America is in a financial literacy crisis, and advisors can fix the problem

Talking about money is one of the most important skills to being a fiscally responsible and literate person. However, 44% of Americans surveyed would rather discuss death, religion or politics than talk about personal finance with a loved one.

Why? Two major reasons are embarrassment and fear of conflict, even though the consequences can be grave: 50% of first marriages end in divorce, and financial conflict is often a key contributor. Additionally, in our society it is considered rude to discuss money and wealth.

This longstanding taboo also contributes to the gender wage gap, as women are more harshly judged when they speak up and negotiate their salaries. And it is the missing link in financial literacy training.

More from FA Playbook:
Advisory firms turn to new AI advisory technology
5 critical questions advisors should be able to answer
More financial advisors moving beyond just money matters

The failure of these programs to solve the crisis proves that technical training is not enough. It really requires busting through the money talk taboo and empowering parents, teachers and the next generation to openly and honestly share their thoughts and feelings about spending, saving and investing money.

Financial advisors are uniquely positioned to change the conversation around literacy and address the elephant in the room: the money talk taboo. For advisors, teaching financial communication skills and helping clients understand how their emotions influence their money decisions is just as important as showing them how to calculate compound interest.

By breaking through money silence, advisors grant clients permission to ask questions and seek answers without shame or fear of judgment. As the saying goes, You are as sick as your secrets.

It is time for advisors to bring this dialogue into the light and create a learning environment that empowers individuals, couples and families to learn, grow and pass on financial assets and knowledge to future generations. It is time for more than 40% of families to successfully pass on wealth, and 10% of advisors to keep the family’s business growing at times of intergenerational transfers.

Breaking money silence not only improves clients’ financial literacy, it fuels business growth. A recent survey conducted by KBK Wealth Connection in partnership with Abudi Consulting found that talking with clients about the human side of finance improved the advisor-client relationship.

The human side of finance is defined as the non-technical components of working with clients, including identifying, validating and speaking to the emotional and behavioral aspects of financial planning and investment management. In the survey, 190 advisors were interviewed, with 77% reporting an increase in client loyalty, 61% a rise in referrals and 57% an increase in assets under management.

Advisors and financial services firms can solve the financial literacy problem by opening up the dialogue about the human side of finance. Here are three ways to accomplish this.

1. Break money silence as part of the discovery process. Add a few questions to assess a client’s money-talk mindset and her understanding of the impact of emotions on financial decision-making. Including psychological and behavioral questions into the onboarding process communicates to clients that these topic areas are safe to discuss.

Questions may include:

1. What did you learn from your parents/grandparents about financial communication? How might that impact your comfort level discussing finances with an advisor? A partner? A child? A parent?
2. On a scale of 1 (lowest) to 5 (highest), how much do you think your emotions about finances inform your decision-making? What would you like your rating to be and why?
3. What is one area that you are knowledgeable about when it comes to finances and investing, and what is one area in which you need more education?

2. Listen for emotional data. Advisors are well trained in how to collect and analyze large amounts of financial data. Use these same skills to elicit emotional data from clients, too. Emotional data are just as valid as numerical information and offer clues into how to effectively advise individuals or couples. Start by noticing a person’s tone of voice, body language or shift in affect during a meeting. Once trust is established, ask clients for more information about their human reactions to money, investing and advisor recommendations.

3. Be a role model. Role-modeling healthy financial communication is vital to improving literacy rates in this country. Make an effort to break money silence with clients, colleagues and your loved ones.

Notice money messages in movies and songs and on TV. Volunteer at your local school and empower young people to learn more about the emotional side of money. By giving others permission to talk about finances, financial advisors can move the needle one step forward toward ending the financial literacy crisis for good.

— By Kathleen Burns Kingsbury, founder of KBK Wealth Connection