Relationships, Psychology, and Financial Issues

Good to Know
CFP Board’s focus on the psychology of financial planning led to a new domain topic— The Psychology of Financial Planning. Our focus in today’s article is on financial tensions in relationships. According to The Practitioner Resource Guide (Guide) offered by CFP Board, three common relationship tensions include Financial Enabling, Financial Control, and, tragically, Financial Abuse.
Financial Enabling
Financial enabling can be constructive or destructive. For example, a parent co-signing for a recently-graduated daughter’s car loan enables her to build a credit score as she makes the payments. Yet, enabling can have a dark side as well. The Guide discusses financial enabling in the following terms.
- “What: An adult gives or lends money to a dependent adult knowing it will not be paid back.
- Why: Some people are uncomfortable saying no. Guilt or feeling responsible for something bad that happened to the giftee. A desire to protect the giftee from financial stress or pain. Attempting to buy love, affection, or respect.
- Outcome: Damages the relationship between the enabler and the giftee. The enabler can feel resentment, depression, out of control, and experience decreased financial well-being. The receiver can feel incompetent, incapable, fear, anxiety, resentment, and decreased motivation for success.”
Here’s the author’s perspective—destructive financial enabling can rob an adult child of learning how to spend wisely (can I really afford the payments, insurance, and maintenance of that new car?), plan cash flow, and the sense of accomplishment when the debt is paid off.
Financial Enabling
This potential relationship-wrecker can create extreme tensions in a marriage.
“What: An imbalance of power in the decision-making of a family unit.
- Why: Differences in financial knowledge, income, and risk tolerance between members of the household.
- Outcome: Resentment and self-sabotage around financial goals.
A common example entails a risk-seeking spouse married to a risk-averse spouse. The question is when, not if, this investment tension rears its head. A simple—though not always easy—approach would have the spouse’s clearly communicate their reasoning and (hopefully) come to an amicable compromise. It that’s not possible, each spouse could have their own portfolio or seek counseling.
Financial Enabling
So far we’ve focused only on psychological issues. Tragically, financial abuse can all too frequently metastasize into physical abuse. According to the National Domestic Violence Hotline, “Up to 99% of domestic violence victims experience economic abuse during an abusive relationship, and finances are often cited as the biggest barrier to leaving an abusive relationship.” The Guide’s perspective follows.
- “What: A type of abuse that involves experiencing financial fraud, having money taken, or property stolen, being put under financial pressure and/or having financial assets or property misused.
- Why: Greed, entitlement, and a desire to control or harm.
- Outcome: Financial abuse and domestic violence are almost always present.”
Physical abuse should not be tolerated. If it is safe for an abused person to do so, one potential starting point for next steps toward safety is the Domestic Violence Hotline.