more so than other conflict subjects (Papp et al. 2009). The more financial conflicts are experienced by individuals in a partnership, the lower their perception of their partner’s support. Overall, financial conflict is negatively related to relationship outcomes (Ward et al. 2021).

8.5.3 Relationship Stability It has been implied by numerous publications that the number one reason for divorce is money issues. Several studies assert that financial conflict or the frequency of financial conflict leads to divorce (Lee and Dustin 2021; Totenhagen et al. 2018; Hill et al. 2017). Therefore, it can be accepted that financial conflict affects financial stability (Dew 2016; Hill et al. 2017). It is also essential for professionals who provide financial advice and/or therapy to understand and be aware of the threat of money conflicts to intact and strong relationships because of the short and long-term implications of financial conflicts on relationships (Papp et al. 2009). A study done by Dew et al. (2012) found that the only disagreement that could predict divorce, according to the husbands that took part in the study, were financial disagreements.

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The wives that took part in the study indicated that, firstly, financial disagreements and secondly disagreements related to sex were the two significant disagreements that could predict divorce.

8.6 The Different Areas of Conflict in Relationships For a financial advisor, in dealing with family finances or the finances of a couple, there might be several areas where couples can experience financial conflict. The areas are possible economic strain, perceived power and control and spending behaviour differences. Each area will be discussed in more detail. Conflicts about finances are quite different from other types of conflicts, as they could cause elevated levels of anger and depression and, more than likely, remain unresolved. Therefore, it could be regarded, in some cases, more damaging than other types of conflicts (Papp et al. 2009) and therefore requires special attention and, in all probability, specialist facilitation.

8.6.1 Economic Strain/Pressure Economic pressure can be defined as a ‘state of distress brought about by worry over one’s finances, having to cut back on consumption, and becoming dissatisfied with one’s finances’ (Dew 2007). The subjective dimension of economic strain can be defined as the financial concerns and worries a person has due to the perceived inadequacy of financial resources (Hilton and Devall 1997). The household financial resources available to a couple can cause financial conflict within a relationship (Britt et  al. 2010). The subjective dimension has received the most attention in research as it focuses on the individuals’ financial concerns of inadequate economic resources and fears and uncertainty about their employment (Falconier and Jackson 2020). During the 2008 Global Economic Recession – which was characterised by high unemployment, restricted access to debt, increased bankruptcies, and home foreclosures – it was found that the recession and the escalation of economic pressure were associated with lower levels of relationship happiness (Dew and Xiao 2013). Economic strain significantly increases negative interactions between partners (more conflict) and decreases positive interactions, which in turn decreases relationship satisfaction and also the stability of the relationship (Falconier and Jackson 2020; Ross et al. 2017). Economic pressure or strain can lead to feelings of depression, anxiety and hostility against each other, which in turn can create conflict and decrease the quality of the relationship. Therefore, facing financial difficulties is one of the most clear-cut reasons why couples fight about money (Dew and Stewart 2012).

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Economic pressure also has been shown to decrease positive relationship interactions (Dew 2007). It is worth noting that money conflicts do not only occur in households with low incomes. Affluence does not preclude a family from financial disagreements. It has been established that increased financial conflict can occur in families where increasing wealth does not rise in accordance with expectations. The perception of deprivation is a relative concept and not absolute, as some members can feel deprived and that resources are limited, as their desires exceed their available funds (Papp et al. 2009). Economic strain and pressure as a topic will doubtless be discussed with a financial advisor in the ordinary course of business with a client. Discussions about this topic can be an excellent opportunity to introduce financial therapy/coaching with clients. 8.6.1.1 Low Income As expected, there is a negative correlation between financial resources and financial conflict; therefore, if a couple is struggling financially, there is most likely going to be some conflict (Britt et al. 2010). Specifically, money worries and low incomes contribute significantly to the likelihood of financial conflict between spouses (Britt et al. 2017). The net worth of a couple is a predictor of financial conflict (Dew 2007; Hill et al. 2017). In a study done by Britt et al. (2010), it was found that lower net worth couples are much more likely to experience financial conflict than high net worth couples. Another issue that is important to note is that low-­income households have greater financial stress and also, on the whole, more significant health problems, which can exacerbate financial issues even further and affect relationship health for the couple and the whole family (Britt et al. 2008). 8.6.1.2 High Debt A specific issue that positively correlates with relationship conflict is consumer debt (Yunchao et al. 2020). More importantly, for every one unit increase in consumer debt, the likelihood of divorce increased by approximately 8% (Dew 2011). In a study done by Dew (2007), it was found that the two concepts of asset accumulation and debt accumulation carry two distinctly different meanings for couples. The cultural ideals of getting married, having children, funding children’s education, owning a home and saving towards a comfortable retirement are still the quintessence of what society expects of married individuals. However, all this asset accumulation aims can be very expensive and could take decades to acquire. The study found that accumulating assets will indirectly affect the relationship between spouses by reducing feelings of economic pressure and economic worries in the relationship. Debt, on the other hand, directly impacts the relationship and leads to more frequent marital conflict, as debt represents limited future choices for the couple. Debt in itself can serve as a point of conflict; however, debt can also lead to resentment, especially if one spouse acquired the debt without the other spouse’s knowledge, or

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despite an objection. This issue can significantly impact relationships and dealing with possible issues of resentment could be one of the focal arras of a professional therapist. 8.6.1.3 Children in the Household Children within a household place economic constraints on household resources (Browning 1992). A study done by Britt et al. (2010) found that one of the factors that can predict money arguments is having children in the household. It has been established that marital satisfaction decreases after children’s birth but increases again after they leave home (Gorchoff et al. 2008). More members in a household place higher constraints on resources (Britt et al. 2010).

8.6.2 Perceived Power/Control In some cases, financial conflicts between couples are triggered by other buried relationship issues that couples battle with throughout their relationship, which include power, fairness, commitment and respect (Dew and Stewart 2012). Power in a relationship in terms of finances is represented by how much bargaining power one individual has over another regarding financial decision-making in the household. Factors that can influence bargaining power include the two partners’ individual incomes and any substantial differences in education levels and ages of the partners. Therefore, it can be assumed that the older partner with the highest education level and earning the higher income could have more bargaining power in the relationship and could control most of the resources in the household (Britt et al. 2010). It has also been found that, on average, in a conventional heterosexual partnership, if there is conflict around charitable giving, the husband’s preference will likely outweigh the wife’s preference (Smith et  al. 2016). If one partner perceives the relationship as inequitable or unjust, they might choose to change the dynamic. This is typically done by talking about the issue and/or arguing about it. However, if there is an unequal balance of power in a relationship but both partners do not see it as unjust, then less conflict will arise. Therefore, it can be presumed that if there are perceptions by one or both of the partners in a relationship of an unequal balance of power/bargaining power, there will be more financial conflict in a relationship (Dew and Stewart 2012). Family members may feel deprived in terms of the actual or perceived differences between their own access to funds and other people’s ability to spend these funds. If an individual experiences or perceives an inability to engage in decision-­making regarding household finances, this could lead to financial conflict and affect the perceived social power, relative worth and feelings of being valued by the individual in question (Papp et al. 2009). It has been established that if a person bases their

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self-worth and self-esteem on financial success, it is a predictor of financial conflict in a relationship between intimate partners, irrespective of the couple’s income, economic pressure or overall materialism (Ward et al. 2021). 8.6.2.1 Respect In a family setting, it might be problematic if the members are disrespectful of each other’s lived experiences, and as the respect declines in the relationship, financial conflict becomes more intense, and control of one member over another is exposed (Smith et al. 2017). Money seems to be very closely tied to feelings of self-worth and self-esteem and therefore has an underlying relationship with how an individual and a couple function. This seems to be especially true for men, more so than for women (Papp et al. 2009). It has been established that couples who both have high levels of self-esteem and validate the other partner’s feelings in terms of money will display fewer relationship problems and consequently higher levels of relationship satisfaction (Britt et al. 2008). 8.6.2.2 Gender Matters In terms of gender studies, it is vital to understand how money comes into a household and how it is handled in relation to gender. It has been suggested that with some couples, the man has more financial power than the woman (Dew 2016). In the past, men’s financial power came from acting as their family’s breadwinner (playing the dominant role). At the same time, women were financially dependent on their husbands, acting as homemakers and looking after the children and the home (playing the submissive role). Because the men were earning money, they were also assumed to be better at controlling the money, which created a hierarchy in couple’s relationships. This status quo has changed quite significantly these days, with both partners working and each one ‘owning’ the money that they have earned (Atwood 2012). It has been observed that in times of economic hardship, husbands experience higher levels of hostility, and there are also lower levels of support or warmth from the husbands’ side. This change then instigates the wife to perceive higher levels of marriage instability and lower marriage quality (Kim et al. 2011). In a study done by Papp et  al. (2009), it was found that husbands, compared to their wives, displayed more angry behaviours such as hostility, defensiveness and aggression when it came to financial conflicts  – compared to other types of conflicts. It was also found that financial conflicts were more likely to remain unresolved than other conflict topics. The wives were more likely to attempt problem-solving behaviour in these situations. Even though times have changed, it appears that men, on average, prefer to earn more than their wives, and if that is not the case, then this fact is hidden from others, or at least downplayed. Men’s identities and feelings of worth are linked to their

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earnings either through feelings of success or the ability to provide for the family. It appears that many male partners in relationships still hold ‘breadwinning’ as a part of their gender identity (Atwood 2012: 5).

8.6.3 Behavioural Differences Partners in a relationship can have different preference structures, such as gifting preferences, different financial risk tolerances and also spending behaviour differences (Britt et al. 2010). Research has suggested that financial conflict is more likely to arise from how financial decisions are made in the household, rather than the amount of family income a household has. Part of this decision-making in a household is tied up in the preferences and the personalities of the partners in a relationship. The two most commonly known financial personalities are the ‘spenders’ and the ‘tightwads’, and there is evidence to suggest that these two personalities are attracted to each other (Britt et al. 2017). The reason for this attraction could be because individuals are motivated to shy away from becoming their ‘undesired self’, and if they have a trait that they dislike within themselves (for instance being a spender), they might be attracted to someone who also dislikes that trait or who does not have that specific disliked trait (Rick et  al. 2011). Therefore, if partners are on opposite sides of the financial behaviour scale  – one a spender and the other a tightwad – this will most likely increase financial conflict (Britt et al. 2017). It was also found that a spender would be financially better off when married to a tightwad but will have greater relationship satisfaction with another spender. A tightwad, however, will both be financially better off and have greater relationship satisfaction with another tightwad (Rick et  al. 2011). The more significant the difference between financial characteristics between partners, the greater the potential conflict (Britt et al. 2010). How people spend their money is often a method to deal with underlying issues that a person has, for instance, spending impulsively to address self-esteem issues. Also, the perception a person has of his/her partner’s spending behaviours has a profound effect on relationship satisfaction. For instance, if one partner spends money without consulting the other or is regarded to spend money foolishly, the other partner will feel greater relationship dissatisfaction (Britt et al. 2008). It is therefore necessary that those couples that have consistent and destructive financial conflicts should be made aware of the availability of not only couples therapy but also financial therapy. It would be beneficial if a couple’s financial advisor could learn to act as a life/financial coach or work jointly with a financial therapist as part of a team to guide these couples to better manage and resolve financial conflicts.

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8.7 Financial Advisors or Financial Therapists? Couples are willing to admit that money is a source of conflict in their relationship; however, it has been established that it is the most likely conflict issue to remain unresolved (Papp et al. 2009). Economic constraints, in the form of a low income or high levels of debt in itself, is not the only source of conflict in households. Deep-­ rooted issues such as perceived power and control, respect and behavioural differences can all lead to financial conflict between couples. Therefore, it is essential for financial advisors to broaden the services offered to clients, including emotional, behavioural and relational financial health, by combining cognitive, emotional, behavioural and relational support to clients. Couples trying to resolve financial conflicts may be particularly likely to face a self-defeating cycle. During their attempts at problem-solving, they are subjected to negativity and non-productive tactics, and these conflict issues can remain unsolved (Papp et al. 2009: 100). Therefore, couples that struggle to manage money issues effectively might need expert help. Financial advisors need insight into the nature of non-financial issues that affect financial decisions and the wisdom to know how to increase couples’ financial health by either advising them or referring them to another expert.

References Archuleta KL, Burr EA, Dale AK et al (2012) What is financial therapy? Discovering mechanisms and aspects of an emerging field. Journal of Financial Therapy 3(2):57–78 Atwood JD (2012) Couples and money: The last taboo. American Journal of Family Therapy 40 (1):1–19 Britt-Lutter S, Haselwood C, Koochel E (2019) Love and money: reducing stress and improving couple happiness, Marriage and family review 55(4):330–345 Britt S, Grable JE, Nelson Goff BS, White (2008) The influence of perceived spending behaviors on relationship satisfaction. Journal of Financial Counseling and Planning 19(1):31–43 Britt SL, Hill EJ, Lebaron A, Lawson D, Bean R (2017) Tightwads and spenders: predicting financial conflict in couple relationships. Journal of Financial Planning 30(5):36–42 Britt SL, Huston S, Durband DB (2010) The determinants of money arguments between spouses. Journal of Financial Therapy Browning M (1992) Children and household economic behavior. Journal of Economic Literature 30(3):1434–1475 Cepukiene V (2019) Does relationship satisfaction always mean satisfaction? Development of the couple relationship satisfaction scale. Journal of Relationships Research. https://doi. org/10.1017/jrr.2019.12 Delgadillo L M, Britt SL (2015) Financial coaching and financial therapy: Differences and boundaries. Family and Consumer Sciences Research Journal 44(1), 63–72 Dew J (2007), “Two sides of the same coin? The differing roles of assets and consumer debt in marriage”, Journal of Family and Economic Issues 28(1), 89–104 Dew J (2011) The association between consumer debt and the likelihood of divorce. Journal of Family and Economic Issues 32(4): 554–565

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Dew J, Britt S, Huston S (2012) Examining the relationship between financial issues and divorce. Family Relations 61(4):615–628 Dew JP (2016) Revisiting Financial Issues and Marriage. In: Xiao JJ (ed) Handbook of consumer finance research Springer, Switzerland, p 281–290 Dew JP, Stewart R (2012) A financial issue, a relationship issue, or both? Examining the predictors of marital financial conflict. Journal of Financial Therapy 3(1): 43–61 Dew JP, Xiao JJ (2013) Financial Declines, Financial Behaviors, and Relationship Satisfaction during the Recession. Journal of Financial Therapy 4(1): 1–20 Dubofsky D, Sussman L (2009) The changing role of the financial planner (part 1) from financial analytics to coaching and life planning. Journal of Financial Planning 11(118): 38–41 Falconier MK, Jackson JB (2020) Economic strain and couple relationship functioning: A meta-­ analysis. International Journal of Stress Management, 27(4): 311–325 Financial Therapy Association (n.d.) Financial therapy. https://financialtherapyassociation.org/. Accessed 15 June 2022 FPSB (n.d.) Financial planning standards board. https://www.fpsb.org/about-­financial-­planning/ value-­financial-­planning/. Accessed 5 November 2019 Gorchoff SM, John OP, Helson R (2008) Contextualizing change in marital satisfaction during middle age: An 18-year longitudinal study: Research article. Psychological Science 19(11): 1194–1200 Harris P (2019) The financial coach the future. Journal of Financial Planning 32(12): 26–27 Hill EJ, Allsop DB, LeBaron AB et al (2017) How do money, sex, and stress influence marital instability? Journal of Financial Therapy 8(1): 21–42 Hilton JM, Devall EL (1997) The Family Economic Strain Scale: Development and evaluation of the instrument with single- and two-parent families. Journal of Family and Economic Issues 18(3): 247–271. Jackson A, Saffell D, Fitzpatrick B (2016) The Evolving Financial Services Industry: The financial advisory role today and in the future. The Journal of Business Inquiry 15(1): 17–32 Kahler R (2012) Interior finance: The micro-level exploration of individual client money scripts. Journal of Financial Planning 25(10): 20–22 Kim JH, Gale J, Goetz J et al (2011) Relational financial therapy: An innovative and collaborative treatment approach. Contemporary Family Therapy 33(3): 229–241 Klontz BT, Van Zutphen N, Fries K (2016) Financial planner as healer: Maximizing the role of financial health physician. Journal of Financial Planning 29(12): 52–59 Krueger DW (1986) The last taboo: Money as symbol and reality in psychotherapy and psychoanalysis. Brunner/Mazel, New York Lawson DR, Klontz B, Britt SL (2015) Money Scripts. In Klontz B, Britt SL, Archuleta KL (eds) Financial therapy: Theory, research and practice. Springer, New York Lee YG, Dustin L (2021) Explaining financial satisfaction in marriage: The role of financial stress, financial knowledge, and financial behavior. Marriage and Family Review. Routledge 57(5): 397–421 Lowrance J (2011) Dismantling the money taboo: Mental health professionals’ call to action. Clinical Psychologist 3, 1–24 Meyerson D, Weick KE, Kramer RM (1996) Swift trust and temporary groups. In: Kramer RM, Tyler TR (eds) Trust in organizations: Frontiers of theory and research. Sage Publications, London, p 166–195) Papp LM, Cummings EM, Goeke-Morey MC (2009) For richer, for poorer: Money as a topic of marital conflict in the home. Family Relations 58(1): 91–103 Rabenowitz P, Botha M, Du Preez L, Geach W, Goodall A, Palframan J (2019) Fundamentals of financial planning LexisNexis, Johannesburg Rick SI, Small DA, Finkel EJ (2011) Fatal (fiscal) attraction: Spendthrifts and tightwads in marriage. Journal of Marketing Research 48(2): 228–237 Robert L, Denis A, Hung YT (2009) Individual swift trust and knowledge-based trust in face-to-­ face and virtual team members. Journal of Management Information Systems 26(2): 241–279

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Ross DB, O’Neal CW, Arnold AL et al (2017) Money matters in marriage: Financial concerns, warmth, and hostility among military couples. Journal of Family and Economic Issues, Springer US 38(4): 572–581 Smith TE, Richards KV, Shelton VM (2016) The language of money. Journal of Human Behavior in the Social Environment. Routledge 26(2): 202–209 Smith TE, Richards V, Panisch S et al (2017) Financial therapy with families. Families in Society 98(4): 258–265 Totenhagen CJ, Wilmarth MJ, Serido J et al (2018) Do day-to-day finances play a role in relationship satisfaction? A dyadic investigation. Journal of Family Psychology 32(4): 528–537 Ward DE, Park LE, Walsh CM et  al (2021) For the love of money: The role of financially contingent self-worth in romantic relationships. Journal of Social and Personal Relationships 38(4): 1303–1328. Yunchao C, Yusof, SA, Amin RBM (2020) The association between household debt and marriage satisfaction in the context of urban household in Klang Valley Malaysia. Journal of Emerging Economies and Islamic Research 8(1):12–22

Chapter 9

Planning for and Surviving Divorce: Can the Incorporation of Financial Therapy Be a Game-Changer? Henda Kleingeld

9.1 Introduction The institution of marriage is declining; this is true of both civil and traditional marriages. The number of individuals who are cohabitating or registering civil unions is on the rise, as is the number of individuals rejecting traditional marriage. Between 2011 and 2020, the number of marriages declined considerably. While the limits and regulations imposed by the Covid-19 pandemic regarding social gatherings could be one of the reasons  – long-term data also confirms a 22.5% reduction in civil marriages between 2011 and 2019 and a 31.1% decline in 2020 (STATS SA 2022). The divorce rate in South Africa is low by international standards, at 17.6%, but currently, about 20% of all marriages end in divorce. Most divorces are reported in couples that have been married between five and nine years, proving that the adage of the 7-year itch is not without merit. The unfortunate reality of this timing is that there will be an increased risk that young children will be innocent victims of the divorce process. While the number of divorces decreased by 32.1% from 23,710 in 2019 to 16,097 in 2020, so did the number of marriages (Businesstech 2022). Financial disagreements are the most frequent form of conflict in marriages and relationships, and they have also been determined to be fundamentally different from other kinds of conflict. It is also one of the top five reasons listed for divorce in most countries (Harper 2020). During and after a divorce, a person will be expected to make decisions that directly affect their future well-being. This must occur despite a multitude of emotional and psychological obstacles. The legal and financial landscape that must be navigated during the divorce process can be intimidating and costly. Therefore, it is vital to understand the H. Kleingeld (*) School of Financial Planning Law, University of the Free State, Bloemfontein, South Africa e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 P. Sarpong, L. Alsemgeest (eds.), Perspectives in Financial Therapy, https://doi.org/10.1007/978-3-031-33362-0_9

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process of a divorce and the impact that it can have on a person’s financial and emotional well-being. Attorneys are conversant with the legal landscape of a divorce, and accountants and financial advisors are trained and prepared to provide in-depth financial information and guidance to clients. But due to the sensitivity of the information provided and the emotions that may follow, it must be acknowledged and accepted that counselling or coaching on emotional and relational issues may become a vital part of their profession (Warrener et al. 2013). Employing a multi-disciplinary team to assist and support during the decision-­ making processes will increase the chances of having a successful divorce. All the parties must understand that it is not about winning or losing but about ending and unbundling a communal life and surviving the emotional rollercoaster that leads couples to choose to get a divorce. The actual divorce process takes a significant emotional, physical and financial toll on all the parties involved (Warrener et al. 2013).

