How to get through to people who need a financial wake-up call – Diana Clement

It can be very difficult to get through to people making poor financial choices. Photo / 123rf

We all know someone making financial decisions that seem destined for disaster. Maybe it’s a friend who constantly overspends or a relative caught in an online romance scam. What do you do when someone you care about is on the road to financial disaster?

People who might benefit from a financial wake-up call may be spending beyond their means. Maybe it’s someone who has met a “new partner” online and is being asked for money to help with an operation, or another urgent expense. This happened in my circle.

The person could be dodging bills, borrowing for non-essentials, or making one bad financial decision after another. They may simply not understand the basic fundamentals of personal finance such as spending less than they earn, the difference between needs and wants, or that credit limits are not the same as money in the bank.

Anyone who has found themselves trying to help has likely hit their heads against the wall. I have. Everything from the “new partner” to people who switched their KiwiSaver to a conservative fund at the bottom of the market in 2020, and others who thought it was the wrong time to invest when funds were down.

Emeritus professor Simon Kemp, from the University of Canterbury’s psychology department, says it can be very difficult to get through.

Sometimes, sadly, people need to ‘bottom out’ before the wake-up happens, and they can make radical changes to the way they live, said Tom Hartmann, Sorted’s personal finance lead.

That doesn’t mean that caring contacts can’t try. Approach the conversation with empathy, not judgment. If you didn’t care, you wouldn’t be involved – and showing understanding increases the chances they’ll listen.

Discussing the numbers can help. Help them set up a budget. Sometimes, seeing what’s happening in black and white can help. It’s certainly a starting point for someone who can’t see the path ahead.

Not wanting to listen when someone is in a financial bind is deeply rooted in psychology. A wide variety of cognitive biases can be at play when someone doesn’t want to listen to financial advice. They may suffer from optimism bias, believing things will work out despite evidence otherwise, status quo bias, which is resistance to change or the sunk cost fallacy, not willing to give up bad habits because of the time and money they’ve invested.

Your friend or whānau member may be in denial. That’s often the case with romance scam victims. They may be ashamed, spending to boost their mood, stuck in learned behaviours, or simply fear change. Some people have an overconfidence bias in their abilities, leading them to ignore advice or warnings.

Beware that different age groups in society may have very different perspectives from yours. A different path than what suits you may work for them. That is why an independent voice can be valuable.

If they won’t listen to you, you could try pointing them to what experts in the field say, Kemp said. For example, if it’s a scam, try researching common scams. Real-life examples can help. There will also be experts online who have researched similar scams and have words of wisdom.

Asking questions, rather than giving “advice,” can help people start to think through their situation. Introduce them to tools such as spending trackers or proven methods such as debt snowballs. You could also suggest they take free financial literacy courses offered by providers such as the Open Polytechnic, Te Wānanga o Aotearoa. Other options include CAP (Christians Against Poverty) Money courses and Westpac’s Managing Your Money seminars.

If someone is struggling financially but unwilling to listen, consider alternative approaches. Getting them in front of a neutral third-party advisor or therapist can help. Some people will listen to an independent third party.

Suggest proven financial strategies for taming finances, such as debt snowballs, cash envelope budgeting, or the 50/30/20 rule.

If they are comfortable with you working through their bank statements with them, it’s a positive step. Not everyone is comfortable with that. Financial accountability partnerships – where you or a third party helps monitor their spending habits and provide guidance – can also be useful.

The next step is setting up small, achievable goals, automating savings deposits, or setting up bill reminders. This can be done with or without the books open.

While you can’t force someone to make better financial choices, you can plant the seed for change. Just be mindful of enabling destructive habits – sometimes, saying no is the most supportive thing you can do.