Karen Lee
Karen Lee
Overspending Not Limited to the Middle Class

High-net-worth clients are often just as prone to overspending and under-saving as everyone else. How can you help them?

March 18, 2010
by Karen Lee, CFP, ChFC

There’s a common misconception that only lower earners have money baggage and struggle with financial choices. This is not necessarily true. CPAs and financial advisors agree that counter-productive money behavior occur at all socio-economic levels. Whether your clients are earning $40,000, $200,000 or $2 million, they can be equally challenged to live beneath their means. In fact, sometimes the lower earners do a better job at managing their expenses.

People's beliefs, upbringing and feelings about the purpose of money have a tremendous influence on how they spend, save and invest. With couples, the money behavior issues can be even more complex as the money personalities of the two people are varied.

You’ve probably seen it in your practice. Maybe it happens when you’re working with clients on tax-return preparation and you recommend maximizing their contributions to Simplified Employee Pensions (SEPs) — only to see that they’re squirming in their chairs. They’ve neglected to make the periodic contributions throughout the year and now, when they’re down to the wire, they simply do not have the available cash for the tax-advantaged account.

Or maybe it happens when you’re doing comprehensive financial planning, looking at budgets and lifestyle choices and trying to refine projections about retirement. Want has outflanked need, and you have to confront your clients with the fact that their cash-flow simply can’t keep pace with their credit card purchases.

Overspending is just one facet of misguided money management. For example: The affluent tend to have relatively complex financial situations, requiring careful tax planning and risk management. Insurance is a critical element of a financial plan, including long-term care and disability insurance, but even affluent individuals may push aside this important purchase. For business owners, disability insurance is especially important, but many choose not to apply for policies because they perceive the cost to be high and prefer to spend their money on things that produce more immediate gratification.

As their trusted advisor, how can you help your clients avoid the pitfalls of overspending? Here are some suggestions:

  • Inform and Educate.

    Even though your clients may be financially sophisticated, they may not do the type of analysis necessary to see the logic behind your recommendations. Take disability insurance as an example. Here’s a compelling way to help clients understand how it works:

    Assume you walked into a potential employer’s office and they said they were going to make you the following offer:

    Job “A” — Would pay you $10,000/month after taxes if you were well and working and $0/month if you were sick or hurt and unable to work.


    Job “B” — Would pay you $9,840/month after taxes if you were well and work­ing   and $5000/mo after taxes if you were sick or hurt and unable to work.

    The question is, “Which job would you take?”

    If you chose Job “A”, go to www.disabilitycanhappen.org. If you chose Job “B” you decided to forego $160.00/mo of salary to buy yourself a comprehensive disability plan to protect you and your family in case some­thing serious happens to you. (excerpted from “Financial Savvy for the Small Business Owner,” Financial Forum Publishing, 2009)

  • Provide Implementation Support.

    Sometimes clients have the best intentions, but simply aren’t disciplined enough to act on your suggestions. Perhaps you’ve suggested that a small business owner put his teenage children on the payroll to do simple tasks, thereby having an impact both on reducing net income as well as providing the children with income they can invest in a Roth IRA. The client may think it’s a great idea, but just never get around to taking care of the paperwork. You can schedule an appointment with him to help take care of the details.

  • Offer Gentle Reminders.

    If you recommend that clients make monthly contributions to tax-deferred retirement accounts and it’s not happening, there are a couple of ways you can help. The simplest way is to help them set up a monthly or quarterly recurring transfer from a checking or money market account. If for some reason they don’t want to do that, you could trigger regular reminders from your customer relationship management (CRM) system. It’s no guarantee that they will act on your reminder, but if they see the continual reminder, it may help to make them uncomfortable — which in this instance is a good thing — and thus shift their behavior.


As a financial professional, the important thing is to effectively serve your client. Recognizing that human nature, not reason, drives behavior is an essential element to helping clients achieve their objectives. Anything you can say or do to help clients understand when they’re sabotaging carefully structured financial plans is invaluable for their financial health and for your relationship with them.

Sometimes we assume because a client has substantial assets or a high income that they don’t have issues with money. That’s simply not always the case. As a result, we don’t fully advise them. By understanding their money baggage, we can help them address their issues at any financial level.

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Karen Lee, CFP, ChFC, MSFS, AEP is a financial planner in Atlanta and author of the forthcoming book, It’s Just Money — So Why Does It Cause So Many Problems? Reach Karen through her Web site.

Securities offered through Securities America, Inc., a registered broker dealer, member FINRA/SIPC, Karen Lee, Registered Representative. Advisory and planning services offered through Securities America Advisors, Inc., an SEC Registered Investment Advisory Firm. Karen Lee, Investment Advisor Representative, Karen Lee & Associates, LLC, Integrated Financial Group, Inc., and the Securities America Companies are unaffiliated.