9.2 Employ a Multi-disciplinary Team and Allow Them to Collaborate In comparison to those who remain married, divorced persons encounter a number of psychological challenges, including excessive stress, decreased life satisfaction, depression, an increase in doctor’s visits and an overall increased risk of mortality. In addition to the loss of the benefits of a successful marriage, which can serve as a buffer against the rigors of daily life, the divorce process is often highly unpleasant for individuals. Similar to financial planning, ‘divorce planning’ should be approached holistically. The ideal divorce team should include a lawyer, a financial advisor, an auditor or accountant, a therapist and a parenting coordinator (Vitelli 2015). There seems to be little doubt that the majority of psychological and financial experts are well versed in their particular disciplines; yet, the overlap of challenges after a divorce has made it difficult and complex to provide adequate assistance to some clients in a vacuum (Archuleta et al. 2012). Although many mental health and financial experts lack education and training in more than one area of specialisation, it has become the norm for their clients to expect and require them to provide advice in areas far beyond the scope of their conventional training and the contractual relationship that was established between the professional and the client during the beginning of their contractual relationship. It is, therefore, vital that practitioners understand the various areas that a client must address during and after a divorce and that it will be beneficial to have a team of trained experts readily available as additional resources to advise the clients on these matters (Britt et al. 2010). The advantages of utilising a multi-disciplinary team during divorce proceedings were recognised as early as 1977. The combination of an attorney and a family

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counsellor will be beneficial before and during the divorce process: ‘Once data are assembled the counsellor and lawyer as an interdisciplinary team, and their mutual client can take a step toward evaluation the long-range view’ (Bernstein 1977, p. 426). When contemplating a divorce, most people’s first course of action will be to schedule an appointment with an attorney that specialises in family law to guide them through the crucial and intimidating legal procedures and rightly so. A competent divorce attorney is an indispensable part of any divorce team. Depending on the complexity of the financial status of the persons getting divorced and the impact of the redistribution of assets during and after the divorce process, an accountant or auditor that specialises in the tax implications of such redistribution will be a crucial part of the divorce team. Accountants will focus on the examination and analysing of the current financial situation. They do not typically project their calculations and scenarios into the future. A forensic accountant will also be necessary, especially in circumstances where spouses are not transparent and honest about the actual valuations of their estates. A financial planner is also a significant role-player in a divorce team. The importance of a divorce financial planner has been recognised in various countries worldwide. In Canada and the United States, the Institute for Divorce Financial Analysts was established in 1993 to regulate this profession (IDFA 2013). In South Africa, divorce financial planning is also a specialised field, but it generally falls within the scope and parameters of the services that financial planners provide their clients. Dealing with an expert in divorce financial planning will ensure that a strategic plan is developed to incorporate both short-term and long-term financial goals. A divorce financial planner will help divorcees better understand their current status and how it may affect them after the divorce. These professionals will be able to evaluate potential settlement packages from a unique perspective and ensure that if assets must be transferred, such a transfer will be to the correct entities to be in line with the long-term financial goals. Financial planners also have a long-term relationship with their clients and will therefore be able to ensure that the planning and decisions made during and after the divorce are correctly implemented to produce the most financially favourable plan. Financial therapy, which involves the application of a therapy-based methodology to financial concerns, is a developing profession but one that is invaluable during the divorce process. Financial therapists attempt to assist their clients in building a more sustainable and healthy connection to money by reducing the stress associated with money issues (SoFi Learn 2021). Financial therapists must be familiar with effective and tested strategies to deal with the various issues that a divorce might expose. There are two main kinds of financial therapists: professionals with a background in mental health who add financial planning qualifications and skills and those with a background in financial planning or a related field in financial services sector who add therapy knowledge and skills. Financial therapists do not provide advice on asset allocation or investment product recommendations, but they do assist individuals in overcoming the emotional, psychological and behavioural obstacles

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that prevent them from making reasonable financial decisions (Lurtz 2019). Financial therapists will distinguish themselves by their increased knowledge of the relational dynamics of money by adopting a more comprehensive and systemic approach to the client and their financial issues (Britt et al. 2010). Our relationship with money is intricately intertwined with our sense of power and self-identity, and a person who does not understand the motivation behind their financial decisions will not properly benefit from a financial plan. A great variety of issues might need to be addressed and resolved. For example, they might involve the financial values instilled in individuals during childhood, or whether their partner used money to express affection, or whether one partner spends money to fill an emotional void. Structural discrimination and gendered expectations have also been found to influence individuals’ relationships with money. Suppose a person has to deal with a traumatic incident such as divorce and still has an unhealthy relationship with money. Financial therapy methods should first be implemented to help such a person change their undesirable financial habits and commit to a financial plan to ensure a sustainable post-divorce financial future (Horton 2019). Furthermore, the division of assets is an emotional and high-conflict process, and a financial therapist will be able to assist in ensuring that this process is finalised as speedily and effectively as possible. Relational stress may be significantly heightened among those with constrained financial resources. Most of the issues that occur with the division of assets during a divorce have more to do with a power struggle than with actual financial reasoning. Such a situation needs to be mitigated to ensure that a settlement can be reached. If financial therapy methods are incorporated into the settlement process, it can ensure a more satisfactory settlement agreement, and the parties will be in a stronger position to work together in good faith on issues concerning their children and in dealing with typical post-divorce conflict situations (Steinberger 2018).

9.3 Spousal Maintenance Section 7 of the Divorce Act No. 70 of 1979 sets out the relevant conditions and circumstances for the payment of spousal maintenance. In accordance with Section 7(1) of the Act, the court may issue an order on the payment of spousal support when granting the decree of divorce when the parties have executed a written agreement prior to the divorce. In the absence of a formal settlement agreement between the parties, Section 7(2) of the Act states that the court may decide the amount of spousal maintenance. However, the court must use its discretion when determining a spouse’s entitlement for spousal maintenance by considering several factors. Section 7(2) and (3) of the Divorce Act 70 of 1979 states: (2) … the court may, having regard to the existing or prospective means of each of the parties, their respective earning capacities, financial needs and obligations, the age of each of the parties, the duration of the marriage, the standard of living of the parties

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prior to the divorce, their conduct in so far as it may be relevant to the break-down of the marriage, an order in terms of subsection (3) and any other factor which in the opinion of the court should be taken into account, make an order which the court finds just in respect of the payment of maintenance by the one party to the other for any period until the death or remarriage of the party in whose favour the order is given, whichever event may first occur.

In EH v. SH, 2012 (4) SA 164 (SCA), the Supreme Court of Appeal found that a person seeking maintenance must demonstrate a need to be maintained by the other spouse, and that if no such need is demonstrated, it would not be ‘fair’ to issue a maintenance judgment. In South Africa, no law dictates that spousal maintenance be imposed upon divorce or that a spouse is entitled to spousal maintenance upon divorce (see Strauss v. Strauss 1974 (3) SA 79 (A)). In determining the necessity for and amount of spousal maintenance, the transfer of assets from one spouse to the other according to the Divorce Order as well as each spouse’s income, earning potential, financial demands and responsibilities, and age are considered. In most circumstances, spousal maintenance is also only rehabilitative – meaning that it is due for a limited amount of time. This approach tries to enable a spouse (often the wife, who devoted the most time and effort to parenting the children) to relearn, re-educate or update a pre-existing skillset to return to the workplace on a permanent basis. Alternatively, the stated time could be until the children acquire the legal age of majority, at which point it is assumed that the mother can rejoin the workforce regardless of her age then. Spousal maintenance also ends if the spouse that receives the maintenance remarries. During the process that leads up to determining spousal maintenance, the parties will need the assistance of an attorney that specialises in family law to deal with the legal requirements. A financial advisor and accountant must be on hand to advise on the correct and most effective method to transfer any assets during and after the divorce. A financial therapist will also play a vital role for both spouses. It will be essential for the parties to adjust to their new financial situation and apply solution-­ focused financial therapy approaches and cognitive behavioural therapy approaches to improve and understand their financial situation and to develop a healthy relationship with money and spending habits. Financial therapy will assist in encouraging needed lifestyle changes to overcome financial difficulties, and these types of changes are most successfully implemented when individuals are guided through the process and educated on the consequences (Smith et al. 2016).

9.4 Defaulting on Maintenance All maintenance orders are orders of the court, and failure to meet these obligations is a criminal offence. According Laurie Greyvesteyn, the Director of the Social Justice Foundation, an astonishing 70% of parents subjected to a maintenance order default on a payment or payments within the first year (Greyvenstein 2020). This

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will cause negative financial consequences for the children and sometimes a debilitating financial strain on the parent that is dependent on that maintenance. There are legal steps available that a court may impose to force a maintenance defaulter to pay, such as a fine, a garnishee order against their salary, or imprisonment. The process is long and tedious, and the available remedies are not best suited to ensure monthly maintenance payments or those that are in arrears. If an ex-spouse defaults on maintenance payments because they are not working or is unable able to find a job and they get arrested, the possibility to earn income is completely eliminated for the prison sentence, and a criminal record will make finding future employment even harder. Ultimately, it will lead to the children receiving no money and will not solve the problem. It can also take months to have a maintenance matter heard in the maintenance court, and during those months, it is the children and primary caregiver spouse who suffer financially. Regardless of the extensive legislative and procedural steps in place, the reality is that there are no tangible and workable solutions to ensure that maintenance defaulters pay maintenance as per the court order. The system fails many parents due to insufficient infrastructure, a lack of physical resources and a shortage of human resources to effectively and promptly manage the vast numbers of maintenance default cases (Sosibo 2015). This part of the divorce negotiations should involve a financial advisor and financial therapist. Maintenance negotiations are a complex and usually frustrating part of the divorce process, where parents – unfortunately – use their children as bargaining chips for financial leverage. Professional assistance is necessary to avoid damaging the children through parental alienation, parentification and financial enmeshment. Such behaviour will only harm the child’s developmental needs (Nevondwe et al. 2016). Parents need to be aware of the realities they could face after the divorce regarding maintenance, and if possible, they should be provided with the emotional, mental and financial tools to deal with this new normal. Financial therapy will be vital to ensure this transition is successful.

9.5 Parenting Coordination Parenting coordination is an alternative and emerging solution that families with high levels of conflict can adopt during a divorce. Parenting coordination strives to remove the children from the divorce and its consequences and prioritise their welfare, regardless of the financial and emotional instability accompanying their parents’ divorce processes. South Africa and multiple international jurisdictions, including the United States, Canada and Australia, have created and implemented the concept (Aitken and Cooper 2019). The Association of Family and Conciliation Courts believes in and promotes an interdisciplinary approach to the resolution of family conflict, and they have developed a very comprehensive definition of parenting coordination:

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Parenting coordination is a hybrid legal-mental health role that combines assessment, education, case management, conflict management, dispute resolution, and, at times, decision-­making functions. Parenting coordination is a child-focused process conducted by a licensed mental health or family law professional, or a certified, qualified, or regulated family mediator under the rules or laws of their jurisdiction, with practical professional experience with high conflict family cases (AFCC Task Force Force 2020: 2).

Initially, most parents are very determined to safeguard their children’s welfare during a divorce, but as the process stretches on and becomes more traumatic and stressful, it is easy to lose sight of this objective. This usually happens when both parents have to deal with and process a myriad of emotions, and they inadvertently and mostly unintentionally end up compromising their responsibility to protect their children’s emotions (Nevondwe et  al. 2016). Unfortunately, some parents are addicted to emotional upheaval and unconsciously thrive on the discord during the divorce process, regardless of the emotional impact this can have on their children. According to Discussion Paper 155, ‘Relocation of Families with reference to minor children’, drafted by the South African Law Reform Commission (2021), the aim of a parenting coordinator should be to assist with the implementation of the parenting plan during acrimonious divorces to ensure that the best interests of the children are always given paramount importance. A parenting coordinator may be chosen by the parents or appointed by the court (with or without the parents’ consent). This person should be appropriately qualified in terms of education, training and experience. Parenting coordinators are primarily mental health or legal experts who have received mediation training. The National Accreditation Board must accredit a coordinator for Family Mediators. In addition, a coordinator must have substantial experience working with high-conflict divorces. Most coordinators are psychologists, social workers, therapists, mediators, attorneys specialising in family law or retired judges. Arguments over money have always been one of the most listed reasons for divorce, especially for younger couples, and such arguments are a constant during the divorce process. Financial therapy that incorporates financial knowledge, therapeutic skills and financial therapy methods will aid the parties in resolving their financial conflicts faster and with less antagonism (Ford et al. 2020). The skillset required for successful parenting coordination is already multi-­ disciplinary, and adding financial therapy methods and approaches seems like a logical evolution. This can either be achieved by a parenting coordinator educating and training sufficiently in the different financial therapy approaches or a parenting coordinator working with a financial therapist to finalise the parenting plan between individuals who are at loggerheads. Such a transdisciplinary collaboration is likely to yield immensely positive results due to the similarity of the disciplines and the positive add-ons that can be provided.

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9.6 Financial Therapy and Divorce Planning Collaboration between practitioners and scholars in the financial planning and psychology domains has resulted in the development of financial therapy as it is known and understood today. Financial therapy focuses on topics related to financial psychology and how financial decisions will be influenced by a person’s past experiences (Archuleta et al. 2020). Marriage and family therapists were particularly influential in the development of this field when they started to employ systems theory principles to gain a greater understanding of money problems among individuals, couples and families. Consequently, while financial psychology needs to focus on diagnosis and treatment of financial ailments that have close connections to diagnosable psychological disorders (such as gambling habits or hoarding, which require referral to a licensed mental healthcare professional), financial therapy focuses more on enabling people to gain a deeper understanding of themselves and the effects of psychology on their relationship with money (Lurtz 2019). Fundamental to the methodology and principles of financial therapy is the combination of cognition, behaviour, emotion, relationship and finances (Archuleta et al. 2012). Financial therapy and divorce planning are both relatively new fields. Collaboration between the two fields can be beneficial if conducted responsibly. Divorce planning is not a process where the parties try to hide assets from each other in preparation for and during the divorce process. Such actions will be seen as a criminal offence and should be avoided. Divorce planning focuses specifically on developing personal and business financial strategies that might assist an individual in negotiating a more pragmatic divorce settlement for their circumstances. If divorce planning can be done while employing financial therapy strategies, it will significantly benefit all the parties, reduce the time spent on litigation and deal with some of the emotional issues that direct their financial decisions. For example, drawing up a new budget is part of the divorce planning process. If cognitive behavioural therapy methods are employed that assist individuals in understanding and curbing excessive spending habits while drafting this new budget, there is a greater probability of the persons sticking to this budge. Another example of the successful collaboration between divorce planning and financial therapy will be the discussion of new savings, investments and retirement profiles, as a divorce will ultimately affect the current situation. While dealing with this re-investment strategy, financial therapy methods can be utilised in handling financial biases that negatively impact a person’s investment risk profile. It will be much easier to implement a more effective investment strategy. Even under the most amicable of circumstances, a divorce is never a simple process. However, if couples are assisted in doing effective divorce planning and employing financial therapy techniques to deal with the emotional barriers that restrict their financial decision-making, they will be in a much stronger position in the event of a divorce.

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9.7 Conclusion For the first time in years, divorce rates are declining, but so are marriage rates. A divorce is a survival game, and there are no winners or losers. Disagreements about money are one of the most prevalent reasons for a divorce. Individuals’ relationship with money and the financial conflict that existed or that was created during the marriage will also hamper the divorce negation process. In South Africa, we have various matrimonial property systems that contractually arrange for the division of assets at divorce and a legal system that tries to accommodate alternative dispute resolution recourses, such as mediation and parental cooperation to assist the divorcing parties. Regardless of all these existing systems, it is unfortunate that many divorces are still litigated and dealt with on a contested basis. One of the main reasons for contested divorces is financial disagreements, and due to unresolved emotional responses, it is the most challenging scenario to navigate and achieve a satisfactory outcome for the parties. This process can also be very costly and can take a long time. Assisting spouses during a divorce process requires a multi-disciplinary group of professionals. These individuals should be able to deal with the legalities of the divorce, the redistribution of the assets and divorce financial planning. An integral part of this divorce team should be a financial therapist that will assist the divorcees to recognise that they have underlying emotions connected to money and that this affects their decision-making abilities. Financial conflict, especially in a divorce, is either power-driven or aimed at hurting the other party. It is also unnecessary and expensive. This is where financial therapy will be able to guide parties to make sound financial choices, guided by rational decision-making and based on sound divorce financial planning principles  – without the unrealistic goal of ‘winning’ in mind. To be a winner in the divorce game is to survive the process with self-respect and integrity and to be able to equip oneself with new survival skills and resources in order to move on to the next level: post-divorce recovery.

References AFCC Task Force Force (2020) New AFCC guidelines for parenting coordination (2019). Family Court Review 58(3): 644–657 Aitken J, Cooper D (2019) Parenting coordination: a new service option for separating families? https://www.qldfamilylawnet.org.au/articles/greater-­brisbane/parenting-­coordination-­new-­ service-­option-­separating-­families. Accessed 15 June 2022 Archuleta KL, Mielitz SK, Jayne D, Le V (2020) Financial goal setting, financial anxiety, and solution-focused financial therapy (sfft): A quasi-experimental outcome study. Contemporary Family Therapy 42(1):68–76 Archuleta KL, Burr EA, Dale AK (2012) What is financial therapy? Discovering mechanisms and aspects of an emerging field. Journal of Financial Therapy 3(2):57–78

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Bernstein BE (1977) Lawyer and counselor as an interdisciplinary team: Points for a woman to ponder in considering the basic finances of divorce. The Family Coordinator 26(4):421. https:// doi.org/10.2307/581766 Businesstech (2022) Big shift for marriages and divorces in South Africa https://businesstech. co.za/news/lifestyle/571020/big-­shift-­for-­marriages-­and-­divorces-­in-­south-­africa/. Accessed 19 May 2022 Britt SL, Huston S, Durband DB (2010) The determinants of money arguments between spouses. Journal of Financial Therapy 1(1):7. https://doi.org/10.4148/jft.v1i1.253 Ford MR, Ross D, Grable JE, Degraff AN (2020) Examining the role of financial therapy on relationship outcomes and help-seeking behavior. Contemporary Family Therapy 42(1):55–67 Greyvenstein L (2020) The economic impact of failing to pay maintenance. Servamus community-­ based safety & security magazine. https://doi.org/10.10520/EJC-­1EEFC4CA49 Harper FG (2020) Unfuck your worth. Microcosm Publishing, Portland Horton AP (2019) These are 3 times when you need a financial therapist, fastcompany. https:// www.fastcompany.com/90357614/these-­are-­3-­times-­when-­you-­need-­a-­financial-­therapist. Accessed 18 May 2022 IDFA (2013) What is a CDFA professional?. https://institutedfa.com/learning-­center/what-­cdfa-­ professional/. Accessed 18 May 2022. Lurtz M (2019) How The Tools of Financial Therapy Can Improve The Delivery (And Follow-Thru) Of Financial Planning Advice. https://www.kitces.com/blog/financial-­therapy-­association-­ tools-­techniques-­solution-­focused-­therapy-­sft-­financial-­genogram/. Accessed 24 March 2022 Nevondwe L, Odeku K, Raligilia K (2016) Reflection on the principle of best interests of the child: An analysis of parental responsibilities in custodial disputes in the South African law. Bangladesh e-Journal of Sociology 13(1):101–136 Smith TE, Shelton VM, Richards KV (2016) Solution-focused financial therapy with couples. Journal of Human Behavior in the Social Environment 26(5):452–460 SoFi Learn (2021) What is financial therapy? https://www.sofi.com/learn/content/what-­is-­ financial-­therapy/. Accessed 18 May 2022 Sosibo K (2015) Maintenance courts fail SA’s children. https://mg.co.za/article/2015-­06-­04-­ maintenance-­courts-­fail-­sas-­children/. Accessed 14 May 2022 STATS SA (2022) Category Archives: Marriage and Divorce. https://www.statssa.gov.za/?cat=21. Accessed 12 May 2022 Steinberger C (2018) Divorce without destruction. New York Law Journal 260(20). https://www. manhattan-­law.com/divorce-­without-­destruction/. Accessed 20 May 2022 Vitelli R (2015) Life after divorce | psychology today south africa, psycology today. https:// www.psychologytoday.com/za/blog/media-­spotlight/201507/life-­after-­divorce. Accessed 21 March 2022 Warrener C, Koivunen JM, Postmus JL (2013) Economic self-sufficiency among divorced women: Impact of depression, abuse, and efficacy. Journal of Divorce and Remarriage 54(2):63–175

Chapter 10

Rebuilding a Stable Emotional and Financial Foundation After the Divorce Henda Kleingeld

10.1 Introduction A divorce can be an emotional and financially draining experience that can leave all parties feeling overwhelmed and exhausted. During and after divorce, emotions are on a roller coaster, financial support and stability are altered and a complete lifestyle change occurs (Vitelli 2015). Procrastination is one of the biggest hurdles to overcome after a divorce. It is a phenomenon that happens more often than one would like to think. Divorcées hamper their post-divorce rehabilitation by prolonging or even side-stepping financial decision-making (Frisby et al. 2012). Unfortunately, postponing decision-making is not a luxury that a newly divorced person has. Many decisions must be addressed and dealt with immediately to ensure that a person’s affairs are also in order from a financial and legal perspective (Weinstein n.d.). Financial therapy is still a developing field of study and practice. There is currently a shortage of research on specific techniques for assisting persons with financial decision-making, distress and well-being after a divorce (Ford et al. 2020). However, due to the emotional nature of a divorce, knowledge of financial therapy principles could benefit the team of experts required to assist persons during and after the divorce process. Various financial therapy techniques can be employed with great success to help achieve recent divorcees’ financial stability. A regular application of financial therapy during the divorce recovery process might also, in the future, lead to unique practices that are developed solely for this purpose. One of the best suited financial therapy approaches is the Ford Financial Empowerment Model. This integrative approach to financial therapy combines successful family therapy models and basic financial counselling practices. This H. Kleingeld (*) School of Financial Planning Law, University of the Free State, Bloemfontein, South Africa e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 P. Sarpong, L. Alsemgeest (eds.), Perspectives in Financial Therapy, https://doi.org/10.1007/978-3-031-33362-0_10

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approach has proved successful in developing financial freedom and empowerment after a divorce. As this is a multistage model of financial therapy, it combines two psychotherapeutic approaches (cognitive-behavioural and narrative therapies) with financial education and skill development (Ford et al. 2011). There are many aspects, both financial and emotional, that must be dealt with after a divorce. The longer these areas are ignored, the higher the risk of them having negative future implications. Having the advantage of a multidisciplinary team of professionals to assist after divorce will make this process easier. This team should include a therapist knowledgeable in financial therapy principles to help with emotional trauma and the effect this trauma will have on financial decision-making, a financial advisor, an auditor and an attorney to ensure that financial matters such as drafting a will, amending trust deeds and restructuring an insurance and investment portfolio are handled quickly and efficiently. This chapter will discuss these areas and explain the importance of addressing them timeously. The financial and emotional impact will be explored, and specific financial therapy techniques that can be employed will be discussed.

10.2 Balancing a Post-divorce Budget Divorce can harm a person’s budget and cash flow. The reality is that the same money used to support one household must now be used to support two households with similar expenses. It will be a normal progression for persons to keep the same spending habits after a divorce. However, as the cash flow available to support such spending is less, one can end up with a budget deficit, and the changes that are required to mitigate this are not just budgeting skills (Stalter 2020). A practical financial therapy approach to mitigate this reality could be to employ cognitive behavioural therapy with narrative financial therapy to adjust a client’s unrealistic thought processes regarding their future financial situation and enhance the positive financial attributes displayed by the client. Cognitive behavioural therapy aims to develop desired behaviours and reduce unfavourable habits using a structured system of exercises and procedures that focus on particular performance goals (McCoy et al. 2013). This is a good approach when trying to explain to clients the reality of their financial situation after a divorce and will require an adjustment and rebuilding period to ensure that new favourable savings habits replace old spending habits, which will significantly assist in the success of a new post-­ divorce budget. The first year after a divorce is often when the financial burden will be the hardest to bear. As mentioned above, one household has become two, and each party’s disposable income will be less. Each new home will have to budget for water, electricity, medical aid, new furniture, rent or bond payments, to name but a few. These were joint expenses before the divorce. Adjusting living standards will also be the hardest thing to get used to for both partners and their children.

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It is crucial to advise clients to explain the change in their living standards to their children. Various studies have found that children who have been involved in the management of their household finances are better at managing their money as adults. It is an excellent approach to use this opportunity to teach children about money and deal with a budget (Williams et al. 2013). It is also necessary to ensure that any discussion of finances with children is for informational and educational purposes only and not an adult unburdening session. This means the age and maturity should be taken into consideration in determining the kind of information that are discussed. Each member of a financial team should use their unique skillset to supply valuable and objective opinions on an individual’s budget and assist in setting realistic and attainable financial goals. Monthly savings and investment goals should be adjusted, and these should be included in the budget. All income and expenses should be listed, and a monthly emergency fund and incidental expenses should be added. As part of the complete financial planning process, it will be prudent to assist recently divorced individuals with regular budget reviews to ensure that they implement the financial planning advice and see if they are responding to and incorporating some of the financial therapy methods mentioned earlier. In this context, it would include changing their spending behaviour and using a structured process to attain financial goals. It is possible to recover fully financially after a divorce, but it will take time, discipline and focus on relearning to adjust to the new circumstances.

