More Financial “Dysfunctions”

In last summer’s newsletter, we started a series of articles based on Bert Whitehead’s Financial Dysfunctions. As you may recall, Bert, a fellow fee-only financial advisor, identified seven dysfunctions that plague individuals in their personal financial plans and frustrate the achievement of their goals.

  1. Mortgage Aversion.
  2. Inappropriate Risk Reaction: being either fearful or fearless about investments.
  3. Compulsive Spending/Excessive Debt.
  4. Poverty Mentality: Inability to spend money.
  5. Miser Mentality/Obsessive Saver.
  6. Acute Financial Paranoia, possibly accompanied by ownership of an all cash or all gold portfolio.
  7. Windfall Woes: Usually as a result of lottery winnings, inheritance, divorce settlement, speculative stock or other gambling gain.


This article discusses the “dysfunctions” of Compulsive Spending (which in extreme cases may be accompanied by excessive debt) and Poverty Mentality (the inability to spend the money you have). The two problems are polar opposites. Compulsive spenders and those with poverty mentality are expressing imbalance in financial behavior. One spends too much and the other spends too little. One is more comfortable when buying things and the other grows more uncomfortable when buying things!

Experienced advisors can begin to pick up both of these dysfunctions in the data-gathering phase of planning. One of the first data gathering tasks is a review of expenses. We look at expenses that are “fixed”, such as mortgages, rent, insurance, boat payments, etc., and those we consider “variable”, such as food and vacation expenses, entertainment, and clothing. If we compare income and expenses and see negative numbers, we look carefully. If overspending is a chronic problem and there is no economic reason for it, we suggest counseling.

After we collect data, the next step in the planning process is to set some financial targets, or goals. We help each client identify goals that motivate and excite them, and then we try to make helpful observations. For example, if a client’s spending is excessive, it may put important goals (such as a secure retirement, children’s education funding, or nice vacations) out of reach. If a big spending habit is the primary reason that someone cannot achieve their goals, we may either discuss ways to resolve the problem or help them find counseling.

We don’t see many people with debt problems, but we do see many people who have trouble spending their money. While gathering data, if we may see lots of cash or investments and unusually low expenses, we talk about it. Naturally, we like our clients to cultivate responsible savings habits, and we applaud them when they succeed. But, when we have discussed goals fully, we may find the dysfunction we call “reluctant” spending. Some who show this tendency may have had childhood experiences associated with the Great Depression and are seriously concerned about hunger and lack on a visceral basis. Others may simply have notions about the showiness and shame of relative wealth. They may consider that owning a late model luxury car is distasteful and conspicuous. Often there is a very fine line between being a good saver and being unable to spend money due to a dysfunction. Saving is nearly always a virtue. But, personal distress at the prospect of spending can be very debilitating.

If we help our clients to look closely at a realistic, objective projection of their future financial well-being, we may actually cure this dysfunction. If we show someone that they can accomplish their goals, even assuming a very low rate of return, and that their level of savings and expenses will probably result in a large estate to pass on to their heirs, most people just relax. Others, however, get embarrassed or may express some discomfort with our analysis. Those that relax have no dysfunction. Those that get embarrassed or uncomfortable may have dysfunctional attitudes about spending.

Every time we do an article on financial dysfunctions, some of you see yourselves or family members in what we have written. Please bring these feelings up in your annual review and we will see if we can help.