10.3 Tools for Successful Retirement Planning After a Divorce A divorce can either increase or decrease individual retirement benefits – depending on whether a portion of one party’s retirement interest is awarded to another party. Any changes to retirement provisions must be dealt with as soon as possible, and a financial advisor must be employed to do a comprehensive retirement needs analysis. Younger persons who get divorced will experience a much less significant adjustment to their original retirement goals as they still have enough time to recover and build up additional retirement savings to eliminate the deficit created by the divorce. Unfortunately, reducing retirement provisions at an older age will be much more significant and might need drastic steps to mitigate this aspect (Frawley and Pollock 2019). One of the commonest mistakes made upon divorce (this applies to both older and younger individuals) is for the non-member spouse to cash in his/her awarded share of the member spouse’s retirement provisions (Beere 2022). As so few South Africans have sufficient retirement provisions, they must be guided after an emotional event such as a divorce to make sound financial decisions. The lure of an instant cash injection might look attractive in the short term but will have negative

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long-term consequences. A financially sound strategy after a divorce will be to move the entire retirement provision into their personal retirement fund. This transfer will be completely tax-free. From an administrative perspective, it is also essential after a divorce for the parties to change the beneficiary nomination for the death benefit on their retirement funds. Even though the beneficiary nomination does not bind the trustees of the specific retirement fund, they will consider it; however, the trustees are duty bound to consider all persons who are dependent on the member for a benefit allocation. The nomination form is merely one of the factors the trustees will look at. Therefore, members should write a motivation (on the nomination form or an attachment) that will assist the trustees in seeing the complete picture and guide them to an outcome aligned with the member’s objectives and planning strategy. To be effective, solution-focused financial therapy must incorporate goal setting into the process of helping clients achieve their overall financial goals. Stawski et al. (2007) analysed retirement objectives and discovered that, along with age and income, clarity of retirement goals was a significant predictor of financial planning activities (Archuleta et al. 2020). It is realistic to expect that it will be necessary to adjust the divorcée’s retirement goals after a divorce. A new retirement plan must be drawn up in conjunction with a financial advisor. It is also vital for this retirement plan to be in line with the divorcée’s budgeting goals (Frawley and Pollock 2019). A comfortable retirement is a long-term goal harboured by most people. The reality is that without the proper planning, guidance and discipline, this will merely be a pipe dream, but by utilising a professional financial team, this can stay a reality – but a reality that will look different from the original plan that the individuals envisaged when they got married.

10.4 Gain Control Over Debt and Rebuild a Savings and Investment Portfolio The first couple of years after a divorce are the hardest, both financially and emotionally. Each ex-spouse is now the head of a separate household, and if there are children, the responsibility of being a single parent and the pressure to create a stable financial and emotional future can be overwhelming. There are steps to take to ensure that one gains control over debt and utilises income to start saving and rebuilding an investment portfolio. It is strongly suggested that newly divorced persons embrace the concept of financial therapy during the rebuilding process to ensure that they learn to make less emotional financial decisions and to assist them in getting rid of bad spending habits. Some financial therapy interventions can assist the traumatised divorcée to have the discipline to implement and stick to a financial plan – as this is not an easy task.

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10.4.1 Getting Out of Debt In many instances, newly divorced persons have some form of debt. It is also a reality that women’s financial situation after a divorce is much worse than that of their male counterparts (Parker et  al. 2022). Setting specific financial goals and objectives, for instance, to repay debt, is a healthy implementation of solutionfocused financial therapy (Archuleta et al. 2020). There are options available for persons who struggle to pay off their debt. A financial advisor should be consulted to provide expert advice, and a repayment plan should be drafted. It is possible to consider consolidation or refinance options or to discuss alternative repayment options with the creditors. It is not advisable to default on any repayments as this will have an impact on one’s credit record and have adverse long-term financial effects (Stalter 2020). Debt repayment takes discipline and time, but the ultimate goal – to be debt-free – will be worth the effort.

10.4.2 Savings and Investment Portfolio A recently divorced person should start to build up (or rebuild) a savings and investment portfolio as soon as possible. An emergency fund is a vital part of any household’s financial arsenal and should be started first – emergencies can include car repairs, school trips or anything not planned. The money in an emergency fund should also be easily accessible. A financial advisor should be consulted when a newly divorced person wants to invest funds. One of the first things that will be done is to draw up a risk profile. Divorce might have impacted a client’s original risk profile  – it usually makes people more conservative and risk-averse (Zetterdahl 2015). If the person is still relatively young, he or she will have more time to spend in the markets. Investing funds too conservatively will not be sound investment advice  – equities rather than cash will be a better and slightly more aggressive approach, ultimately leading to higher returns on investment. A financial therapist will be able to assist a recently divorced person in dealing with any financial biases or fears that were held before the divorce or caused during the divorce. Examples of factors that will negatively affect an individual’s investment choices will be loss aversion and negativity biases. Loss aversion bias means that someone is excessively fearful of experiencing losses relative to gains, and negativity bias occurs when a person believes that an undesirable experience will have more impact than a positive event (Morrison 2017). Women are also more inclined than men to reduce their financial risk-taking after a divorce and will benefit greatly from various methods of financial therapy to ensure that their fear is not holding them back from financial freedom (Zetterdahl 2015). Being financially stable and independent is a massive part of the post-divorce recovery process. A financial therapist can contribute to the success of this step to recovery.

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10.5 Personal Financial Goals and Parenthood Regarding family transformation after a divorce, the literature on children of divorced parents reports that single-parent family systems can work (Kreyenfeld and Trappe 2018). From the children’s perspective, moving from a confrontational, stressful and unhappy two-parent household to a peaceful family arrangement is usually preferable. This means that single parents can also minimise stress in the face of daily problems, even as new custody arrangements call into question the gendered parenting roles prevalent in the two-parent family (Van Gasse and Mortelmans 2020). Spouses frequently experience significant shifts in mental attitude, well-being and overall functioning following a divorce. Divorcées may experience a loss of trust, diminished self-esteem, anxiety, increased fear of being hurt in future relationships, compromised confidence, preoccupation with what everyone else believes, anger, anxiety and depression (Frisby et al. 2012). In far too many divorces, one spouse alienates the other parent from the child or children they share. It manifests as children avoiding the other parent for no discernible reason and can be extremely harmful and painful for the children and cause long-lasting trauma. If the trauma and hurt that a parent experiences after a divorce causes them to engage in parental alienation, that parent should act in the best interest of the child or children and seek professional help. Parental alienation is seen as a form of child abuse (Family law 2022). If parents struggle after a divorce, they need to seek professional help to ensure that their emotions do not add to their children’s anxiety. The child should not become the parents’ therapist or financial advisor (Lanz et al. 2020). Former spouses should adopt new communication methods and privacy standards in this emerging condition to maintain a harmonious relationship and negotiate co-parenting obligations. This is important to ensure that the children feel safe and cared for (Schrodt et  al. 2006). If parents and children have an open line of communication, it makes the process easier. Children should be informed and consulted regarding changes that will affect their lives – for example, if it is necessary to move house or relocate to a new school. It is, however, important to keep an appropriate balance and healthy boundaries when discussing this new financial situation with children. Financial enmeshment can be described as the inappropriate involvement of minor children in parental financial matters, including conversing with one’s minor children about one’s financial stress and using children as messengers to pass along financial messages between adults (Lanz et al. 2020). Studies have shown that an amicable divorce with open communication between the parents and the children is healthier for the children, leads to fewer long-term emotional issues and allows children to develop a more robust concept of self (Harken 2002). It is therefore imperative that parents avoid destructive behaviour such as parental alienation and financial enmeshment, since it produces too much information for a child to process and is unhealthy for their emotional development (Kemnitz et al. 2016). The reality is that even amicable divorces have a negative impact on children, even if it is just for a short time. Parents must ensure that they

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do not make this process more difficult for their children – they must endeavour to provide a secure and loving home for their children. Parents should also consider counselling for their children to help them deal with the trauma. When children are involved in a divorce, the idea of ‘winning’ (with reference to the parents) should not apply. The real winners will be the children who come through the divorce unscathed. The best interest of the children should always be paramount.

10.6 Financial Therapy and Post-divorce Recovery Recent research has revealed crucial information on the effect of life changes on our well-being. Events that improve our quality of life – including the conclusion of a traumatic divorce – will result in a significant and long-lasting increase in our mental health and happiness (Gardner and Oswald 2006). Rather than viewing divorce as a singular experience, it should be viewed as a crisis period for individuals, and they need to develop coping mechanisms to deal with the effect thereof (Van Gasse and Mortelmans 2020). Divorcées frequently struggle with various emotions  – anger, sadness, hurt, frustration, mental and physical tiredness and an absence of structure. This is a situation that is best described as divorce purgatory. However, it is possible to move on from that condition to one where they achieve a new level of work-life satisfaction by taking control of their finances and time management. During this fresh period, people regain a sense of their potential. When they build routines that are compatible with job duties (e.g. including friends or extended family in the household), they successfully navigate the single-parent landscape and adjust unrealistic expectations to achieve a new degree of contentment (Van Gasse and Mortelmans 2020). This cannot be achieved alone. Using an integrated financial therapy model, such as the Ford Financial Empowerment Model, instead of a singular financial therapy method, would be the best approach to achieve holistic post-divorce recovery  – from an emotional, financial and family empowerment perspective (Ford et  al. 2011; Kothakota 2019). A team of experts can assist divorcées in successfully facing their trauma and its effect on their financial decision-making. This approach will also lead to a more stable and lasting outcome.

10.7 Conclusion This chapter dealt with the most relevant financial and emotional issues anyone will face on the road to recovery after a divorce. The importance of managing aspects like drafting a new will and a post-divorce budget and resisting the temptation of procrastination was also discussed. The benefits of financial therapy were highlighted, and it is clear that implementing financial therapy principles to deal with decision-making, bad financial habits and the family unit will ensure a faster and

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more successful transition into a new and secure financial environment. When dealing with all the changes might seem daunting, the reward is being able to build a stable financial future. A multidisciplined team that combines various forms of financial therapy principles with effective financial planning will assist divorcées in mitigating some of the financial risks associated with divorce and guide them towards recovery. It takes support, an effective team and personal discipline to re-­ establish financial and personal empowerment after a divorce. After the devastation and havoc of a tsunami, it will be hard to pick up the pieces and rebuild a new life, and it will also take more time than was initially thought, but the personal and emotional satisfaction when the process is completed will make the struggle worth it.

References Archuleta KL, Mielitz SK, Jayne D, Le V (2020) Financial goal setting, financial anxiety, and solution-focused financial therapy (sfft): A quasi-experimental outcome study. Contemporary Family Therapy 42(1):68–76 Beere I (2022) The right financial planning can preserve your assets on divorce. https://www.netto. co.za/divorce/. Accessed 26 April 2022 Family law (2022) Parental Alienation. https://www.divorcelaws.co.za/parental-­alienation.html. Accessed 29 April 2022 Ford MR, Ross D, Grable JE, Degraff AN (2020) Examining the role of financial therapy on relationship outcomes and help-seeking behavior. Contemporary Family Therapy 42(1):55–67 Ford MR, Baptist JA, Archuleta KL (2011) A theoretical approach to financial therapy: The development of the ford financial empowerment model. Journal of Financial Therapy 2(2):20–40 Frawley K, Pollock E (2019) How Divorce can impact your retirement plans. https://www. forbes.com/sites/frawleypollock/2019/11/02/how-­d ivorce-­c an-­i mpact-­y our-­r etirement-­ plans/?sh=9d126912166b (Accessed: 26 April 2022). Frisby BN, Booth-Butterfield M, Dillow MR, Martin MM, Weber KD (2012) Face and resilience in divorce: The impact on emotions, stress, and post-divorce relationships. Journal of Social and Personal Relationships, 29(6):715–735 Gardner J, Oswald AJ (2006) Do divorcing couples become happier by breaking up?. Journal of the Royal Statistical Society: Series A (Statistics in Society) 169(2): 319–336 Harken SA (2002) The impact of divorce and healthy adjustment of children. https://scholarworks. uni.edu/grp/777. Accessed 29 April 2022 Kemnitz R, Klontz B, Archuleta KL (2016) Financial enmeshment: Untangling the web. Journal of Financial Therapy 6(2):32–48 Kothakota M (2019) Wealth management and divorce: How stress adjustment affects the accumulation, management and distribution of wealth. Dissertation, Kansas State University Kreyenfeld M, Trappe H (eds) (2018) Parental life courses after separation and divorce in Europe. Springer, Gewerbestrasse Lanz M, Sorgente A, Danes SM (2020) Implicit family financial socialization and emerging adults’ financial well-being: a multi-informant approach. Emerging Adulthood 8(6):443–452 McCoy MA, Ross DB, Goetz JW (2013) Narrative financial therapy: Integrating a financial planning approach with therapeutic theory. Journal of Financial Therapy 4(2): 22–42 Morrison J (2017) Cognitive biases in divorce. https://morrisonmediation.com/cognitive-­biases-­ in-­divorce/. Accessed 28 April 2022 Parker G, Durante KM, Hill SE, Haselton MG (2022) Why women choose divorce: An evolutionary perspective. Current Opinion in Psychology 43:300–306

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Schrodt P, Baxter LA, McBride MC, Braithwaite DO, Fine MA (2006) The divorce decree, communication, and the structuration of coparenting relationships in stepfamilies. Journal of Social and Personal Relationships, 23(5): 741–759 Stalter K (2020) Rebuilding your finances after divorce. https://www.forbes.com/sites/ katestalter/2020/12/18/rebuilding-­your-­finances-­after-­divorce/?sh=f27a85d55093. Accessed 28 April 2022 Stawski RS, Hershey DA, Jacobs-Lawson JM. (2007). Goal clarity and financial planning activities as determinants of retirement savings contributions. The International Journal of Aging and Human Development 64(1): 13–32 Van Gasse D. and Mortelmans D (2020) ‘Reorganizing the Single-Parent Family System: Exploring the Process Perspective on Divorce’. Family Relations 69(5): 1100–1112 Vitelli R (2015) Life after divorce. https://www.psychologytoday.com/za/blog/media-­ spotlight/201507/life-­after-­divorce. Accessed 21 March 2022 Weinstein ER (n.d.) Divorce mistakes: Procrastination. https://www.weinsteinlawoffice.com/blog/ divorce-­mistakes-­procrastination/. Accessed 28 April 2022 Williams BC, Douglas D, Gillen M, Spence L (2013) Women and money: Unique Issues–Selecting Your Financial Professional Team: FCS7252/FY1370, 7/2013. EDIS, 2013(8). Zetterdahl E (2015) Scenes from a marriage: Divorce and financial behavior. https://www.diva-­ portal.org/smash/record.jsf?pid=diva2%3A808176&dswid=4077. Acessed 15 June 2022

Chapter 11

Therapeutic Jurisprudence and Estate Planning Sonja Evans and Prince Sarpong

11.1 Introduction Therapeutic jurisprudence  – the study of law as a therapeutic agent  – has the potential to ‘humanise’ law, thus enabling it to be applied in a more therapeutic manner. It draws on the comprehension gleaned from the behavioural sciences such as psychology, criminology and social work to better understand law and the therapeutic and antitherapeutic consequences thereof. Therapeutic jurisprudence is therefore classified as an interdisciplinary field of study. This discusses the development of therapeutic jurisprudence and its implications for estate planning and financial therapy. In less than a decade, therapeutic jurisprudence, which began as an academic approach to mental health law, has materialised as a mental health approach to the law in general. It is the brainchild of the late Bruce Winick and David Wexler, and since its inception in the early 1990s, it has generated interest from scholars in the fields of law and the social sciences, with a substantial body of work applying its approach to a wide range of legal issues (Winick 1997). In his work titled The Jurisprudence of Therapeutic Jurisprudence, Winick (1997: 185) defines therapeutic jurisprudence as ‘… the study of the role of the law as a therapeutic agent’. Wexler suggests that therapeutic jurisprudence centres on the law’s impact on emotional life and on psychological well-being. It focuses our attention on this previously unrecognised aspect – the humanisation of law – and concerns itself with the human, emotional and psychological side of law and legal processes (Wexler S. Evans A Chimes van Wyk Attorneys Inc, George, South Africa e-mail: [email protected] P. Sarpong (*) School of Financial Planning Law, University of the Free State, Bloemfontein, South Africa e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 P. Sarpong, L. Alsemgeest (eds.), Perspectives in Financial Therapy, https://doi.org/10.1007/978-3-031-33362-0_11

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2000). He goes on to explain that it is a viewpoint that regards law as a social force that produces behaviours and consequences (Wexler 2000). Winick elaborates on this view and argues that all the elements of a legal system, such as legal rules, legal procedures and legal professionals, are social forces that interact to produce certain consequences. Sometimes, these consequences fall within the therapeutic domain, other times antitherapeutic consequences are produced (Winick 1997). Therapeutic jurisprudence studies these consequences using the tools of the social sciences to see whether law can be made or applied in a more therapeutic way without undermining other values, such as justice and due process. Therapeutic jurisprudence does not suggest that therapeutic goals should always eclipse other goals. It merely looks at law in a richer way by studying the impact of law on the mental and physical health of the people it affects to deliver positive therapeutic consequences and minimise anti-therapeutic consequences. This should be an important objective when considering law reform (Winick 1997).

11.2 The Psychological Impact of Law There is no single, universally accepted definition of ‘law’. There are in fact a myriad of definitions of what ‘law’ is. Oxford Reference defines law as the study of a system of rules that a particular country or community recognises as regulating the actions of its members (Oxford Reference 2022). Law is a living system that functions within a particular society and absorbs and reflects the culture in which it exists (Winick 1997). Therefore, to understand how the law operates, one must understand political science, economics, anthropology, sociology and psychology. Furthermore, law must be examined using the tools of the aforementioned disciplines. A modern approach to understanding law, therefore, includes the use of the insights presented by the behavioural sciences, to look beyond law’s façade and penetrate its inner mechanics. Winick (1997) argues that it is within this interdisciplinary approach to law that the study of therapeutic jurisprudence finds its niche. As it examines law’s impact on the mental and physical health of the people it affects, it is predominantly a form of consequentialism, that is, the effect of the law on individuals. When it is understood how the rules, procedures and role players in the legal system influence the well-being of the people they affect, the need to assess these therapeutic consequences must not be ignored. Achieving positive therapeutic consequences and minimising the negative consequences should be an important objective of law and policy reform (Wright 2010; Winick 1997; Campbell 2010). It must be understood that although therapeutic jurisprudence strives to promote positive therapeutic consequences and avoid antitherapeutic consequences, there may be instances where a law or procedure may produce antitherapeutic consequences, which are nonetheless justified in terms of what that law or procedure seeks to achieve. Therapeutic jurisprudence does not suggest that therapeutic goals should outweigh others. It merely aims to increase awareness of the effects of law

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on individuals and promotes a careful assessment of opposing values (Babb and Wexler 2014).

11.3 The Therapeutic Jurisprudence and Estate Planning Glover (2012a) employs the expanding field of therapeutic jurisprudence to analyse the psychological consequences of estate planning. His article reveals that the preparation and implementation of an estate plan through the execution of a will and other estate planning documents can have both therapeutic and antitherapeutic consequences. He recognises the field’s analytical relevance to the study of estate planning and encourages the expansion of therapeutic jurisprudential analysis to other areas of the law of succession. He uses therapeutic jurisprudence, which is based on the idea ‘that the law itself can be seen to function as a kind of therapist or therapeutic agent’ (Winick 1997: 185), as an analytical tool to examine the therapeutic consequences of estate planning. When viewed within this framework, both the positive and negative psychological consequences of effecting an estate plan become discernible.

11.3.1 Antitherapeutic Consequences of Estate Planning Several negative psychological consequences arise from the act of preparing and implementing an estate plan (Glover 2012a). These include: 11.3.1.1 Death Anxiety The preparation and implementation of an estate plan can have a negative psychological effect on an individual as it involves a direct confrontation with the inevitability of his1 own mortality, and for most people, such thoughts are difficult and unpleasant. Typical concerns that may give rise to this anxiety are the personal circumstances of age, wealth, family, personality and attitude towards death. This fear is probably the leading reason for the high levels of intestacy experienced today. The role of the financial therapist is of increasing importance, especially as the realisation grows that issues around money are more than financial; there are also emotional issues surrounding money. Financial therapists employ psychological techniques to facilitate conversations with their clients on the issues of inheritance, business and philanthropy and help them uncover the subconscious issues causing stress (Darbyshire 2020). They ascribe their increasing popularity to the growing

 Words importing any gender shall include any other gender.

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awareness within the financial planning industry that the role of the wealth manager or financial planner is more than just looking after a client’s money – the client’s well-being, goals and ambitions are of equal importance and require professional attention (Darbyshire 2020). 11.3.1.2 Estate Disputes and Familial Conflict In addition to anxiety around death, another source of anxiety is the possibility of an estate dispute, which could lead to a lawsuit. Estate disputes are usually brought about by family members of the deceased who feel aggrieved for any number of reasons but usually perceived unfairness. Such disputes can lead to irreconcilable family feuds which may damage family relationships for generations into the future. When a person suspects that his estate plan may result in such conflict, he may experience antitherapeutic consequences from such a process. There could also be the fear that an estate dispute may result in public scrutiny and an invasion of privacy, as well as a posthumous damage to reputation (Glover 2012a). 11.3.1.3 Fear of Probate A person may harbour concerns on the estate administration process after he is gone. The winding-up of an estate is a notoriously cumbersome and sometimes inefficient process. The concerns usually fall within three categories: firstly, the length of time it takes to wind up an estate; secondly, the cost of the process, that is, the worry that the cost will consume a large portion of the estate’s value; and finally, the person may be concerned with privacy issues, which arise during the winding­up process, even if there is no dispute, as the liquidation and distribution account will lie open for public inspection.

11.4 Therapeutic Consequences of Estate Planning In spite of the fact that estate planning may cause antitherapeutic consequences, it can also provide a sense of peace and fulfilment from preparing and implementing an estate plan. Some of the positive aspects of the estate planning process are discussed below (Glover 2012a).

11.4.1 Freedom of Testation Freedom of testation is a very important therapeutic consequence of estate planning. It is regarded as so fundamental that it is normally held to be the foundation of the law of succession. It provides a person with the autonomy to make decisions

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regarding the distribution of his estate and this sense of self-determination can have a positive therapeutic consequence as one’s psychological welfare may be improved by the ability to make important choices autonomously. It furthermore provides a sense of satisfaction in knowing that the estate plan can be designed according to one’s preferences and in so doing meet the unique set of family circumstances one finds himself in. Conventionally, the most urgent need is the care of the family after one’s demise. This is often viewed as a moral obligation or responsibility. Only the person planning his estate is closely enough related to his family to know their respective needs, and having taken steps to fulfil those needs can lead to a profound sense of comfort.

11.4.2 The Estate Planning Professional The estate-planning professional can also offer a supportive role to provide yet another potentially positive therapeutic aspect to estate planning. The practitioner, in doing so, acts as a therapeutic agent for the client. When estate planning practitioners focus on the non-legal, non-financial aspects of their clients’ problems, their services are commonly referred to as counselling (Shaffer 1969). An appointment for the preparation of an estate plan and will will of necessity force an individual to confront the inevitability of death, which could give rise to death anxiety. An investigation into the causes of the anxiety could be conducted by the practitioner. These usually include the possibility of an estate dispute, a family conflict or estate administration issues. By implementing certain estate planning techniques or facilitating discussions between the individual planning his estate and potentially disappointed family members, the practitioner can reduce the possibility of an estate dispute. Furthermore, the fears surrounding estate administration issues can be reduced by explaining the intricacies of the estate administration process and providing realistic estimates of the time frame and expenses of the process. Practitioners, who fulfil their counselling roles effectively, can reduce the antitherapeutic consequences of estate planning by providing emotional support, encouraging the client to focus on the matter at hand and reminding the client that there are suitable ways to address their concerns.

11.4.3 The Will-Execution Ceremony A will is one of the most important components of the estate-planning process (Davis et al. 2019). A number of strict formalities must be complied with for a valid execution of a will. These formalities serve to publicly signal the intention to create a will and transform the execution process into a form of ceremony that can have therapeutic consequences. While taking part in the will-execution ceremony, it is important to focus on the requirements of testamentary formality instead of dwelling

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on one’s own mortality. This can help in drawing one’s thoughts away from the fear and anxiety of death and are instead focused on the positive aspects of estate planning such as preparation for the future, the fulfilment of the family’s needs and the distribution of the estate according to one’s wishes (Glover 2012a). A formal will-execution process can bolster the overall therapeutic potential of estate planning (Glover 2012b). The ceremonial nature of the will-execution process can also improve the estate planner’s decision-making process in several ways. Firstly, because of the infrequent nature of participation in ceremonies, the testamentary ritual focuses attention on the importance of the actions and decisions and improves the decision-making process by encouraging the individual to carefully consider the testamentary choices that are being made, taking all relevant information into account. Secondly, it provides a framework through which the individual can cope with the stress and anxiety that accompanies the contemplation of death (Glover 2012a). 11.4.3.1 Testamentary Self-Expression Through the preparation and implementation of an estate plan and the execution of a will, a person communicates to friends, family and the community, the wishes to bequeath assets. One can express positive feelings by bequeathing assets to a family member or friend, or negative feelings by excluding certain persons. The expression of emotions through the acts of giving or withholding can be of great therapeutic relevance (Glover 2012a). When making a will, a person can be direct and use words specifically expressing both their positive and negative feelings and emotions in their wills. This is particularly useful where a person worries that the estate plan may cause tension between the surviving family members. This antitherapeutic consequence of estate planning can be diminished by the inclusion of expressive language to explain the reason behind seemingly inequitable bequests. This form of self-expression can induce respect for the person’s wishes amongst potentially disappointed heirs (Glover 2012a). Glover (2012a) mentions another type of self-expression, which can be communicated through an estate plan and that is the opportunity it provides to shape one’s posthumous reputation. By making provisions for certain individuals, institutions or causes, one may be able to mould public perceptions. This opportunity to project a particular identity to society can be an extremely therapeutic experience. Therapeutic jurisprudence’s normative aim is to shape the law in a way that maximises its therapeutic potential without undermining the law’s fundamental purposes (Winick 1997). According to Glover (2012a), this goal is especially relevant to the law of succession because of the acute psychological consequences and emotionally charged contexts of estate planning and the ultimate administration of the testator’s estate.

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11.5 Testation, Succession and Estate Planning in South Africa Estate planning is a complicated process and is often a precarious and stressful matter for clients. A key element of an estate plan is the use of a will (Davis et al. 2019). It is often the starting point for a discussion on estate planning, but estate planning is a far more than a mere execution of a will (Van Der Westhuizen 2002). (Davis et al. (2019) refer to estate planning as a process that can be broken down into two stages. The first stage is the preparation and implementation of a plan of wealth disposition in one’s lifetime, and the second stage is the implementation of the plan following the death the individual. Van Der Westhuizen (1988) explains estate planning as involving both the inter vivos and mortis causa aspects of a person’s estate and includes all planning that is relevant to the estate owner’s assets and liabilities. In this context the focus is often on tax and estate duty considerations, although emphasis needs to be placed on the fact that these considerations, in the light of the avoidance provisions of the Income Tax Act,2 are not the only issues to be considered in the field of estate planning. Meyerowitz (1965: 143) offers a particularly useful definition of estate planning as: The arrangement, management and securement and disposition of a person’s estate so that he, his family and other beneficiaries may enjoy and continue to enjoy the maximum from his estate and his assets during his lifetime and after his death no matter when death may occur.

From the above definition it is clear that: • Estate planning is an ongoing process that stretches over one’s entire life. • Estate planning involves both the notions of ‘estate’ and ‘planning’. ‘Estate’ refers to the collection of a person’s assets and liabilities during his lifetime and on his death and ‘planning’, the process of deciding in advance what goals must be achieved and how to achieve them. The tax consequences of any estate planning exercise are of extreme importance, but it should never be considered as the sole reason for the employment of a particular plan. Experience has shown that tax benefits can vanish like the proverbial mist before the sun, by a mere stroke of the legislature’s pen (Van Der Westhuizen 1988). A recent example was the introduction of section 7C to the Income Tax Act in March 2017. This section was included to prevent trusts from being used to avoid or reduce estate duty and/or donations tax. A popular estate planning exercise of the past was to transfer growth assets to an inter vivos trust by way of an interest-free or low-­interest loan in order to ‘peg’ their value in the estate. The objective of section 7C is to tax these qualifying loans issued to the trust if the loan attracts interest at a

 Income Tax Act 58 of 1962 (South Africa).

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lower rate than the official rate of interest, thus making the entire exercise less attractive. This, however, should not prevent a person from utilising all existing measures for legal tax saving schemes, provided that tax saving only plays a secondary role in the scheme and that more important issues such as family dynamics and structure, and the ease with which the plan can be implemented is borne in mind. In this way, subsequent tax law amendments will have no effect on the primary purpose of the scheme. Establishing a plan with the correct priorities is not always easy, as tax saving tends to become the ultimate carrot outweighing the more noble causes such as the maintenance of the estate for the benefit of beneficiaries, the impartial and fair distribution of the estate amongst the beneficiaries or even the orderly arrangement of the estate to ensure the smooth transition thereof before and after one’s passing. Therefore, it is important to establish ‘noble’ priorities and to bear these priorities in mind during the estate planning process, which involves the repeated choosing between different courses of action (Van Der Westhuizen 1988).

11.6 The Estate Planning Process According to Van Der Westhuizen (2002), the estate planning process consists of three steps namely: • Determining the estate planning situation • Setting the goals and planning objectives • Implementation of the plan

11.6.1 Determining the Estate Planning Situation Estate planning begins with an assessment of the factual personal situation or circumstances, as well as that of the family and estate. Simultaneously, the psychological and social (cultural, political, religious) profile is determined. Subsequently, the legal system in which the estate planning process is to take place and the broader economic and financial circumstances can be assessed. 11.6.1.1 Factual Personal Circumstances All personal information that will be of significance to the estate planning process must be collected, for example, age, profession, marital status, marital regime, children and religion, to name but a few. Additionally, a schedule of all the assets (and the nature of the assets) and liabilities must be collated.

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11.6.1.2 Psychological Circumstances The reasons why an individual embarks on the process of estate planning often come to the fore while gathering the information above. Reasons could include a health scare or intended hospital visit, a long trip, a change in tax legislation, the recent death of a family member or friend and/or a positive or negative experience with a deceased estate. It is not often that a person will embark on the process if he perceives everything to be in order (Van Der Westhuizen 2002). He may suddenly realise that his life is not in his own hands and therefore needs to put his affairs in order, he may be concerned with the maintenance of his loved ones while the estate is being administered and he may worry about estate expenses and the potential erosion of its value, or may be concerned about an existing feud between family members or the potential of such a feud. It is in these situations that a person may confront the reality of death, and death is generally an unpleasant thought for the modern man (Van Der Westhuizen 2002). Hoops (1982) is of the view that the connotation of death in the words ‘estate planning’ scares many, for whom planning is vital to their family welfare, into inaction. Although planning for one’s death may be a traumatic experience because death is not something one wishes to talk about, it can also be encouraging because planning, which helps to organise one’s future, offers comfort (Van Der Westhuizen 2002). The psychological circumstances are therefore intertwined with factual personal circumstances. It is here where the estate planning professional can play a pivotal role in making the process more therapeutic by adopting the role of a counsellor before that of a legal or financial professional. The closer the relationship with the professional, the more comfortable a person will feel in sharing one’s feelings, fears and attitudes and the more comprehensive and complete the plan will be (Van Der Westhuizen 2002). Biever et  al. (2021) describe spouses, and in particular widows, as one of the fastest-growing demographics in the last 100  years due to the global COVID-19 pandemic. It is postulated that the loss of the person in the household responsible for household financial management (usually the male spouse), which includes a host of financial tasks such as tax planning, investment planning, retirement planning and of necessity, will include estate planning and give rise to severe financial anxiety in some widows. This will usually manifest itself as money avoidance behaviour – the refusal to face their financial situation or take any financial decisions. This can have dire consequences for the surviving family, as certain important financial decisions need to be made relatively early during the grieving process. It is suggested that although grief counselling is not part of the traditional training for financial planners, they would do well to embrace the techniques of financial therapy to support widows during the grieving process and move them out of the money avoidance phase as quickly as possible. So, whether the support is coming from financial planners, legal councillors, mental health councillors or financial therapists, the interaction will be beneficial and contribute to a positive therapeutic experience (Biever et al. 2021).

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11.6.1.3 Social Circumstances A person’s political, cultural and religious environments are grouped together under this heading. A person’s political circumstances will be influenced by the current political reality of the jurisdiction in which he resides. Periods of political uncertainty are likely to influence estate planning (Van Der Westhuizen 2002). A case in point would be the 2017 decision by the ANC3 to pursue land reform with greater resolution. The expropriation of land without compensation was mooted to be the key mechanism to be used by the government to give effect to land reform and redistribution (Coetzee and Marais 2021). This was enough to send jitters into the market and for planners to reconsider assets held. Therefore, the views and rhetoric of politicians, budget speeches emanating from central government and political uncertainty will all have a bearing on the objectives set by the planner and potentially increase his proclivity to offshore planning and investing. Because estate planning is primarily concerned with the estate planner and his family, his religious and cultural circumstances will have an important bearing on the objectives he sets. The cultural customs and religious rules will often prescribe what he may or may not do with his assets. Within this social environment, it may also be important for the planner to satisfy some philanthropic needs by leaving a legacy to a particular cause as a philanthropic gesture or as a contribution to the way he would like society to remember him (Van Der Westhuizen 2002). 11.6.1.4 Legal Circumstances The legal environment in which the planning is to take place needs to be considered. It will include all legislative enactments and provisions of the common law, which will influence one’s estate. It is at this stage that some of the goals and objectives may be analysed in relation to the legal and tax implications. 11.6.1.5 Economic and Financial Circumstances The broader economic climate of a particular jurisdiction will always influence estate planning decisions, for example, if markets are declining, it may be an opportune time to move growth assets from the estate owner’s estate to a trust in order to peg the estate planner’s estate. This environment also includes an analysis of the financial position of the estate planner and his family and the tax consequences of the plan he wishes to affect. This will include an analysis of the liquidity of the estate in the event of his death.

 African National Congress, the ruling political party in South Africa

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11.6.2 Setting the Goals and Planning Objectives The provisional objectives are usually set while the above circumstances are being investigated. At this point, however, it may become clear that those provisional objectives give rise to certain problems not originally envisaged by the estate planner, perhaps an increased tax or estate duty liability. A person may therefore need to revise or substitute the original objectives with new objectives that will result in more acceptable consequences. A badly constructed estate plan can lead to one’s legacy being that of bitterness, resentment and possible a full-blown family feud (Davis et al. 2019). Venter (2014) considers the following to be important objectives when considering and preparing an estate plan: • • • • • • • •

Flexibility of the estate plan Minimisation of duties and taxes Provisions of liquidity in the estate Provision of retirement capital and income Provision of capital and income for dependants Cost of implementation of the plan Facilitation of the estate administration process Protection of assets

11.6.3 Implementation of the Plan Once the estate planning circumstances and objectives have been determined, the plan is then formulated and implemented using the various estate planning techniques and instruments.

11.7 Therapeutic Jurisprudence, Estate Planning and Financial Therapy Almost every person fear death. Therefore, the process of estate planning can trigger emotional distress in many people and this fear can influence people’s thinking and behaviour. Terror Management Theory (TMT) posits that being aware of imminent death creates ‘terror’ and the main task of several psychological constructs is to manage such fear (Becker 1973; Rank 1958). Within the framework of therapeutic jurisprudence in estate planning (Glover 2012a), a practitioner can identify and help a client maximise the therapeutic benefits of the estate planning process while minimising the anti-therapeutic experiences.

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Furthermore, given the underlying connectedness of many financial and non-­ financial decisions that generate or respond to mortality salience (James III 2016a), practitioners can employ the Economic Model of Mortality Salience in Personal Financial Decision Making (James III 2016a), to deal with client inertia towards estate planning. A practitioner can, for example, increase the attractiveness of estate planning options by reducing death-focused language and reframing such options with language such as: ‘as long as you live’, instead of ‘until you die’. This is known to consistently increase the attractiveness of estate planning (James III 2016b) and even healthcare decisions (McNeil et al. 1982). In addition, broader financial planning issues such as providing for a child’s university education, tax planning and planning the ideal retirement can serve as a less aversive introduction to death-related issues in estate planning. A recent study considered whether saving money could also help individuals manage death anxiety and potentially constitute a more effective buffer against death anxiety than spending. It was suggested that saving behaviour could potentially help to buffer death anxiety by diminishing the insecurities and anxieties born from an uncertain future (Zaleskiewicz et al. 2013). Employing broader financial planning issues can therefore help to sidestep the inertia that can prevent conversation on estate planning from taking place. Social opinions and social norms are also significant in the mortality salient context (James III 2016b; Sanders et al. 2013). Therefore, describing what is normal, typical or acceptable among similar others can be influential in dealing with the inertia towards estate planning (James III 2016a). Results from experiments conducted by Zaleskiewicz et  al. (2013) show that saving money provides a potent buffer again death anxiety, in that it is associated with financial and overall well-being. The results suggest that saving money plays an important psychological buffer against death anxiety and constitutes a more robust buffer than spending money. Saving can therefore be said to produce a positive therapeutic consequence for estate planners. Glover regards freedom of testation and the comfort and satisfaction it can provide estate planners by allowing them to make autonomous choices regarding the distribution of their estate, as one of the therapeutic consequences of the estate planning process (Glover 2012a). However, autonomous choices regarding the distribution of a South African estate may be severely limited by a number of factors, not least of which is the new constitutionally imbued public policy, as well as statutory limitations. This can have an anti-therapeutic consequence to estate planning in South Africa. Following the constitutional court judgement in King v De Jager4, it is now very important for practitioners to be well versed with the applicable laws and techniques in estate planning to maximise the therapeutic benefits of estate planning and to minimise the antitherapeutic impacts of estate planning.

 King NO and Others v De Jager and Others [2021] ZACC 4.

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11.8 Conclusion Within the framework of therapeutic jurisprudence in estate planning, financial planners, estate planning attorneys and financial therapists can identify and maximise the therapeutic benefits of estate planning. Practitioners can also encourage, minimise the distress associated with the thought of death and spur clients into planning for their estates. To maximise the therapeutic benefits of estate planning, a practitioner must have a good understanding of the psychological impact of law on estate planning, as well as the legislation, principles and practices of estate planning, which usually tend to vary from one jurisdiction to the next. A possible technique to improve the therapeutic consequences of estate planning is to establish certain structures while the client is still alive and not simply rely on a will for the devolution of the client’s estate. The next two chapters discuss (in the context of South Africa) some of the topical issues surrounding estate planning and how to deal with these issues. While these issues are discussed in the context of South Africa, many of the general guidelines and principles may be applicable in several jurisdictions.

References Babb B, Wexler D (2014) Therapeutic jurisprudence. In: Bruinsma G, Weisburd D (Eds) Springer encyclopedia of criminology and criminal justice, Springer, New York, 5202 – 5211 Becker E (1973) The denial of death. The Free Press, New York Biever D, Patel N, Agnew A, Kopp D, Krausman J, Mccoy MA (2021) When money can’t be avoided: helping money avoidant widows using the changes and grief model. Journal Of Financial Therapy 12(2):1–20 Campbell AT (2010) Therapeutic jurisprudence: A framework for evidence-informed health care policymaking. International Journal of Law and Psychiatry 33(5–6): 281–292 Coetzee J, Marais J (2021) Expropriation without compensation – it is not the end of the road and is still on the table. https://www.fasken.com/en/knowledge/2021/12/15-­expropriation-­without-­ compensation. Accessed 14 January 2022 Davis DM, Beneke C, Jooste RD (2019). Estate Planning. Lexis Nexis, South Africa Darbyshire M (2020). The financial therapists helping wealthy people cope with change. https:// www.ft.com/content/e2f3709b-­89ea-­4912-­a48e-­f14f2b20ab23. Accessed 28 May 2022 Glover M (2012a) A therapeutic jurisprudential framework of estate planning. Seattle University Law Review 35: 427 – 472 Glover M (2012b) The therapeutic function of testamentary formality. University of Kansas Law Review 61: 139–177 Hoops RK (1982) Family Estate Planning. Bancroft-Whitney Co, San Francisco James III RN (2016a) An economic model of mortality salience in personal financial decision making: Applications to annuities, life insurance, charitable gifts, estate planning, conspicuous consumption, and healthcare. Journal of Financial Therapy 7(2): 62–82 James III RN (2016b). Phrasing the charitable bequest inquiry. VOLUNTAS: International Journal of Voluntary and Nonprofit Organizations 27(2): 998–1011 McNeil BJ, Pauker SG, Sox HC, Tversky A (1982) On the elicitation of preferences for alternative therapies. The New England Journal of Medicine 306:1259–1262. Meyerowitz, D (1965). Estate And Tax Planning. The Taxpayer.

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Oxford Reference (2022) Law. https://www.oxfordreference.com/page/law-­subject/ law#:~:text=law%20is%20the%20study%20of,the%20actions%20of%20its%20members. Accessed 31 March 2022 Sanders M, Halpern D, Service O (2013) Applying behavioral insights to charitable giving. https:// www.bi.team/publications/applying-­behavioural-­insights-­to-­charitable-­giving/. Accessed 21 May 2022 Shaffer TI (1969) The estate planning counselor and values destroyed by death. Iowa Law Review 55:376 – 409 Rank, O. (1958). Beyond psychology (Vol. 485). Massachusetts Courier Corporation, Chelmsford Van Der Westhuizen WM (1988) The relevancy of intervivos and mortis causa estate planning when choosing a matrimonial property system. Journal for Juridical Science 13(1): 46–59 Van Der Westhuizen WM (2002) The multidisciplinary nature of estate planning as a science. Journal for Estate Planning Law 1:1–19 Venter JMP (2014). Are South African financial advisors addressing the estate planning objectives that are important to their clients? Risk Governance and Control: Financial Markets and Institutions 4(2): 125 – 131 Wexler DB (2000) Therapeutic jurisprudence: An overview. Thomas M.  Cooley Law Review 17(1): 125–134 Winick BJ (1997) The jurisprudence of therapeutic jurisprudence. Psychology, Public Policy, and Law 3(1): 184–206 Wright JL (2010) Guardianship for your own good: Improving the well-being of respondents and wards in the USA. International Journal of Law and Psychiatry, 33(5–6): 350–368. Zaleskiewicz T, Gasiorowska A, Kesebir P (2013) Saving can save from death anxiety: mortality salience and financial decision-making. Plos One 8(11): 79407. https://doi.org/10.1371/ journal.pone.0079407

Chapter 12

The Limitations on Freedom of Testation Rika Van Zyl

12.1 Introduction Estate planning is part of holistic financial planning. Conversations with clients on their estate can cause phycological turmoil, especially when it involves drafting a will that sets out how the client’s property must devolve. Although financial advisors are not always trained to provide clients with legal advice on aspects of estate planning, it is necessary that they are aware of some of the issues that can cause problems with the clients’ final will and testament. The emotional aspects that are intertwined with issues of estate planning must be expected and managed by the financial advisor. The question of the limitations on the freedom of testation has been debated for years, and there may be concerns as to the future of the freedom of testation in the South African context. These issues are amplified when one reads that the Constitutional Court is intervening in stipulations of private wills that will have the effect of being struck down or be made unenforceable. These concerns are therefore warranted, and this necessitates a look at possible solutions that a financial advisor can suggest to a client on to try to prevent a court from finding the stipulations in a will as unconstitutional, unlawful or against public policy. This however may hamper certain customary rules of male primogeniture or religious customs. If we can educate our clients on the bigger notion of ‘Ubuntu’, which is at the heart of South Africa as a community, we will all be able to build a better nation.

R. Van Zyl (*) School of Financial Planning Law, University of the Free State, Bloemfontein, South Africa e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 P. Sarpong, L. Alsemgeest (eds.), Perspectives in Financial Therapy, https://doi.org/10.1007/978-3-031-33362-0_12

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12.2 Freedom of Testation South Africa has an uncodified legal system. There is not only one primary source where the law originates and can be found. As such, South Africa has adopted the Roman-Dutch law as our common law in the form of court cases or writings of authors during the sixteenth and seventeenth century. The ‘freedom of testation’ was adopted from the Roman-Dutch law and has found full expression in South African law (Corbett 2001). The freedom of testation is an individual’s right to dispose of his/her property on death as he/she please and is one of the founding principles of the South African Law of testate succession (Du Toit 2001, p.  224). In South African courts, an adjacent principle developed that the courts are obliged to give effect to the clear intention of a testator as it appears from such testator’s will. In Crookes v Watson 1956 (1) SA 277 the courts states on page 297: The execution of a will is a unilateral act and since the 'uti legassit … ita jus esto' of the Twelve Tables it has always been recognised as a matter of public policy that effect should be given to the lawful directions of a testator.

Furthermore, Section 25(1) of the Constitution of South Africa 7 of 1996 reads as follows: No one may be deprived of property except in terms of law of general application, and no law may permit arbitrary deprivation of property.

It has been argued that this section gives constitutional protection to the common law principle of freedom of testation as it implies a right to dispose of an asset, the right to the use and exploitation of an asset (Du Toit 2001: 234). This may lead a person to take comfort in knowing that it is within one’s power to bequeath one’s property as one wish and that this right is protected by law. The ‘right’ to freedom of testation is however not unfettered and may be limited, which can have adverse effects on the wishes of the testator.

12.3 Limitations of the Freedom of Testation Chief Justice Innes in Robertson v Robertson’s Executors 1914 AD 503 at 507 stated: Now the golden rule for the interpretation of testaments is to ascertain the wishes of the testator from the language used. And when these wishes are ascertained, the court is bound to give effect to them, unless we are prevented by some rule or law from doing so.

With case law that has also provided protection to the principle of freedom of testation, legislative provisions can limit the freedom of testation for example:

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12.3.1 The Pension Funds Act 24 of 1956 The testator is not free to bequeath his pension benefits as provisions are imposed in the Act to deal with pension benefits in Section 37C. Pension benefits do not form part of the deceased member’s estate. The fund, through the trustees on the fund, determines or traces dependants of the member and pays the dependant or in proportions to all such dependants. A dependant will include a spouse or a dependant minor child. If the testator had a spouse and/or minor child and was to nominate a beneficiary for the benefits (that is not the spouse or minor child of the testator), the fund shall ‘pay the benefit or such portion thereof to such dependant or nominee in such proportions as the board may deem equitable’ (Section 37C(bA)). It is therefore in the board’s discretion to pay (and to what proportion) the pension benefits to a nominee that was explicitly listed to receive the benefits. If no dependant or nominee can be found, the benefits may be paid to the estate of the testator or to the Guardian’s fund or another benefit fund.

12.3.2 The Minerals Act 50 of 1991 The testator is not free to subdivide mineral rights. The Act imposes in Section 20(1) a stringent limitation on the registration of deeds in the division of any mineral right among two or more persons into undivided shares. In such a case, Section 21 makes provision that the executor of the estate should realise the right to a mineral or any undivided share therein and dispose of the net proceeds in accordance with such testamentary disposition.

12.3.3 The Immovable Property (Removal or Modifications of Restrictions) Act 94 of 1965 The testator’s freedom of testation can be interfered with by the courts in certain circumstances to modify a testator’s directions as to the disposal of immovable property and the testator’s power to prohibit the alienation of immovable property of long-term provisions as set out in Section 3.

12.3.4 The Maintenance of Surviving Spouses Act 27 of 1990 The testator cannot make inadequate provision for his/her spouse in the will. The testator’s spouse will have a claim against the deceased estate for reasonable maintenance, regardless of any specific bequests to the spouse (or the lack thereof) in the

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will. If the spouse is unable to provide for such needs from such spouse’s own means and earnings, the spouse can have a claim for reasonable maintenance needs until such spouse’s death or remarriage. This is regardless of the chosen marriage regime that the marriage was entered into, that is, in community of property, out of community of property, with or without the accrual system. The court will take into account the amount in the deceased estate available for distribution to heirs and legatees, the existing and expected means, earning capacity, financial needs and obligations of the survivor and the standard of living of the survivor during the marriage and the survivor’s age at the time of the death of the predeceasing spouse. In addition, ‘any other factor’ can also be taken into account by the court. Apart from legislation, in terms of case law, there is also a claim that a child can have against his/her parent’s deceased estate for the maintenance and educational needs of the child (even if the child has reached majority age). A deceased testator that therefore did not adequately provide for a child can still institute a claim for maintenance needs (Glazer v Glazer 1963 (4) SA 694 (A)). In general, the courts will also refuse to give effect to a testator’s directions in his will, which is illegal, against public policy or too vague or uncertain to enforce (Corbett 2001). It is this limitation, coupled with the Bill of Rights, that has been disputed by the constitutional court and has created additional limitations for the freedom of testation.

12.4 Constitutional Limitation of the Freedom of Testation Apart from the implied protection in the Constitution of South Africa 7 of 1996 to the freedom of testation, the Bill of Rights (contained in Chap. 2 of the Constitution) also plays an integral role in the carrying out of the vision and values enshrined in the Constitution. Section 8(1) of the Constitution makes the Bill of Rights applicable to all law, binding the legislature, executive, judiciary and all organs of the state. Section 8(2) further makes the Bill of Rights binding on all natural or juristic persons ‘to the extent that it is appliable, taking into account the nature of the right and the nature of any duty imposed by the right’. Section 8(3) empowers the courts to develop the rules of the common law to give effect to a right contained in the Bill of Rights and to develop the rules of the common law to limit such right. Section 39(2) also instructs the court to promote the spirit, purport and objects of the Bill of Rights when developing the common law. Du Toit (2001: 232) however emphasises that it must not be seen that the court is given carte blanche to rewrite the common law, but the task remains first to apply the existing common law rules. Only if the common law is silent on a particular issue, or if the application of an existing common law rule yield results incompatible with the principles and direction of the Bill of Rights, may a court develop (and in the latter instance change) the common law.

Section 36(1), known as the general limitation clause, provides for the limitations of the law of general application to the extent that the limitation is reasonable and

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justified in an open and democratic society based on human dignity, equality and freedom. The courts are empowered to decide if the constitutional right should prevail over the testator’s freedom of testation, and the common law provides the remedy to invalidate a bequest in a will that is contra bonos mores or against public policy (Du Toit 2001: 235). Du Toit (2001: 235) however states that these limitations do not imply a complete and utter disregard for freedom of testation: It simply obliges South African courts to fine tune its application of the boni mores criterion when limiting freedom of testamentary disposition and to do so in order to strike an appropriate and workable balance between freedom of testation and countervailing constitutional rights.

The rights that Section 9 of the Bill of Rights in the Constitution provides for has been the rights that have come up against the freedom of testation. This section provides as follows: (3) The state may not unfairly discriminate directly or indirectly against anyone on one or more grounds, including race, gender, sex, pregnancy, marital status, ethnic or social origin, colour, sexual orientation, age, disability, religion, conscience, belief, culture, language and birth. (4) No person may unfairly discriminate directly or indirectly against anyone on one or more grounds in terms of subsection (3).

Other rights that may also come up against the limitation of the freedom of testation is the right to human dignity (Section 10); right to privacy (Section 14); right to freedom of religion, belief and opinion (Section 15); right to freedom of expression (Section 16); right to freedom of association (Section 18); political rights (Section 19); right to freedom of movement and residence (Section 21); right to freedom of trade, occupation and profession (Section 22); and the right to language and culture (Sections 30 and 31) (Du Toit 2001: 236–239). The courts have subsequently played a major role in the limitations against the freedom of testation. However, some contentious bequests were not traditionally regarded as contra bonos mores, but recently, there have been new cases that have had a dramatic impact on the bequests of testators that have been scrutinised as either contra bonos mores or against a certain right enshrined in the Bill of Rights.

12.5 Case Law Limitations of the Freedom of Testation Courts lately had a surge of cases that challenge the freedom of testation in terms of the rights that are protected in the Constitution in the Bill of Rights.

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12.5.1 Minister of Education v Syfrets Trust Ltd. 2006 (4) SA 205 (C) The first case that challenged the principle of freedom of testation was in 2006 in the Cape Court in Minister of Education v Syfrets Trust Ltd 2006 (4) SA 205 (C). A bursary trust fund was established and described by the testator to go to ‘deserving students. With limited or no means’ that are of ‘European descent’, not of Jewish descent, and not female. The council of the university was not comfortable accepting this duty to award these bursaries that were in their view discriminatory. The Minister of Education eventually brought an application to delete the contested provisions of the will. The applicant saw the court as empowered to remove contested provisions on three grounds, namely: (i) In terms of Section 13 of the Trust Property Control Act 57 of 1988 where the court is permitted to delete or vary provisions in a trust instrument if the consequences of such trust instrument were not foreseen by the founder, hampers the achievement of the objects of the founder or prejudices the interest of the beneficiaries or are in conflict with the public interest. (ii) In terms of the common law that prohibits bequests that are contra bonos mores. (iii) By direct application of especially the anti-discriminatory provisions of the Bill of Rights. The court chose to base its arguments on the second ground in terms of the existing principles of the common law informed by the spirit, purport and objects of the Bill of Rights. The arguments in the case was the weighing of the freedom of testation against the freedom from discrimination based on race, gender, religion and ethnicity and the court acknowledged in paragraph 22 that: It is of course trite that the principle of freedom of testation has never been absolute and unfettered…

The court also recognised that Section 25 of the Bill does protect a person’s right to property, but that the removal of the contested conditions would not be regarded as arbitrary or deprivation of property of the testator or trustee. The removal of the provisions, therefore, constituted a limitation of the freedom of testation. The court came to a decision that the discrimination was unfair and contrary to public policy based on several considerations that included certain pieces of legislation and conventions against discrimination. One of the considerations was that the contested provisions specifically discriminated against previously disadvantaged groups, that is, Black, woman and Jews. This does not promote marginalised groups. The discrimination by the trust thus only serves to entrench and perpetuate previously existing patterns of advantage and privilege. (Paragraph 34(b))

Another question that was considered was whether public policy would be best served by excluding all Black people, women and Jews from applying for this bursary to further their education or whether public policy would be best served by

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opening the scholarship to all students and graduates of the University of Cape Town. This was a rhetorical question for the judge: In my view, the answer is self-evident: it can never be in the public interest of a society founded on the ‘achievement of equality’ to deny access to funding to continue their education to previously disadvantaged and marginalised groups of people on the basis of their race, gender or religion. (Paragraph 34(g))

The judge ordered that the offending provisions in the will must be deleted and concluded the judgment by stating that this does not mean that the principle of freedom of testation is being negated or ignored: It simply enforces a limitation on the testator’s freedom of testation that has existed since time immemorial. It also does not mean that all clauses in wills or trust deeds that differentiate between different groups of people are invalid; simply that the present conditions  – which discriminate unfairly on the grounds of race, gender and religion – are invalid.

12.5.2 Ex Parte BOE Trust Ltd. 2009 (6) SA 470 (WCC) In this case, it is important to notice that with a more subtle outset where the intention of the testator (or testatrix in this case) is clearly set out, the outcome can be different from the previous judgement. The testatrix also established a bursary in her will for the benefit of white South African students that obtained an MsC degree in organic chemistry at some universities and were planning to continue their studies with a doctorate from a university in Europe or in Britain. One of the requirements to qualify for this bursary was that the applicant has to return to South Africa for a specific amount of time. She also included an important final clause to indicate what should happen if the trustees are unable to give effect to this bequest. She instructed that in that case, the income of the trust will be bequeathed in equal parts to ten specified charities. She, therefore, may have foreseen that the original provision might be regarded as discriminatory, but instead of removing it, she provided for the consequences if it were seen as discriminatory. This is indeed how the trustees of the trust and the registrars of the universities saw the provision and indicated that they will only accept and administer the bursary bequest if it is available to all races. The case’s arguments initially were in the same line as in Syfrets. The applicant wanted the word ‘white’ to be removed from the trust deed because it may either be seen as against public policy, be in contravention of the equality and anti-discrimination provisions of the Constitution or in terms of Section 13 of the Trust Property Control Act 57 of 1988. The court again stated that although the freedom of testation is acknowledged in South Africa, it is not unrestricted. However, in considering the trust deed as contrary to public policy, the court could not be convinced that it was ‘clearly contrary to public policy’ based on the testatrix intention to decrease trends amongst white graduates of South African universities to emigrate upon completion of their education, thereby depriving the

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country of the benefit of their skills obtained at the expense of the South African tertiary-education system. The court recognised that discrimination designed to achieve a legitimate objective is not unfair. However, based on the failed attempt to delete the condition on the basis of Section 13 of the Trust Property Control Act 57 of 1988, the application was dismissed. The testatrix did contemplate the possibility that the bursary might become impossible to carry out and made provisions what should be done in such a case and was consequently implemented in this case. What is important to take from this judgement is that when the intention of the testator is clearly set out to advance the values and principles of South Africa, the provision will not be contrary to public policy and secondly to provide for an alternative arrangement if the first intention is hampered by the execution of the provision or as seen as against public policy or the Constitution. In further cases (In Re Heydenrych Testamentary Trust and others 2012 (4) SA 103 (WCC); Curators, Emma Smith Educational Fund v University of KZN 2010 (6) SA 518 (SCA)) discriminatory phrases were deleted that included phrases in the Heydenrych case such as ‘European boys of Protestant faith’, ‘white South African boys’, ‘members of the white race’ and ‘British descent’. In the other case, the fact that the bursary was only for females was not discriminatory, but the fact that it was reserved only for ‘European’ girls with ‘British South African’ or ‘Dutch South African’ parents were discriminatory and deleted from the trust deed. It is therefore eluded in this case that even though there might be discrimination of gender in this case if it is fair based on the view that women are members of a group who have suffered in the past from patterns of disadvantage. In all these cases, the courts were at pains to stress that the deletion of discriminatory provisions from a testamentary trust deeds do not mean the negation of the principle of freedom of testation, nor does it mean that there can be no differentiation between different groups (De Waal 2012, p. 3G12). But in all these cases, there must be a delicate balance between competing constitutional rights (Syfrets, para 39). The reason why public policy played in these cases specifically played such a major role may have been because these cases involved public bursaries that were established that made it public domain. There were no cases that involved private property that was bequeathed to private individuals that were held to be against public policy. However, that has changed in 2021 with two Constitutional Court cases that involved private wills.

12.5.3 King v De Jager [2021] ZACC 4 In short, a couple that had a joint will left their sons and daughters different fixed properties subject to the fideicommissum stipulated in the will, but the intention was clear that the fideicommissary beneficiaries were confined to male descendants in the first and second substitutions. The case was brought before the court as

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arguments arose about the discrimination of the provision and how the fideicommissary should devolve. The Constitutional Court did see it fit to question the provisions under a private will under the umbrella of public policy. A public policy challenge to out-and-out disinheritances cases in the private sphere is, therefore, novel. The question that arises is whether these types of provisions are contrary to public policy under our constitutional dispensation. This, in turn, begs the question, whether the common law should be developed to address discriminatory provisions in out-­ and-­out disinheritance testamentary provisions in private wills. (Paragraph 33)

The court acknowledged that private testamentary bequests are in the ‘truly personal realm’. However, some of these bequests discriminate against a testator’s unknown lineal descendants, with whom the testator never had personal relationships or interactions, solely based on immutable characteristics. In those instances, there is a shift along the continuum, which warrants a greater level of judicial intervention. (Paragraph 83)

The ‘immutable characteristic’ in this case is womanhood as the testators excluded future lineal female descendants unknown to them simply because they are women (Para 84). The court saw this as presumptively unfair discrimination that today’s public policy simply cannot admit of the constitutional protection of discrimination. The majority decision, laid down by Jafta J, reiterated that: Freedom of testation should not be confused with the terms of a particular will, nor should it be taken as a licence to unfairly discriminate. (Paragraph 93)

The court warns that the right of ownership that is part of the freedom of testation entitles the owner of the property to do with it as they please, as long as they choose to do what is permissible under the law (Para 125). The majority judgement applied Section 9(4) of the Constitution directly against discrimination of gender in this case and that this evidently restricts the scope of the right of freedom of testation (paragraph 133). He acknowledges that the denial of female descendants a benefit in the will does not on its own lead to an inconsistency with the Constitution, because it may be legitimate differentiation when account is taken of the testator’s freedom of testation. However, the terms of a will must not violate the prohibition against unfair discrimination contemplated in Section 9(4) of the Constitution (paragraph 137). Judge of Appeal (AJ) Victor added the value of the principle of transformative constitutionalism and states that: Unless there is a transformative constitutional approach taken by courts when equality rights are affected, the historical and insidious unequal distribution of wealth in South Africa will continue along various fault lines such as in this case, gender. (Paragraph 168)

She pointed to Section 39(2) of the Constitution which makes it clear that ‘[w]hen interpreting any legislation … every court, tribunal or forum must promote the spirit, purport and objects of the Bill of Rights’.

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The Constitution now requires courts to continuously ensure South Africa’s transformation into a human rights state. (Paragraph 195)

She continues to go so far as to say that: … common law principles such as freedom of testation should be recalibrated towards more egalitarian and ubuntu based ends. (Paragraph 202)

Her view is that the importance that the law has accorded to freedom of testation in the past is precisely what sustains the unearned privileges in society such as male privilege. Maintaining this system of privilege continuously traps vulnerable groups in a cycle of poverty and entrenches systemic disadvantage (Paragraph 208). Ubuntu is a part of the deep cultural heritage of the majority of the population. It has a communitarian philosophy that is a unifying motif of the Bill of Rights (Port Elizabeth Municipality v Various Occupiers [2004] ZACC 7). Victor AJ explains that the heart of ubuntu is the idea that a society based on human dignity must take care of its most vulnerable members and leave no one behind. It emphasises the adage that none of us are free until all of us are free. (Paragraph 237)

It seems that Victor AJ is in favour of a notion that traditional ‘private property’ must slowly morph into a constitutionally recalibrated concept of ‘socially engaged property’ (Paragraph 242). She states: In the context of freedom of testation, ubuntu means that the Constitution places a high premium on establishing a compassionate society which does not discard the humanity of any of its members. As such, the right to dispose of one’s property upon one’s death must be balanced against the discriminatory effect it may have by precluding members of society from an adequate share in the wealth and resources of the nation. (Paragraph 243)

She stresses that the glaring wealth inequality based on the fault lines of race, gender and class that has endured after apartheid should be taken into account and balanced with the freedom of testation. She concludes that this should ultimately move towards systemic justice that seeks to abolish or root out common law rules, which simultaneously sustain women’s subordination and prop up male privilege. (Paragraph 244). Although this does sound like the values that should be portrayed by the legal system when it affects a client’s private property, it can certainly create fears for the future of the freedom of testation and that you are not free to bequeath your property to whomever you wish.

12.6 Adding Fire to the Fear-Customary Law Rule of Male Primogeniture In South Africa’s mixed pluralistic legal system where the Roman-Dutch common law is applicable alongside, amongst others, customary law principles with African traditions, there has been some tension when the customary succession law has been replaced by the common law of succession.

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The customary rule of male primogeniture came under fire in Bhe v Magistrate, Khayalitsha 2005 (1) SA 580 (CC) where it was declared to be unconstitutional and invalid and replaced by the common law principles of intestate succession as enshrined in the Intestate Succession Act 81 of 1987. The rule of primogeniture is described in the case as: The general rule is that only a male who is related to the deceased qualifies as intestate heir. Women do not participate in the intestate succession of deceased estates. (Paragraph 77)

Langa DCJ (Deputy Chief Justice) in the judgement described the aim of this as ‘designed to preserve the cohesion and stability of the extended family unit and ultimately the entire community’ (Para 75): Everyone, man, woman and child had a role each role, directly or indirectly, was designed to contribute to the communal good and welfare. (Paragraph 75)

Property was collectively owned, and the family head was only the administrator to administer it for the benefit of the family unit as a whole. The firstborn son would then step into the shoes of the family head and acquired all the rights and became subject to all the obligations of the family head and the duty to maintain and support all the members of the family ‘who were assured of his protection and enjoyed the benefit of the heir’s maintenance and support’ (Para 76). On the other hand, it was seen that: The exclusion of women from heirship and consequently from being able to inherit property was in keeping with a system dominated by a deeply embedded patriarchy which reserved for women a position of subservience and subordination and in which they were regarded as perpetual minors under the tutelage of the fathers, husbands, or the head of the extended family. (Paragraph 78)

It was argued that the customary law of succession have not kept up with the changing social conditions and values as this traditional setting has changed over the years (paragraph 80). Hence, it was ruled that: The primogeniture rule as applied to the customary law of succession cannot be reconciled with the current notions of equality and human dignity as contained in the Bill of Rights. As the centrepiece of the customary law system of succession, the rule violates the equality rights of women and is an affront to their dignity. (Paragraph 95)

Consequently, if a traditional African man would die intestate, his estate would not devolve in terms of the rules of male primogeniture but in terms of the intestate rules as set out in the Intestate Succession Act 81 of 1987. The question raised after this case was however whether the deceased male could have arranged a type of male primogeniture in his will. Whether therefore, according to the freedom of testation, one would be able to bequeath all property to one son, thereby disinheriting all other family members or descendants and thereby restoring the consequences of the rule of male primogeniture? Christa Rautenbach argues this question in her article (Rautenbach 2014); however, it is important to note that this was before the King case of 2021 and her arguments on the question do not include the conclusions that were made in the King case of provisions in private wills. Her arguments could only be drawn from

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the cases where public charitable trusts were concerned and could only speculate what the outcome will be for private wills. She speculated in this regard that public institutions will be judged more strictly than those in the private sphere and that, based on the cases before her, courts are reluctant to a direct application of the Constitution when matters of freedom of testation are evaluated (Rautenbach 2014, p. 155). One of her arguments is that: A testator may surely stipulate that his or her estate must devolve upon the eldest son in its entirety, thereby effectively disinheriting the rest of his family members. Legal scholars seem to agree that out-and-out disherison in the common law should not be contestable, for a number of reasons, most notably because no beneficiary enjoys a fundamental right to inherit and because of the importance of the principle of freedom of testation. (Rautenbach 2014, p. 156)

In the King case, the majority ruling acknowledged that: It bears emphasis that in our law, no one has a right to inherit the testator’s property. This includes her children. And the testator is free to dispose of her estate in a will in whatever way she wishes, provided that she does not breach the law or public policy. When these principles are kept in mind, a bequeath to some, and not all, of the testator’s children does not without more constitute unfair discrimination and cannot be rendered ineffective unless it is established that the will creates unfair discrimination. (Paragraph 144)

In the King case, the majority decision did not shy away from applying the Constitution and particularly mentions that the previous cases that involved public trusts: … referred to the Constitution and its values, put on their common law lens in search for a remedy for a breach of the Constitution. This has resulted in drawing this difference that lacks substance. A public trust deed or will that violates the values of the Constitution or one of its provisions has the same impact as a private trust deed or will in breach of the same provisions. Both of them are inconsistent with the Constitution and the supremacy of the Constitution renders them both equally invalid.

In conclusion, with the King judgement that we have now that directly brings in unfair discrimination private wills that will render them unenforceable, it would surely apply to a provision in a private will to bring about consequences of male primogeniture. As the rule of male primogeniture was already found unconstitutional in Bhe v Khayalitsha as well as the King case that ruled the unfair discrimination against female descendants as unconstitutional and against public policy not to advance the previous male privilege (King, paragraph 208), it will be safe to assume that it will be the same result for a will that bequeaths the entire estate to one son and excluded all others (especially daughters).

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12.7 Solutions to the Wording of the Will to Prevent Invalidity What is clear from the discussion is that there can be legitimate fears that your last will and testament might not be given effect to after your death. This is based on the legal system of South Africa, which is starting to interfere with even private estates to bring it in line with the bigger value system that is embodied in the Constitution of South Africa. This limits the testator’s freedom of testation, and the will, therefore, has to be drafted very carefully to ensure that effect will be given to the wishes of the testator. This section will provide some guidelines when drafting a will and some warnings on what to look out for in existing wills that may need to be amended to make sure that the provisions will not be struck down as unenforceable. Firstly, it must be understood what the practical effect can be if a will is found to be unenforceable. If the will in its entirety is struck down, it will mean that the estate will devolve according to the law of intestate succession (Kent v Estate Bernhardt 1911 CPD 88). There is a structure according to which your spouse(s) and descendants will be benefitted. If there are no living relatives to the deceased, as last resort it will devolve upon the State. If however the court only finds a certain provision or condition in the will invalid, they can order that only that provision must fall away if they are certain that the rest of the will can still be enforceable or the court will interpret the condition restrictively to limit the burden that it imposes on the beneficiaries (Corbett 2001: 123). It must be understood that the freedom of testation does still exist, that it has not been abolished and that you are therefore still free to benefit someone in a bigger proportion than another or disinherit someone entirely. All the legatees in a will do not have to be benefitted in equal proportions (King para 154). However, such discrimination must not be unfair. And this sends out a clear warning to be aware of provisions that perpetuate previous patterns of disadvantage (Syfrets paragraph 34(b)). The vulnerable groups such as black persons and women have been highlighted in case law on this issue. It seems that, although not all groups have to receive the same benefit and they do not have the right to inherit, the law still wants them to be given the same opportunities as the rest of the group to redress some of the injustices of the past. Daughters must then be given the same opportunity to inherit and build a better future for themselves, than the sons. Women should be given the same opportunities to apply for a bursary, as men. Black persons should be given the same opportunities to benefit from a charitable institution, as White persons. Another discriminatory field may be the LGTBI+ community that has received discriminatory treatment in society as well as in being excluded in certain privileges governed by law, such as being able to have a legal marriage (now addressed by the Civil Union Act 17 of 2006 that makes space for such legal marriages). Excluding any person from this group from a will, just because they are a part of this group, may very well be seen as unfair discrimination or against public policy.

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The question is still unclear whether advancing one religion above all others will be seen as unfair discrimination as it is a discriminatory field listed in the Constitution, but it is more difficult to argue that all religions must be given the same opportunity to benefit from a person’s private will. However, one must be careful not to discriminate against a group, not for their beliefs, but for their descent. Discriminating against the Jewish community, for example, may be seen as unfair discrimination as a group that was also previously disadvantaged, not for their beliefs, but for their descent (Syfrets para 34(b)). It is also important to remember that even if there is no discrimination against one of the listed forms in Section 9 of the Constitution, it can still be struck down if it is against public policy. To include a condition that a person will not be benefitted if they are ‘childless’ (Du Toit v Estate Conradie 1931 CPD 128) or must achieve certain achievements first may be regarded as being against public policy. Advancing a specific previously disadvantaged group, which excludes previous privileged groups, may still be seen as valid discrimination. Section 9(2) of the Constitution provides protection in measures that can be taken to protect or advance persons, or categories of persons that has previously been disadvantaged by unfair discrimination. It may, however, be challenged if, for example, a bursary designated for Black female students should not also include white female students, but this is where the wording of the provision will be important to carefully spell out the intention of the testator and the reason why the bursary aims to advance this specific previously disadvantaged group. The wording of the intention of the testator is therefore going to be vital in future and an important aspect to discuss with the testator. If the testator wants to benefit a certain person or group that may on the face of it, seem to be discriminatory, it can be made clear what the intention of this bequest is and why it should not be seen as discriminatory. If there are real reasons for a bequest that is not maliciously trying to still advance a previous pattern of disadvantage, it may still be given effect to. This is however where the case is made for including substitutions in the event that the provision is still seen as unfair discrimination or against public policy. In Ex parte BOE Trust, the testatrix successfully managed to still get her wishes executed even if her first choice was not given effect to. This may give the testator peace of mind knowing that in the event that a certain provision is not given effect to, he/she is still in charge of what provision should apply then.

12.8 Conclusion The freedom of testation does not mean total freedom but is still a fundamental principle in the law of succession of South Africa. One has to be very careful in the wording used in a will, especially when it may on the face of it seem like a discriminatory provision. The question continuously has to be asked if this particular bequest is for the greater good of South Africa. In a country with a rich history of injustices of the past and a vibrant multicultural group of citizens, South Africa is trying,

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through the force of the judicial system, to bring South Africans together as one. This is all summarised in the word ‘Ubuntu’. If all South Africans can understand and invest in the notion to lift each other up, especially those who have been left behind, the law of succession will reflect that in the wealth left behind the aim is to grow South Africa as one. If the testator can have this as its aim and intention, the wording of the last will and testament will reflect that, and this will alleviate any fears about your freedom of testation being limited.

References Corbett HK (ed) (2001) The Law of Succesion in South Africa (2nd edition). Juta Law, Lansdowne De Waal M (2012) The law of succession and the Bill of Rights. In: Bill of Rights Compendium, Vol. SI 30. LexisNexis, pp 3G1–3G15 Du Toit F (2001) The constitutionally bound dead hand? The impact of constitutional rights and principles of freedom of testation in South African law. Stellenbosch Law Review 12(2): 222–257 Rautenbach C (2014) A few comments on the (possible) revival of the customary law rule of male primogeniture: Can the common-law principle of freedom of testation come to its rescue? Acta Juridica, 2014(1): 132–159

Chapter 13

Allaying Estate Planning Fears Through Trusts Rika Van Zyl

13.1 Introduction With the stress that a client can experience structuring an estate plan effectively and the fears of the limitation on the freedom of testation in the foreground, a solution to minimise these fears of ruling from the dead would be necessary. Financial advisors should be equipped to provide different solutions to clients to circumvent the fears of the clients that their wishes will not be fulfilled at their death or not being able to lend a hand with the administration of the property that is bequeathed after their demise. Other stressors for the client can be when there are still minors involved or persons that do not manage their money appropriately. In these instances, even if a will is adequately drafted to avoid a limitation of the freedom of testation, the testator can still be fearful of what the eventual effect of the bequests may be. An inter vivos trust is a trust that is set up during the trust founder’s life. This enables a person to transfer property to a trust and to appoint trustees to effectively administer the property for the benefit of the named beneficiaries of the trust. This may be an alternative solution for clients who want to help manage the funds that they transferred to the trust and that will continue to ‘live’ on after the founder’s death. An inter vivos trust is therefore a way for the founder to see how his property is managed and administered while he is still alive and could avoid some of their fears of effective management after the founder’s passing. The inter vivos trust can also have many advantages but is however not always a simple structure and still have to be set up and managed correctly to avoid not being regarded as a trust at all that can have adverse consequences.

R. Van Zyl (*) School of Financial Planning Law, University of the Free State, Bloemfontein, South Africa e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 P. Sarpong, L. Alsemgeest (eds.), Perspectives in Financial Therapy, https://doi.org/10.1007/978-3-031-33362-0_13

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Testamentary trusts, created in terms of a will, can also be used effectively that may give the testator some peace of mind that his/her dependents are taken care of with the administration left with capable trustees to manage the property in the trust.

13.2 Trust as Legal Institution in South Africa South African Law of Trust is governed by the Trust Property Control Act 57 of 1988 (hereafter ‘the Act’). Section 1 of the Act defines a trust as follows: trust means the arrangement through which the ownership in property of one person is by virtue of a trust instrument made over or bequeathed – (a) To another person, the trustee, in whole or in part, to be administered or disposed of according to the provisions of the trust instrument for the benefit of the person or class of persons designated in the trust instrument or for the achievement of the object stated in the trust instrument; or (b) To the beneficiaries designated in the trust instrument, which property is placed under the control of another person, the trustee, to be administered or disposed of according to the provisions of the trust instrument for the benefit of the person or class of persons designated in the trust instrument or for the achievement of the object stated in the trust instrument, But does not include the case where the property of another is to be administered by any person as executor, tutor or curator in terms of the provisions of the Administration of Estates Act, 1965 (Act 66 of 1965).

The ‘trust instrument’ is the trust deed that has been described in Land and Agricultural Bank of South Africa v Parker 2005 (2) SA 77 (SCA) as the ‘constitutive charter’ of the trust depicting the importance of the founding document of the trust as the constitution of the given trust. In the strict sense, a trust exists when the founder has handed over the control of property to another, the trustee, who is going to administer the property (or proceeds of the property) for the benefit of some beneficiary or impersonal object (such as a charitable trust) (Cameron et al. 2018: 5). The distinctive feature is that the trustees do not act in their private capacity but hold an office, which created a fiduciary obligation from the trustees towards the beneficiaries (Cameron et al. 2018: 6). The trustee must undertake trust administration in good faith with the requisite care, diligence and skill to serve the best interest of the trust beneficiaries (Du Toit et al. 2018: 4). The statutory definition of a trust effectively sets out two types of trusts. The trust described in paragraph (a) of the definition is a trust where the trustee is vested with ownership of the trust property, a so-called ‘ownership trust’ and paragraph (b) is a trust where the beneficiaries are vested with the ownership of the trust property, and the trustee merely administers this property for the benefit of the trust beneficiaries or toward the achievement of an impersonal trust object (Du Toit et al. 2018: 7). Figure 13.1 shows various descriptions used to identify trusts in South Africa. In the case where the assets are gifted or bequeathed to the beneficiary, the arrangement corresponds to the appointment of an administrator in Roman-Dutch law or a ‘bewindhebber’ in modern Dutch law and is conveniently called a ‘bewind’ (Cameron et al. 2018: 8). Where the assets are gifted or bequeathed to the trustees is the most common form of a trust in South Africa and called the ‘ownership trust’.

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Fig. 13.1  Various descriptions used to identify trusts

These descriptions only refer to where the ownership of the property lies, that is, with the trustees or the beneficiaries. There are also other descriptions for trusts based on the mode of creation, the aim of the trust or the rights to the income or capital that is given to the trustees or the beneficiaries. The trust can be described as either a ‘testamentary’ or ‘inter vivos’ trust based on the mode that was used to set up the trust. A testamentary trust is set up by way of a will and will only become effective upon the death of the testator, and an inter vivos (in life) trust is created by way of a contract and is already in full operation during the life of the founder. With reference to the rights that are given to either the trustees or beneficiaries, there is another description used for trusts, namely, a ‘discretionary’ trust where the trustees have the full discretion on when and how much they want to benefit the beneficiaries at any given time, or a ‘vesting’ trust where the rights to the benefits already vest with the beneficiaries. The trustees here do not have the discretion that they would have in a discretionary trust, and the trust deed may stipulate the proportion of or time when the benefits must be handed over to the beneficiaries. The trust can also be described based on the aim of the trust, for example, a ‘family’ trust, ‘business’ trust or ‘charitable’ trust (Du Toit et al. 2018: 8–10). All these descriptions therefore point to a certain aspect of the said trust. The terms are however intertwined. You cannot only have a testamentary trust. It has to have

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regulations with regard to the ownership and rights to the trustees or beneficiaries and has to have a certain aim. To recommend a trust as a solution for a client who wants to see to the effective management of the property while they are still alive, a inter vivos trust is therefore recommended opposed to a testamentary trust that will only come into existence at the death of the testator. The discussion will also be centred on the common ownership trust where the property is made over to the trustees, not the beneficiaries. And as the aim of this trust will be in terms of a personal private estate, it will focus on a family trust as opposed to a business or charitable trust. The inter vivos ownership family trust can therefore be discussed in both a ‘discretionary’ or ‘vesting’ type with reference to the rights given to the trustees or beneficiaries.

13.3 The Inter Vivos Ownership Family Trust Features For a valid trust to be created, the founder must intend to create a trust and the intention must be expressed in a manner appropriate to create an obligation (i.e. by way of a contract). The property subject to the trust must be defined with reasonable certainty, and the trust object must be defined with reasonable certainty, and the trust object must be lawful (Cameron et al. 2018: 136).

13.3.1 The Founder A unilateral declaration of trust is not possible in South African trust law (Pace and Van der Westhuizen 2015: B6). The founder of the trust creates the trust by contracting with the trustees and usually contributes the initial trust property through a donation made to the trust. Once the trust has been created, the founder only has the powers specifically reserved in the trust deed. As the inter vivos trust is seen as a contract between the founder and the trustees, the trust deed can be amended if both these parties agree to the amendment. The founder must however divest himself or herself from the control of the trust property donated to the trust, but nothing prevents the founder to be appointed as a trustee of the trust, as long as he/she is not the sole trustee and sole beneficiary of the trust (Du Toit et al. 2018: 10; Cameron et al. 2018: 7).

13.3.2 The Trustees A trust deed can stipulate the number of trustees, how they are appointed and replaced, what time they will serve as trustees and what they are paid and the degree of discretion entrusted to them (Cameron et  al. 2018: 24). The trustees hold and

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administer and, in this type of trust, also own the trust property received by the founder for the benefit of the trust beneficiaries. The trustee who administers the trust property separately from his private estate and has a functional separation of the enjoyment of the trust property does also not preclude a trustee from being one of the beneficiaries of the trust that he/she administers, as long as he/she is not the only beneficiary (Du Toit et al. 2018: 2). The founder can put the trust property outside his or her competence to dispose yet retain an effective voice in its administration and dispersal. (Cameron et al. 2018: 24)

The trustee gets nominated in the trust deed but authorized to act as a trustee in terms of Section 6 of the Act.

13.3.3 The Beneficiaries The trust beneficiaries can be divided into income and capital beneficiaries but can also be classified as beneficiaries in the trust deed without differentiating between income or capital. The income beneficiaries will receive the income or proceeds that the trust generates, and the capital beneficiaries will receive the trust capital upon the trust termination (Du Toit et al. 2018: 11). A beneficiary can be any person, born or unborn, natural, juristic or another trust entity itself. The beneficiary of the trust may be designated by name or description or designated as a class such as ‘my children’ (Cameron et al. 2018: 572). If a person is in the position to divest his control and ownership of certain property during his lifetime, he can create an inter vivos trust and contractually agree with the trustees that he/she nominated to take over the ownership of the property. The founder will still be in a position to also act as trustee to make sure the property is administered to his wishes, set out in the trust deed. He can also still benefit from the property as a beneficiary along with the other beneficiaries that he nominated in the trust deed. He will be able to identify the specific beneficiaries or mention a class of beneficiaries but must also include possible substitutions or further generations that should benefit from the trust as the inter vivos trust does not come to an end on the founder’s death and may exist in perpetuity.

13.3.4 Discretionary or Vesting Trust Another important distinction that classifies a type of trust is the question to whom the rights to the benefits can be given. The trust instrument can set out to what extent the beneficiaries must benefit from the trust, and the beneficiaries are hereby given a vested personal right against the trustees to claim the trust benefits allocated to them (Du Toit et al. 2018: 9). Where the trust instrument instructs the trustees to decide whether, and if so to what extent, to benefit the beneficiaries from the trust,

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the trust is known as a discretionary trust. The trustees have the discretionary power to appoint beneficiaries (within a certain class) and decide on the extent of the benefit bestowed on any beneficiary. If the class of beneficiaries is described by the testator in broad terms, the trustees have both a duty and a discretion to decide which particular individuals fall within those terms. (Cameron et al. 2018: 176)

The beneficiary in this type of trust will only be vested with a personal right to claim such benefit once the trustees have exercised the particular discretion in that beneficiary’s favour (Du Toit et al. 2018: 9). Here, some refer to the right that the beneficiary has towards the benefits of the trust as ‘contingent rights’ (Cameron et  al. 2018: 576) or not as a right at all but as a mere hope or an expectation to benefit (Du Toit et al. 2018: 166). This indicates that the right to the benefits is contingent on the trustees’ exercise of their discretion. Before the trustees exercise their discretion, the beneficiaries have no entitlement to any benefit of the trust. In terms of the trust law, the beneficiaries however still have the right against the trustees to the proper administration of the trust (Du Toit et al. 2018: 167). The reason why beneficiaries will usually not be given any rights is that it would make the trust easier to amend or for the founder and trustees to change their minds about decisions regarding the trust property. It is important therefore to understand the legal nature of the inter vivos trust along with the type of rights that are given to the beneficiaries. This could have important consequences when administering the trust.

13.3.5 The Legal Nature of the Inter Vivos Trust When the trust idea was introduced in South African law, courts tried to find a similar institution in the law to use the principles applicable of a trust but ease the application in South African law. Based on the similar manner in which the relationship exists between the founder, trustee and beneficiary, the courts used the Roman-­Dutch common law contractual stipulatio alteri (Crookes v Watson 1956 (1) SA 277 (A); Potgieter v Potgieter 2012 (1) SA 637 (SCA)). The stipulatio alteri can be translated as a ‘contract in favour of a third party’, which means a contract in favour of a third party a contract is created between the stipulans and the promittens in favour of a third party. It is therefore seen as similar when a founder contracts with a trustee in favour of a beneficiary. The stipulatio alteri would then be used to explain the manner of creation, the variation of the trust deed, the termination of the trust and the acceptance of benefits by beneficiaries under an inter vivos trust (Du Toit et al. 2018: 29). Du Toit et al. (2018: 29) however warns that: An important distinction must thus be maintained between the creation, variation and termination of an inter vivos trust (and matters related thereto) on the one hand, and the trust institution itself, on the other.

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In matters relating to the office of trustee, the fiduciary duty owed by the trustee to the beneficiaries is not contractual issues that can be explained by the rules of the stipulatio alteri. An important rule of the stipulatio alteri is explained in Potgieter v Potgieter: … a trust deed executed by a founder and trustees of a trust for the benefit of others is akin to a contract for the benefit of a third party, also known as a stipulatio alteri. In consequence, the founder and trustee can vary or even cancel the agreement between them before the third party has accepted the benefits conferred on him or her by the trust deed. But once the beneficiary has accepted those benefits, the trust deed can only be varied with his or her consent. The reason is that, as in the case of a stipulatio alteri, it is only upon acceptance that the beneficiaries acquire rights under the trust… (Potgieter v Potgieter, 2012, para 18)

This could have some important consequences that a founder must be aware of in the wording of a trust deed that he created.

13.4 Cautions for Creating an Inter Vivos Ownership Trust 13.4.1 Issues with the Amendment of a Trust: Before Death of the Founder As was already mentioned, a founder would contract with the trustees on the content of the trust deed. If any of the parties would want to alter the provisions of the trust deed, the common law allows the trust deed to be altered if both parties are in agreement with the changes. The intention could also have been clear in the trust deed that the trustees are given wide powers to decide if, and to what extent, they want to benefit the class of beneficiaries. The intention with this would be that the beneficiaries should not be entitled to any benefits before the trustees decide to benefit them as this could hamper the decisions that the founder and trustees can make regarding the property that could influence, for example, the profit margin that the property would yield. The agreement of the beneficiaries would then not be needed to make such decisions. It could also have tax consequences if the beneficiaries have vested rights to the income or capital of the property in that it would now be an asset in their estate. To circumvent the authority that the beneficiaries could have that may interfere with the founder and trustees’ administration, the trust would be created as an ownership discretionary trust, that is, where the property is made over to the trustees with absolute discretion to benefit any beneficiary. However, with the stipulatio alteri applied to the inter vivos trust, the important implication is that when the trustees have exercised their discretion to award a benefit to a beneficiary, that beneficiary now, according to the interpretation set out by the Crookes v Watson case, becomes a party to the contract. By implication, any amendment that the founder or trustees now want to make must be agreed by all parties, which would now also include the beneficiary who has accepted a benefit in the trust (Du Toit et al. 2018: 166). This could cause frustration for the founder or

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trustees if the beneficiaries are not easily accessible to agree to the amendments with their signatures or are not in agreement with the proposed changes to the trust deed. In Potgieter v Potgieter, a father created a discretionary trust and named his two children as the only two beneficiaries to the trust. When the father later remarried, he added his new wife and two stepchildren as beneficiaries to the trust. His children however approached the court to argue that their consent was needed to make these amendments to the trust. As was evident from the trust deed, the beneficiaries have already ‘accepted’ benefits from the trust and was therefore now considered as parties to the trust deed, which implied that their consent was needed for any amendments. The amendments made was then scrapped by the court and did not take effect. Although there has been much criticism against this interpretation of the stipulatio alteri as applied to the inter vivos trust (Van Zyl 2019; Du Toit et al. 2018: 78), case law have not deviated from this interpretation and was again confirmed in Griessel v De Kock 2019 (5) SA 396 (SCA). It is therefore important to draft the trust deed in a manner that reflects the true intention of the founder, but care should also be taken to award beneficiaries with benefits that would make them a party to the contract. If they are considered as parties to the contract, they have to agree to any amendments made to the trust.

13.4.2 Issues with the Amendment of the Trust: After the Death of the Founder With the flexibility of the use of a trust and the nature of the trust that can exist in perpetuity, it is important for the founder to understand that amendments to the trust deed may be needed in future, even after his/her death. Although the founder may feel that he/she should be strict in the manner that he/she  dictate how the trust should operate and who the future trustees and beneficiaries may be, it may frustrate the perpetual nature of the trust in the long run. In the first instance, it is therefore critical that an amendment clause is included in the trust deed. As was already discussed, an inter vivos trust, which is essentially a contract, can be amended by the founder and the trustees. This is the case even if the trust deed does not provide for amendment. This is because of the common law that can be applied to all contracts that determine that any contract can be amended by the contracting parties (Du Toit et al. 2018: 75). When the founder however falls away, the contract cannot be amended without an amendment clause as the trustees are not allowed by common law to amend a contract unilaterally. This could leave the trust in a vulnerable situation that may even be terminated due to some provisions that may be impossible to carry out. Even if the beneficiaries have accepted benefits to make them parties to the contract, they do not take the place of the original contractual party, and the amendments cannot therefore only be made between the trustees and the beneficiaries who have accepted benefits.

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The only resort that the trustees will have to amend a trust in this case is to approach a court to amend the trust in terms of Section 13 of the Act. Section 13 of the Act expands the High Court’s common law power to vary the terms of an inter vivos trust (Du Toit et al. 2018: 79). The section provides: If a trust instrument contains any provision which brings about consequences which in the opinion of the court the founder of a trust did not contemplate or foresee and which – (a) hampers the achievement of the objects of the founder; or (b) prejudices the interests of beneficiaries; or (c) is in conflict with the public interest, The court may, on application of the trustee or any person who in the opinion of the court has a sufficient interest in the trust property, delete or vary any such provision or make in respect thereof any order which such court deems just, including an order whereby particular trust property is substituted for particular other property, or an order terminating the trust.

There is no guarantee that the court will agree to the amendments that are proposed for the trust, and if the amendments do not satisfy the criteria stipulated in (a) to (c), the application will fail. It will also have cost implications to bring the application and may take time to get the application through. It is, therefore, best to circumvent this process by including an amendment clause in the trust deed to authorise amendments for the trustees. However, the clause cannot exclude beneficiaries who have vested rights to benefits (or therefore have accepted benefits) as this will infringe on the inherit right the beneficiaries received (This goes against the Master’s Directive 2 of 2017 that allows the amendment of only the trustees without the consent of beneficiaries with vested rights if the amendment clause so provides, but there are serious hesitations if this will be seen as valid in court and would therefore advise against infringing on a beneficiary’s right in this way (Van Zyl 2019: 747).

13.4.3 The Issue of an ‘Alter Ego’ Trust and a ‘Sham’ Trust In Land and Agricultural Bank of South Africa v Parker and Others 2005 (2) SA 77 (SCA), the Supreme Court of Appeal confirmed that the core idea of the South African trust lies in the functional separation between trustees’ control over the trust property on the one hand, and the trust beneficiaries’ enjoyment of the benefits yielded by that control on the other hand (paragraph 19). This gave light to what is referred to as an ‘alter ego trust’. Du Toit (2015, p. 658) explains: It portrays accurately the scenario in which a trustee controls the trust affairs with self-­ interest and with an utter disregard for the existence of the trust as a separate estate in which the trust beneficiaries are beneficially interested: the trust is nothing but the trustee’s … alter ego.

This trust is validly created but is open to abuse by the trustees and also the beneficiaries because the trustees can ignore the trust deed’s prescripts and commit breaches of trust because they know that the beneficiaries will not hold them

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accountable or liable as they themselves are also the beneficiaries (Du Toit et al. 2018: 54). In the scenario where the founder still wants control of the property during his life as trustee but wants to transfer the ownership of the property already to a trust while still reaping the benefits of the property as beneficiary of the trust, this can create the possibility of being seen as an ‘alter ego’ trust. The consequence of being seen as an alter ego trust is that the court can extend a remedy that is appropriate on the facts of the particular case to mitigate, or to provide redress for the abuse of the trust form (Du Toit et al. 2018: 140). In one instance, in the case of Badenhorst v Badenhorst 2006 (2) SA 255 (SCA) and also similarly in Jordaan v Jordaan 2001 (3) SA 288 (C), the consequences of the trust seen as an alter ego trust was that the trust assets were included in the personal estate of the founder (also a trustee and a beneficiary of the trust) and not as the trust’s account as a separate entity. It was seen that founder as trustee seldom consulted his co-trustee; he was in full control of the trust; he paid little regard to the difference between trust assets and his own assets, and if it was not for the trust, it would have been that all the assets would have vested in him. He was in ‘full control of the trust’ (paragraph 11). This then ultimately had taxation disadvantages for the founder as the value of the trust assets were considered when making a redistribution order in terms of a divorce order. A sham is something that is not what it appears to be and is meant to trick or deceive people (De Jong et al. 2017: 200). In the case of a sham trust, no valid trust has ever been created and is therefore an invalid trust. The consequence of this would be that the assets would still vest in the personal estate of the ‘founder’ (Cameron et al. 2018: 311) and none of the ‘beneficiaries’ will acquire any rights with regard to these assets (De Jong et al. 2017: 201). This is typically because the necessary intention to create a trust was absent (Cameron et al. 2018: 311). This result has been confirmed in Van Zyl v Kaye 2014 (4) SA 452 (WCC) and in the Supreme Court of Appeal in WT v KT 2015 (3) SA 574 (SCA) and REM v VM 2017 (3) SA 371 (SCA). In the Van Zyl v Kaye case, the court held that the test to determine if a trust is a sham is whether the requirements for the establishment of a valid trust were met or whether the appearance of having met them was, in reality, a dissimulation. The challenge is consequently to establish the ‘real intention’ of the founder, which differs from the ‘simulated intention’ of the founder (De Jong et al. 2017: 200). The essential question is therefore whether the true intention of the founder was to create a trust or to create something other than a trust, (such as a modus, a fideicommissum, an agency or a partnership). (De Jong et al. 2017: 200)

Some cases have erroneously used the concepts of a ‘sham trust’ and an ‘alter ego trust’ interchangeably or synonymously (Du Toit et al. 2018: 147). However, the distinction must be drawn that in the case of a ‘sham’ trust no valid trust has ever come into exitance and the assets will still vest in the personal estate of the ‘founder’. However, an ‘alter ego’ trust has been validly created but is abused with the remedy to go behind the trust form and the ordinary consequences of its existence can be

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disregarded (Cameron et al. 2018: 311). In Van Zyl v Kaye paragraph 22, this remedy to go ‘behind the trust form’ has been described as a remedy that lends itself to a flexible approach to fairly and justly address the consequences of an unconscionable abuse of the trust form. This may include adding the value of the assets to the personal estate of the founder or making the trust assets available for the satisfaction of a debt owed to a claimant, but other possibilities might also be considered under appropriate circumstances (Cameron et al. 2018: 313). This, therefore, is another warning for setting up a ‘trust’ and transferring assets from your personal estate with the intention to still have full control and still fully benefit from the ‘trust’. Although the transferring of assets will attract capital gains tax consequences, it will have the benefit of decreasing the value of your estate for eventual estate duty. If one would however abuse the trust form to still have full control and if it is managed as still being part of one’s personal estate or the intention is found wanting to have created a trust at all, there can be severe tax consequences if it is ordered to be part of your personal estate. The ‘core idea’ of the trust, namely, the functional separation of ownership or control of the trust property by the founder and trustee from the enjoyment, thereof (Land and Agricultural Bank of South Africa v Parker 2005 (2) SA 77 (SCA) para 19, 22) is therefore paramount to the intention of creating a trust.

13.4.4 Issue of an Inter Vivos Trusts Against Public Policy  Charitable trusts have come under fire for including unfair discriminatory provisions that resulted in being struck down as against public policy (contra bonos mores) (King v De Jager [2021] ZACC 4). The same caution can also be given regarding inter vivos trusts. In Harper v Crawford 2018 (1) SA 589 (WCC) and Wilkinson v Crawford 2021 ZACC 8 in the Constitutional Court, the case involved an inter vivos family trust that appointed the ‘children’ of the founder and their ‘children’ as descendants as beneficiaries. The trust was created in a time where adopted children was excluded by legislation from inheritance in terms of a testamentary instrument unless it conveyed a clear intention to include them. One of the daughters had difficulty with carrying a baby to full term and ultimately adopted two children. Some months after the creation of the trust the founder executed a will and amended the provision that would affect the devolvement upon the descendants per stirpes. The founder subsequently died. The High Court concluded that the founder’s omission to expressly include adopted children indicated that he intended to exclude them and would therefore not be included as beneficiaries of the trust. The High Court considered this under the principle of freedom of testation. It held that: …while giving effect to [the founder’s] intention may constitute discrimination against adopted children, it could not be said that it was unfair discrimination since the right to equality must be weighed against the right to freedom of testation pursuant to section 36 of the Constitution.

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The majority in the Supreme Court of Appeal held that ‘although there are cases where the interest of society requires a court to interfere on the grounds of public policy, this is manifestly not such a case’ and subsequently dismissed the claim to vary the trust deed in terms of Section 13 of the Act. The Constitutional Court’s proper interpretation of the trust deed does not evince a clear intention of the founder to include adopted children (para 74). This may constitute some form of discrimination on the basis of birth. The question the court had to decide was if this discrimination would be unfair. The court held: … the vulnerability experienced by adopted children warrants protection by virtue of the best interests of the child principles, coupled with the importance of family life. In this case, the application of the proviso, and hence the exclusion of adopted children solely on the basis of their birth, only serves to perpetuate the discrimination that they, as a class, have been (and continue to be) subject to. (para 94)

It was ordered that the bequest should be given effect as if the exclusion of adopted children does not exist (para 100). Although the provision was dealt with under the freedom of testation, the common law also allows freedom of contract (Du Toit et  al. 2018: 34). In Barkhuizen v Napier 2007 (5) SA 323 (CC) para 57, the Constitutional Court confirmed that the freedom of contract is the very essence of the Constitutional concept of freedom and forms an essential part of the right to human dignity (Du Toit et al. 2018: 34). However: Public policy operates as a common law restriction of freedom of disposition insofar as South African law prohibits giving effect to a contract of a will … that is contra bonos mores or in violation of public policy. (Du Toit et al. 2018: 35)

Care should therefore be taken not to unfairly discriminate by excluding a group just because they belong to that group. In other words, in the classification of ‘children’, care should be taken not to exclude adopted children for the reason that they are ‘adopted’ children; not to exclude ‘daughters’, just because they are female; to exclude black persons, just because of their race. However, this does not have to discourage one of the effective use an inter vivos can have. Setting up an effective discretionary inter vivos trust with the intention to benefit the founder’s family can be a useful tool when giving the trustees the absolute discretion whether, and if, to what extent, or to what proportion the beneficiaries must receive benefits. If there is a need for a founder to teach his descendant a trade or run a business together, a business trust can be created and has become increasingly popular (Du Toit et al. 2018: 200). If a farm is, for example, transferred to an inter vivos trust with the son (and his descendants) as beneficiaries of the trust, it would be difficult to rule the trust as unfairly discriminating against another child of the father as it would be run as a business that the founder and his son are operating together. Care should however be taken not to be regarded as an institution that was never intended to be a trust, but, for example a partnership, or fideicommissum as explained above. A question that has not been addressed by the courts yet is whether a system of male primogeniture could be revived by an inter vivos trust. The customary rule of male primogeniture is where the firstborn son is the only one that would qualify as

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intestate heir and was declared unconstitutional and invalid in Bhe v Magistrate, Khayalitsha 2005 (1) SA 580 (CC). When one however analyses the intention and operation of the rule of male primogeniture, the court (paragraph 76) explained: The heir did not merely succeed to the assets of the deceased; succession was not primarily concerned with the distribution of the estate of the deceased, but with the preservation and perpetuation of the family unit. Property was collectively owned and the family head, who was the nominal owner of the property, administered it for the benefit of the family unit as a whole. The heir stepped into the shoes of the family head and acquired all the rights and became subject to all the obligations of the family head … [he] acquired the duty to maintain and support all the members of the family who were assured of his protection and enjoyed the benefit of the heir’s maintenance and support. He inherited the property of the deceased only in the sense that he assumed control and administration of the property subject to his rights and obligations as head of the family unit.

If seen through a law of succession lens, it will be clear that it could amount to unfair discrimination as the male is the only one that inherits the property of the family head to the explicit exclusion of the females, just because they are females. If we however see this through the trust lens, a trust (it may however be a testamentary trust, and not an inter vivos trust) can very well be established with the eldest son as the trustee who ‘administers it for the benefit of the family unit as a whole’ where the family unit (consisting of all other members of the family including all females relevant) is the beneficiaries of the trust. This seems to be clearly the actual intention of the rule of male primogeniture that it actually creates a trust, only to be administered by the succeeding family head for the benefit of all the descendants of the family head, and no one in the family unit is therefore discriminated against or excluded. The heir could be given the discretionary powers to decide if when and with how much to benefit any said beneficiary of the trust. The important aspect here however is that this scenario will not happen automatically, and this is not the automatic intestate succession consequences that will come into effect with the family head’s demise. It will have to be created before his death in a will that will create this testamentary trust. Master would also require another trustee, apart from the succeeding family head, to administer the trust together. The additional trustee could be an independent trustee that is not part of the family unit (Land and Agricultural Bank of South Africa v Parker 2005 (2) SA 77 (SCA)). It would however be possible to create this family structure in a trust without it being seen as unfairly discriminating against any member of the family or against public policy. It is yet to be seen however as this has never been challenged in court.

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13.5 Uses of Testamentary Trusts A testamentary trust has many of the same features as the inter vivos trust. The main differing characteristic is the mode of creation. A testamentary trust is created by a testator in terms of a will and only becomes effective on the testator’s death. Based on the law of succession that applies to this type of trust, the rules of the stipulatio alteri does not apply to the testamentary trust. As the testator is deceased when the trust comes into effect, the matter to the amendment of the testamentary trust also differs from the inter vivos trust. Based on the law of succession and the freedom of testation, courts are reluctant to alter the provisions of the trust after the death of the testator. Testamentary trusts are however very useful to provide for the simultaneous death of minor children’s parents. The property can then be held in a testamentary ownership trust in favour of their minor children with the trustees in charge of using the trust income to tend to the trust beneficiaries’ maintenance, educational, health and other needs while preserving the trust’s capital until the minors reach adulthood (Du Toit et al. 2018: 192). This trust can similarly be used to provide for dependants with limited or entirely incapable of managing their own affairs. This could protect the assets from beneficiaries against their own financial inexperience or injudiciousness to receive testamentary benefits in trust with a responsible trustee that can manage and preserve those benefits for them (Du Toit et al. 2018: 192). These types of ‘special’ trusts will have unique advantageous tax consequences in terms of the Income Tax Act.

13.6 Conclusion Trusts can be a valuable estate planning tool. Inter vivos trust can effectively be used in the situation where the founder wants to still share in the management of the property (or lead the co-trustees) while the founder is still alive. The founder can even share in the management as trustee as well as benefitting from the trust as trust beneficiary. Even a testamentary trust can alleviate some of the testator’s fears of leaving property to minor or incapacitated persons. It is however important to understand the intricacies and dangers if not created properly before advising a client to create a trust. To transfer the property initially to a trust could be costly, and it could therefore be beneficial for a trust to buy the property to avoid being transferred from the personal estate to the trust. It however then provides the advantage of generations that can benefit from the property without attracting any estate or transfer duties.

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References Cameron E, De Waal M, Solomon P (2018) Honoré’s South African law of trusts. Juta, Cape Town De Jong M, Le Roux-Bouwer J, Manthwa T (2017) Attacking trusts upon divorce and in maintenance matters: Guidelines for the road ahead. Journal for Contempory Roman Dutch Law 80(3):370–389 Du Toit F (2015) Trusts and the patrimonial consequences of divorce: Recent developments in South Africa. Journal of Civil Law Studies 8(2): 655–698 Du Toit F, Smith B, Van der Linde A (2018) Fundamentals of South African trust law., LexisNexis South Africa Pace R, Van der Westhuizen W (2015) Wills and Trusts. LexisNexis, Durban Van Zyl R (2019) The question of rights, acceptance and amendments of inter vivos trusts in terms of the stipulatio alteri. South African Law Journal 136(4): 717–748

Chapter 14

Financial Therapy: A Critical Appraisal Jurie Gouwsventer and Corné van Graan

14.1 Introduction ‘Financial therapy is an emerging field interested in the evaluation and treatment of cognitive, emotional, behavioural, relational, and economic aspects of financial health’ (Klontz et al. 2014: 3). This is according to arguably the most comprehensive publication on the subject matter to date, appropriately entitled Financial Therapy – Theory, Research and Practice. To promote the interests of this emerging field, the Financial Therapy Association (FTA) was incorporated as a nonprofit organisation in the state of Kansas, USA, on 5 October 2009 (McGill et al. 2010). According to the FTA’s website, financial therapy is ‘a process informed by both therapeutic and financial competencies that helps people think, feel, communicate and behave differently with money to improve overall well-being through evidence-­ based practices and interventions’ (Financial Therapy Association n.d.). At present, financial therapy has a meaningful following only in the country of its origin, the United States. If past experience is anything to go by, however, and assuming that financial therapy does not fade into irrelevance – a potential risk its proponents caution against (Klontz et al. 2014: 12) – it can reasonably be expected that over time this new field will attract a following beyond the borders of the United States. However, until broad-based buy-in into the tenets of financial therapy has occurred to any meaningful degree, one has the luxury of looking at the topic from the outside in. This allows for critical appraisal more readily than perhaps for those who have ‘skin in the game’ due to time and energy invested through contributions

J. Gouwsventer (*) · C. van Graan Mindfulmoney (Pty) Ltd., Cape Town, South Africa Eduvos, Cape Town, South Africa e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 P. Sarpong, L. Alsemgeest (eds.), Perspectives in Financial Therapy, https://doi.org/10.1007/978-3-031-33362-0_14

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that have helped build what is touted to be a new discipline at this point. What follows is such an appraisal.

14.2 What Exactly Is Financial Therapy? The first point to note is the difference in nuance between the two definitions above, both from authoritative role players in this new field: the terminology used in the definition by Klontz et al. (2014) (‘evaluation and treatment … of financial health’) arguably positions financial therapy inside the mental health space. This notion is re-enforced in the distinction that the authors seek to make between coaching and therapy in that ‘coaching is focused on solutions … and fits into an advisory model’ while ‘therapy is based on a medical model and involves the diagnosis and treatment of mental disorders’ (Klontz et al. 2014: 6–7). The FTA’s definition, on the other hand, seems broader, in that it talks about ‘a process informed by both therapeutic and financial competencies’. This tension of precisely where financial therapy fits is further illustrated by the arguments of its proponents motivating for a wider, more inclusive use of the term ‘therapy’: it has been defined in many ways, amongst others as both ‘psychotherapy’ and ‘any act, hobby, task, program, etc., that relieves tension’ (Dictionary.com 2014). Furthermore, the term ‘therapy’ has been applied to a range of nonmedically based tension-reducing activities in popular culture (e.g. exercise therapy, music therapy, massage therapy, aroma therapy) (Klontz et al. 2014: 7). While it is certainly true that the term ‘therapy’ is colloquially used more broadly – as is suggested here – what lends a different weight to it in this instance is that it is ultimately used in conjunction with the term ‘disorders’ as in ‘money disorders’. In this manner, it conveys a gravitas that is miles removed from the sentiment associated with something like aroma therapy. It is submitted that, used in this context, it is language that falls squarely inside the realm of the mental health field.

14.3 Evolution of Financial Planning Service Offering It may be relevant at this point to touch briefly on the evolution of financial planning over the past approximately two decades. Under the influence of pioneers such as George Kinder, the father of financial life planning (Schulaka 2018), there has been growing prominence of psychology and regulatory changes impacting the dispensing of financial advice globally. Broadly speaking, financial planning has evolved to incorporate what may be termed ‘qualitative’ type content. As a result, the non-financial dimension of a

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Fig. 14.1  Skills and qualification requirements

client’s life has increasingly been woven into the financial planning process, which, until relatively recently, was primarily about ‘quantitative’ advice or ‘bolt-and-nuts financial planning’ (i.e. ‘spreadsheets and numbers’). Today, the financial planning service offering can therefore be broadly illustrated on a spectrum as illustrated in Fig. 14.1. Financial planning in its traditional form will never lose its relevance for as long as clients require advice on matters such as legitimate ways to reduce taxes or efficient ways of building capital, amongst others. Dispensing this kind of advice essentially requires quantitative skills on the part of the planner and preferably a sound academic qualification of which the CFP® designation is regarded as the gold standard (CFP Board n.d). As financial service offering moves across the spectrum towards financial coaching and counselling, the financial planning discussion starts incorporating ‘non-­ financial’ dimensions of clients’ lives such as their values, dreams and aspirations and alignment with their finances to variables such as these. The central idea here is that clients’ financial well-being can only really be achieved within the much broader context of whatever they consider fundamental to a meaningful life. As one progresses towards the aspect of financial therapy, it is submitted that the relative importance of quantitative skills diminishes even further in favour of qualitative skills such as the ability to listen, to demonstrate empathy, to understand intrapersonal and interpersonal psychodynamics and ultimately to diagnose and treat money disorders. As far as academic qualifications are concerned, it may be argued that a qualification in one of the mental health fields is imperative if one wants to call oneself a financial therapist possessing the requisite skills to perform all of the aforementioned.

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14.4 The Financial Therapy Association (FTA) While there seems to be less debate around the skills and academic proficiency required for financial planning in its traditional form and beyond, the waters become decidedly murkier towards the financial therapy side of the spectrum. Although this is to be expected for a fledgling discipline that is still seeking to establish itself, the fact that the term ‘financial therapy’ has not been patented or trade-marked does not help in creating clarity since anyone can call themselves a financial therapist – at least in the United States, it would seem (Kahler Financial Group n.d.). Furthermore, as stated by Kahler, there is currently no tertiary institution that offers an undergraduate – or what is arguably more appropriate – a post-graduate degree in financial therapy. The US-based FTA comes closest to offering a programme that entitles the successful candidate to use the title ‘Financial Therapist’. While the FTA’s ultimate goal is to offer three levels of certification, currently it is only possible to complete the first level, enabling the delegate to use the Certified Financial Therapist (CFT-I™) designation. According to the FTA website, the entrance criteria for a CFT-I™ designation are as follows: 1. Holding a bachelor’s degree or higher in a finance-related field (e.g. financial planning, finance, consumer economics), or 2. Holding a bachelor’s degree or higher in a mental health-related field (e.g. psychology, therapy/counselling, social work, human development), or 3. Holding a bachelor’s degree in any other field, plus the CFP® or AFC® designation, or 4. Should the delegate hold any other qualification(s) to what is outlined in 1, 2 and 3, a special submission needs to be made to the FTA Certification Committee (online) As mentioned earlier, definitions such as that offered by Klontz et al. (2014: 6 and 7) that therapy ‘involves the diagnosis and treatment of mental disorders’ and that financial therapy ‘is … interested in the evaluation and treatment of cognitive, emotional, behavioral, relational and economic aspects of financial health’ would seem to suggest that the financial therapist’s qualification(s) should be in mental health first and foremost, with a qualification in financial planning only of secondary importance, if at all. It is therefore curious that the FTA should attach equal weight – suggesting interchangeability – to a bachelor’s degree in a financial and a mental health-related field as is conveyed by the word ‘or’ between points 1 and 2 above. Points 3 and 4 are equally lenient in that the requirements do not expressly demand a qualification in mental health when this is what the skill set of a financial therapist would primarily seem to require.

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14.5 South Africa’s Health Professions Act In sharp contrast to the situation in the United States, the legislative framework in South Africa is much more specific about the criteria that need to be met by anybody seeking to make a living along the lines of what a financial therapist would seemingly be able to do. Section 3 (1) of Board Notice 101 of 2018 of South Africa’s Health Professions Act reads as follows: ‘No person shall perform any act deemed to be an act pertaining to the profession of psychology unless he or she is registered in terms of the Act in the relevant registration category of psychology’. Scrutiny of said categories stated in the Board Notice reveals that assessing, diagnosing, evaluating and treating mild to severe and complex psychological problems and health disorders and the delivery of therapeutic interventions in treating mental, behavioural, cognitive and health disorders fall exclusively within the realm of the clinical psychologist.

14.6 The Need for Mental Health Professionals to be Conversant in Personal Finance If, as is argued here, the skillset for the financial therapist primarily requires mental health profession competencies, the question arises whether additional qualifications in personal finance would necessarily assist in achieving a better outcome in the treatment of the so-called money disorders. This seems to be suggested by Klontz et  al. (2014: 30): ‘In regard to traditional mental health programs, none appear to require a course in personal finance … creating a void in a mental health clinician’s ability to work with clients experiencing financial issues. This void in psychotherapy training has been identified as problematic by educators, practitioners, and researchers alike’. While there can be no denying that also being versed in matters financial can indeed be helpful in a discussion where money is a core theme, mental health professionals are trained to understand intrapersonal and interpersonal dynamics first and foremost. The focus is therefore on understanding process. Once that has been mastered, content becomes of secondary importance. It is submitted that the perceived ‘void’ in psychotherapy training due to a lack of courses in personal finance and thus ostensibly making it difficult for trained psychotherapists to treat clients with underlying financial pathology, specifically money disorders, is exaggerated. As an analogy, in the same way that not holding an MBA does not necessarily detract from the coaching profession’s ability to render a meaningful service meant to change behaviour and improve life quality for corporate executives, it should not prevent trained psychotherapists who hold no formal personal finance qualifications to help change behaviour and improve life quality for clients with ‘financial pathology’.

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In fact, precedents do exist that illustrate the point that money issues can be addressed by qualified therapists without the requirement of being conversant in personal finance. The blurb on the cover of the book Money and Meaning by Judith Stern Peck (2008) states that as ‘[t]he first book of its kind to introduce a model for helping mental health professionals and coaches create conversations about money with their clients, Money and Meaning provides a framework and tools to create a safe environment to have conversations and resolve conflicts’. The conceptual model used by Peck and her colleagues to address intrapersonal and interpersonal distress that has money as its underlying theme is a values-based model that does not require the therapist to have any proficiency at all in personal finance.

14.7 Need for Financial Planners to Understand Behaviour There can be little debate that the financial planning service offering is enriched and is helping financial planners serve their clients more holistically by teaching planners more of the qualitative skills referred to above. This is precisely what financial coaching and counselling is seeking to achieve, and it is therefore not accurate to claim that ‘financial planning and other financial training programs do not currently address behaviors and attitudes that drive financial decision making’ (Klontz et al. 2014: 30). In this respect, the discipline of behavioural finance, which has been gaining prominence since the early 1980s, has much to say about attitudes that ‘drive financial decision making’. The seminal work that ultimately helped establish this discipline and that contributed to its authors winning the Nobel Prize in Economics was entitled Prospect theory: An analysis of decision under risk (Kahneman and Tversky 1979). Behavioural finance has pioneered concepts such as loss aversion, overconfidence, anchoring, herding and many more, all of which are biases we display to a greater or lesser extent and which have been shown to impact (financial) decision-­making. In awarding the 2002 Nobel Prize in Economics to Daniel Kahneman, the father of behavioural finance, the Royal Swedish Academy of Sciences cited him ‘for having integrated insights from psychological research into economic science, especially concerning human judgment and decision-making under uncertainty’ (Princeton University 2002). The inclusion of behavioural finance into the curricula of both the CFP® and CFA® designations is proof that ‘financial planning and other financial training programs’ do in fact offer content designed to help fellows of the aforementioned designations understand ‘behaviors and attitudes that drive financial decision making’ (Klontz et al. 2014: 30). This does not mean that there are no other useful conceptual models that can contribute to a better understanding of factors that drive financial decision-making. But to claim that nothing has been happening on that front is simply not accurate.

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14.8 Money Disorders According to Klontz et  al. (2014: 35), ‘money disorders’ can be defined as ‘persistent, predictable, often rigid, patterns of self-destructive financial behaviors that cause significant stress, anxiety, emotional distress, and impairment in major areas of one’s life’. Chapter 4 of Klontz et al. (2014) lists nine such money disorders, two of which (gambling and hoarding disorders) are described in the American Psychiatric Association’s DSM-5™ (American Psychiatric Association 2013), the foremost authority widely recognised by mental health professionals in diagnosing mental disorders. The specialised nature of diagnosing and treating mental disorders is confirmed by Klontz et al. (2014: 61) as follows: ‘Mental health clinicians who have received the necessary training and have obtained the appropriate credentials are the only professionals who can diagnose and treat mental health disorders identified in the DSM-5™’ and ‘official diagnosis of any money disorder is better to be left to clinicians who are trained and licensed to diagnose mental illness’. Therefore, the only logical conclusion to draw from these statements is that, since financial therapy seeks to incorporate the ability to diagnose and treat money disorders, a financial therapist needs to be a mental health professional. If this reasoning is accepted, definitions about financial therapy such as encountered on popular sites like Investopedia are hugely problematic: ‘Financial therapy merges finance with emotional support to help people cope with financial stress. Financial advisors must often provide therapy to clients in order to help them make logical monetary decisions and deal with any financial issues they might be facing’ (Kagan 2020). It is submitted that therapy (and by extension financial therapy) requires knowledge and skills miles beyond the scope of what financial planners have been trained for. No form of therapy should ever be attempted by anybody who is not a trained mental health professional. To advocate differently would simply be irresponsible, and in South Africa, a contravention of the Health Professions Act.

14.8.1 Are Most Money Disorders Really Novel Conditions? A question more fundamental than which appropriate skills and qualifications are required to treat money disorders is whether most of what is described in this section in fact justifies using the term ‘disorder’ to begin with, and if it does, whether such disorder is really a unique money disorder. The first of these questions is not relevant in respect of the two money disorders that have been taken straight from the DSM-5™ (i.e. gambling and hoarding disorders). But to illustrate the point as to whether some of the listed money disorders are indeed unique, consider the information in Table 14.1, which compares the diagnostic criteria for obsessive-compulsive disorder (OCD) as listed in DSM-5™ to the diagnostic criteria listed for compulsive buying disorder in Klontz et al. (2014: 37).

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Table 14.1  Comparison of diagnostic criteria for obsessive-compulsive disorder (OCD) and compulsive buying disorder (CBD) DSM-5™ OCD A. Presence of obsessions, compulsions, or both: Obsessions are defined by (1) and (2)  1. Recurrent and persistent thoughts, urges, or impulses that are experienced, at some time during the disturbance, as intrusive and unwanted, and that in most individuals cause marked anxiety or distress  2. The individual attempts to ignore or suppress such thoughts, urges or images, or to neutralize them with some other thought or action (i.e. by performing a compulsion) Compulsions are defined by (1) and (2):  1. Repetitive behaviors (e.g. hand washing, ordering, checking) or mental acts (e.g. praying, counting, repeating words silently) that the individual feels driven to perform in response to an obsession or according to rules that must be applied rigidly  2. The behaviors or mental acts are aimed at preventing or reducing anxiety or distress, or preventing some dreaded event or situation; however, these behaviors or mental acts are not connected in a realistic way with what they are designed to neutralize or prevent, or are clearly excessive B. The obsessions or compulsions are time-consuming (e.g. take more than 1 h per day) or cause clinically significant distress or impairment in social, occupational, or other important areas of functioning

C. The obsessive-compulsive symptoms are not attributable to the physiological effects of a substance (e.g. a drug of abuse, a medication) or another medical condition D. The disturbance is not better explained by the symptoms of another mental disorder (e.g. excessive worries, as in generalized anxiety disorder; preoccupation with appearance, as in body dysmorphic disorder; difficulty discarding or parting with possessions, as in hoarding disorder; hair pulling, as in trichotillomania [hair-pulling disorder]; skin picking, as in excoriation [skin-picking] disorder; stereotypies, as in stereotypic movement disorder; ritualized eating behavior, as in eating disorders; preoccupation with substances or gambling, as in substance-related and addictive disorders; preoccupation with having an illness, as in illness anxiety disorder; sexual urges or fantasies, as in paraphilic disorders; impulses, as in disruptive, impulse-control, and conduct disorders; guilty ruminations, as in major depressive disorder; thought insertion or delusional preoccupations, as in schizophrenia spectrum and other psychotic disorders; or repetitive patterns of behavior, as in autism spectrum disorder)

Compulsive buying disorder (CBD) Frequent preoccupations with buying or impulses to buy that are experienced as irresistible, intrusive and/or senseless

Frequent buying of more than can be afforded, frequent buying of items that are not needed, or shopping for longer periods of time than intended The buying preoccupations, impulses or behaviors cause marked distress are time-­ consuming, significantly interfere with social or occupational functioning, or result in financial problems (e.g. indebtedness or bankruptcy)

The excessive buying or shopping behavior does not occur exclusively during periods of hypomania or mania

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From Table 14.1, it could be argued that CBD is a subset of OCD and that the DSM-5™ already lists sufficiently detailed diagnostic criteria to enable the clinician to arrive at the diagnosis of CBD. But let us suppose that it can be argued convincingly that CBD is different enough from OCD to warrant it being classified as a separate disorder. Would it not make more sense to incorporate such a seemingly close relative of OCD into what is arguably the most authoritative diagnostic classification system of mental disorders, the DSM-5™ of the American Psychiatric Association (APA)? In other words, rather that re-inventing the wheel and creating a parallel diagnostic classification system, would collaboration with the APA (and in that way contributing to the broadening of the understanding of OCD in this case) not be preferable? The same reasoning applies to ‘financial dependence’ which, if it manifests to an extent that it is a diagnosable disorder, can probably already be dealt with using the DSM-5™ criteria for dependent personality disorder.

14.8.2 Appropriate Use of a Label Like ‘Disorder’? The APA defines a psychiatric disorder as follows (American Psychiatric Association 2013): Psychiatric disorders are behavioral, emotional, or cognitive dysfunctions that are not readily controlled by the individual and are related to clinically significant distress or impairment in one or more areas including social, occupational, and interpersonal functioning. The behavioral and emotional response is beyond a culturally expected response to ­common life stressors and losses. While many disordered states violate the social norms of a given society, social deviance in itself is not a sufficient criterion for a determination of mental disorder

Within this context, it is fair to question the use the term ‘disorder’ in respect of a number of the seemingly dysfunctional behaviours termed ‘money disorders’ in Klontz et al. (2014). Consider in this regard what is described as ‘financial denial’ and according to Klontz et al. includes behaviours such as: • Efforts to avoid thinking about money • Trying to forget about one’s financial situation • Avoiding looking at one’s bank statements Before denial is considered a ‘disorder’, it is first and foremost understood to be ‘a defense mechanism in which an individual refuses to recognize or acknowledge objective facts or experiences. It’s an unconscious process that serves to protect the person from discomfort or anxiety’ (Psychology Today 2022). It is noteworthy that DSM-5™ does not list denial as a disorder. As such, no diagnostic criteria exist. Therefore, it is submitted that before ‘financial denial’ can be elevated to the level of a ‘disorder’, peer-reviewed research needs to agree on specific diagnostic criteria that will assist clinicians in diagnosing denial as a mental disorder.

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Consider also a label such as ‘financial infidelity’. Diagnostic criteria are said to include ‘any purposeful financial deceit between two or more individuals wherein, there is a stated or unstated belief in mutual honest communication around financial matters’ (Klontz et al. 2014: 59). While in no way wishing to diminish the serious consequences that the absence of full transparency regarding one’s financial affairs can have for relationships between couples or within families, it is questionable whether framing such behaviour as a disorder is accurate in terms of the above definition. This is so because the prevalence of people in relationships having kept financial secrets from each other (i.e. ‘financial infidelity’) ranges from 27% (Jeanfreau et  al. 2018) to 32% (Segal 2022) of research/survey participants. It is argued here that a behavioural pattern that seems to be prevalent in as much as a third of the population, can hardly be termed a disorder.

14.9 Does Financial Therapy Merit the Status of a Distinct Discipline? ‘It is not surprising that money disorders have gone relatively unrecognized in the mental health field, as there is some evidence that mental health professionals are more likely to be money avoidant themselves’ (Klontz et al. 2014: 36). Claims such as this are core to its proponents arguing for financial therapy to be recognised as a distinct discipline. However, it has been shown here that: • Two of the nine ‘money disorders’ listed in Klontz et  al. (i.e. gambling and hoarding disorders) have already been described by existing authority, the DSM-5™. Furthermore, the framing of hoarding disorder as an exclusive ‘money disorder’ is questionable since the psychodynamics underlying hoarding behaviour as contemplated per the DSM-5™ diagnostic criteria may have nothing to do with money at all. • Some money disorders (if they indeed do manifest to a degree that justifies the use of the term ‘disorder’) could be diagnosed using existing DSM-5™ diagnostic criteria (compulsive buying ‘disorder’/OCD and financial dependence/dependent personality disorder). • Other ‘money disorders’ are better understood as defence mechanisms (financial denial), or dysfunctional behaviours (financial infidelity), and they do not meet the requirements to be classified as disorders in terms of the definition put forward by the APA. The motivation for financial therapy to be recognised as a new and distinct discipline is because money is said to be a theme in so much of psychological distress and because the existence of so-called ‘money disorders’ has until now largely escaped the mental health profession. Depression has been called the illness of our time, and anxiety is also widely prevalent in people who seek (psycho)therapy. Yet these conditions are not seen to

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be deserving of special status in the same way that financial therapy seeks to elevate the nature of financial problems beyond what a competent psychotherapist is supposed to be able to deal with as a matter of course. Could it be that financial therapy is seeking to carve out a niche in a space that is already occupied? The overlap of many of the ‘money disorders’ (either fully or in part) with what is already described in DSM-5™ certainly seems to suggest so. Further, the fact that psychotherapists are trained to assist clients seeking help for emotional distress, irrespective of specific content, makes it difficult to argue for separate status for one type of problem (money) ahead of equally pressing issues that cause people to seek the counsel of a qualified therapist.

14.10 Conclusion To hang the label of ‘disorder’ around the neck of anybody is serious. Only duly qualified mental health professionals should be able to do so and then, only on the basis of clearly defined, thoroughly researched diagnostic criteria. This chapter asks a few critical questions: Is it reasonable to frame (dysfunctional) behaviours around money in the financial therapy literature as money ‘disorders’ as contemplated by the APA’s definition of that term? To the extent that behaviours around money described in the financial therapy literature overlap with what is described by existing authority is a collaborative approach to understanding psychopathology not preferable to one of wanting to establish a new discipline? Is it accurate to claim that psychological problems that have money as their core theme require a specially trained breed of clinician or is there merit in the view that a competent psychotherapist should be able to address any and all of the psychological problems described in the financial therapy literature? To their credit, the proponents of financial therapy recognise the risk that financial therapy may in the end turn out to be nothing more than a fad and as stated by Klontz et al. (2014: 12), ‘[u]ntil the effectiveness of financial therapy interventions can be established, in both the financial planning and mental health worlds, the field of financial therapy will be at risk of irrelevance’.

References American Psychiatric Association (2013) Diagnostic and statistical manual of mental disorders (5th ed.) American Psychiatric Publishing, Arlington, VA CFP Board (n.d.) https://www.cfp.net/why-­cfp-­certification/the-­standard-­of-­excellence. Accessed 10 March 2022 Financial Therapy Association (n.d.) https://financialtherapyassociation.org/. Accessed 10 March 2022

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Government Gazette (2018) Board Notice 101: Regulations defining the scope of the profession of Psychology. https://www.gov.za/sites/default/files/gcis_document/201809/41900bn101.pdf. Accessed 16 March 2022 Jeanfreau M, Noguchi K, Mong MD et  al (2018) Financial infidelity in couple relationships. Journal of financial therapy 9(1):1- 20 Kagan J (2020) Financial Therapy. In: Investopedia https://www.investopedia.com/terms/f/ financial-­therapy.asp#:~:text=What%20Is%20Financial%20Therapy%3F,issues%20they%20 might%20be%20facing. Accessed 16 March 2022 Kahler Financial Group (n.d.) How to find a real Financial Therapist (#30) https://kahlerfinancial. com/financialtherapypodcast. Accessed 10 March 2022 Kahneman D, Tversky A (1979) Prospect theory: An analysis of decision under risk. Econometrica 37(2):263–292 Klontz BT, Britt SL, Archuleta KL, (eds) (2014) Financial therapy: Theory, research, and practice. Springer, New York McGill S, Grable J, Britt SL (2010) The financial therapy association: A brief history. Journal of financial therapy 1(1): 1–6 Peck JS (2008) Money and meaning: New ways to have conversations about money with your Clients. John Wiley and Sons, Hoboken Princeton University (2002) Kahneman wins Nobel Prize https://pr.princeton.edu/home/02/1009_ kahneman/hmcap-­b.html. Accessed 15 March 2022 Psychology Today (2022) Denial https://www.psychologytoday.com/za/basics/denial. Accessed 21 April 2022 Segal B (2022) 32% of coupled U.S. adults have cheated on their partners financially. https://www. creditcards.com/statistics/financial-­infidelity-­cheating-­poll/. Accessed 22 April 2022 Schulaka C (2018) George Kinder on Life Planning, Inspiration, and a Golden Civilization. Journal of Financial Planning 31(2):14–16

Index

A African, viii, xix, 1, 33, 65, 91, 93, 99–103, 111, 183, 189, 206, 208, 211, 212, 215, 217, 218, 220, 221, 224, 228, 230, 232, 235, 238 American Psychiatric Association, 249, 251 Amygdala, 37, 39–41, 50 Anti therapeutic experience, ix, 207 Assessment, viii, 24, 65, 83, 84, 89–103, 115, 134, 183, 199, 204 B Baby Boomers, 142, 144–148, 150, 151, 156 Behaviour tax, vii, 33 Beneficiary, 2, 190, 203, 204, 213, 216, 218, 222, 223, 227–240 Bequests, 202, 213, 215–217, 219, 224, 227, 238 Bill of Rights, 214–216, 219–221 Budget, 80, 82, 125, 128, 129, 184, 188, 189, 206 C Cognitive behavioural therapy (CBT), 9, 60, 76, 82, 181, 184, 188 Cognitive psychology, vii, 35 Cognitive reappraisal, 63 Compulsive buying disorder (CBD), 73, 74, 76, 82, 249–251 Constitutional Limitation, 214–215 Contra bonos mores, 215, 216, 237–239 Coronavirus, 113, 114, 117, 122, 125 Cortex, 38, 40, 41, 47, 48

Couples, viii, 2, 8, 10, 18, 21, 76, 77, 141, 161–163, 165–173, 177, 178, 183, 184, 190, 218, 252 Customary law, 220, 221 Cybertherapogy, 124 D Death anxiety, 82, 199–201, 208 Debt, 18, 33, 61, 75, 82, 96, 105, 106, 150, 152, 153, 155, 164, 166, 168–170, 173, 190–191, 237 Decision prosthetics, 58, 66–67 Decolonising, viii Dependent personality disorder, 251, 252 Depression, 2, 6–8, 14, 19, 21, 23, 26, 127, 152, 154, 166, 168, 178, 192, 252 Diagnostic criteria, 249–253 Discretionary trust, 229, 232–234 Disinherit, 223 Divorce, viii, ix, 19, 146, 152, 161, 166–169, 177–185, 187–194, 236 Divorcée, 190 Divorce planning, 178, 184 Dopamine, 36, 38–42, 44, 49, 59, 64 DSM-5™, 249–253 E Economic Model of Mortality Salience, 83, 208 Economic strain, 168–170 Egalitarian, 119–120, 127, 220 Emergency fund, 106, 153, 189, 191

© The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 P. Sarpong, L. Alsemgeest (eds.), Perspectives in Financial Therapy, https://doi.org/10.1007/978-3-031-33362-0

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Index

Estate planning, ix, xv, xvii, xviii, 11, 15, 18, 82, 83, 197–209, 211, 227–240

Health Professions Act, 25, 131, 247, 249 Hybrid, 119, 120, 183

F Family mediators, 183 Family systems theory, 76, 141 Family therapy, 2, 8, 18, 24, 98, 141, 163, 187 Fiduciary, xvii, xviii, 228, 233 Financial anxiety scale, 81, 92, 97, 110 Financial capacity building, 14–16 Financial coach, 21, 62, 172 Financial conflicts, viii, 161, 162, 166–173, 183, 185 Financial decisions, vii, 33, 37, 38, 41, 42, 46, 48, 52, 57, 67, 81–83, 98, 125, 129, 156, 161, 164, 172, 173, 179, 180, 184, 189, 190, 205, 208, 248 Financial dependence, 73, 75, 98, 109, 251, 252 Financial disagreements, 167–169, 177, 185 Financial education, 16, 60, 67, 77, 188 Financial enmeshment, 73, 75, 98, 110, 182, 192 Financial genograms, 81, 129 Financial gerontology, 142, 155–156 Financial planning, vii, viii, xi, xv, xvii–xix, 2, 3, 8, 10, 11, 13–21, 23–26, 33, 46, 52, 57–67, 76, 77, 82, 91, 100, 101, 125, 127, 162–165, 178, 179, 184, 185, 189, 190, 194, 200, 208, 211, 244–246, 248, 253 Financial socialisation, 141, 143–144 Financial stress, 1, 2, 8, 13, 14, 20, 77, 81, 82, 84, 90, 97, 110, 125, 127–130, 153, 169, 192, 249 Financial therapy, vii–x, xv, 1–26, 72, 73, 76–84, 89–103, 113–135, 141–156, 161–173, 177–185, 187–191, 193, 194, 197, 205, 207–208, 243–246, 249, 252–253 Financial wellbeing, 21 Ford financial empowerment model, 77, 187, 193 Freedom of testation, ix, 200–201, 208, 211–225, 227, 237, 238, 240

I Interior finance, 164, 165 Inter vivos trust, xix, 203, 227, 230–235, 237–240 Investment advice, 62, 65, 191

G Generation X, 142, 144, 146–148, 151–152, 154, 156 Generation Z, 142, 148–149, 153–156 Genetics, vii, 36, 37, 42–44, 46, 47, 52, 62, 148 H Health Insurance Portability and Accountability Act (HIPAA), 127, 131

J Journaling, 63 L Life coach, 162 Loss aversion, 39, 40, 44, 49, 50, 63, 191, 248 M Male primogeniture, 211, 220–222, 238, 239 Marriage, viii, 2, 8, 18, 23, 24, 77, 90, 143, 145, 161, 166, 171, 177, 178, 180, 181, 184, 185, 214, 223 Matrimonial property systems, viii, 185 Mental health, vii, viii, xix, 1–3, 7, 8, 11–16, 20, 21, 23–26, 114, 116, 117, 162, 178, 179, 183, 193, 197, 205, 244–249, 252, 253 Millennials, 142, 146–149, 152–153, 156 Models, vii, viii, 9–15, 19, 20, 34–36, 38, 47, 49–52, 60, 65, 76–80, 82–84, 101, 102, 119, 120, 124, 125, 129, 187, 188, 193, 244, 248 Money avoidance, 72, 96, 107, 205 Money behaviour inventory, 84, 92, 97, 98, 109–110, 130 Money disorders, vii, 71–77, 83–84, 98, 127, 129–130, 134, 244, 245, 247, 249–253 Money script, 14, 22, 129, 130 Money script inventory, 84, 92, 97, 98, 107–108, 130 Money status, 72–73, 107 Money vigilance, 72, 73, 108 Money worship, 72, 73, 96, 107 Mortality salience, 83, 208 N Neurobiology, vii, 36–38, 48, 58, 60–61 Neuroeconomics, vii, 34–37, 39, 42, 47, 50, 52, 57–67 Noise, 65–67

Index O Obsessive-compulsive disorder, 249, 250 Online therapies, 113–124, 127, 128, 130–136 P Parental alienation, 182, 192 Parenting coordination, 182–183 Parenting coordinators, 178, 183 Perceived power, 168, 170–173 Post-divorce budget, 188–189, 193 Probate, 200 Property, ix, 15, 46, 95, 104, 105, 211–214, 216, 218–222, 227–233, 235–237, 239, 240 Prospect theory, 36, 39, 44, 248 Psychology, viii, ix, xv, xix, 8, 11, 13, 16–18, 21, 22, 25, 34, 37, 43, 44, 46, 57, 60, 62, 67, 79, 90, 99, 115, 131, 132, 184, 197, 198, 244, 246, 247, 251 Psychotherapies, vii, 2–10, 18, 20, 22, 25, 76, 77, 93, 115, 118–120, 122, 123, 126, 127, 130, 131, 244, 247 Public policy, 208, 211, 212, 214–219, 222–224, 238, 239 R Relationships, viii, xix, 1, 2, 4–8, 13–16, 18–20, 22–26, 36, 38, 45, 46, 60, 61, 67, 71, 74, 75, 77, 79, 82, 97, 98, 103, 109, 121, 122, 124–126, 147, 148, 150, 152, 155, 161–163, 166–173, 177–181, 184, 185, 192, 200, 205, 219, 232, 252 Reliability, 91, 95, 96, 134 Religion, 19, 90, 100–102, 143, 204, 215–217, 223 Retirement, 11, 14, 18, 49, 60, 67, 104–106, 151, 153, 155, 156, 161, 165, 169, 184, 189–190, 205, 207, 208 Robo advisors, 58, 66, 162 Roman-Dutch law, 212, 228

257 S Single parent, 147, 148, 152, 154, 190, 192, 193 Social inequalities, 22–23 Social media, 148, 149, 152, 153, 155 Sociology, 3–4, 12, 37, 60, 198 Solution-focused financial therapy (SFFT), 79, 181, 190, 191 Spousal maintenance, 180–181 Stigma, 16, 114, 126 Succession, ix, 59, 199, 200, 202–204, 212, 220, 221, 223, 224, 239, 240 T Technology, xviii, 25, 58, 66, 67, 113–115, 117, 118, 124, 125, 132, 133, 135, 142, 146, 147, 162 Telepresence, 123 Terror Management Theory (TMT), 83, 207 Testamentary self-expression, 202 Testamentary trust, 218, 228–230, 239–240 Testation, 203–204 Testator, ix, 202, 212–219, 222–224, 227–230, 232, 239, 240 The Divorce Act, 180 The Great Depression, 144, 150 Therapeutic agent, 197, 199, 201 Therapeutic jurisprudence, ix, 197–200, 202, 207–209 Therapeutic presence, 122–124 Therapeutic relationship, 9, 10, 25, 113, 115, 118–122, 124–127 Traditionalists, 142, 144–146, 150, 151, 156 Trust Property Control Act, 216–218, 228 U Ubuntu, 99–103, 211, 220, 224 V Validity, 91, 94–96, 98, 99, 117, 134 Value proposition, 33, 57, 58, 67 Vesting trust, 231–232