Book Excerpts | Bert Whitehead

Book Excerpts

What is Financial Dysfunction?

Why Smart People Do Stupid Things With Money selection from Chapter 2

My profession has a few basic principles that describe the various ways people can lose their financial freedom. I call them financial dysfunctions. They’re a little like not eating right and not getting enough exercise—except I think everybody knows they should eat right and exercise. In my world, people have ideas about financial behavior that are just plain wrong. I define financial dysfunctions as financial choices and strategies that people believe re effective but that actually impede their financial progress.

When I was deciding on a title and subtitle for this book, a few people thought the term financial dysfunction was too negative. Many more, however, instantly recognized its significance and, more importantly, saw that it applied to their own lives.

Financial dysfunction leads to intense stress, which shows up in family relationships as anger and quarreling. Often, financial stress disrupts sleep patterns, resulting in either insomnia or being tired all the time. At its worst, financial issues precipitate acute depression or at least a chronic dissatisfaction with life in general, which I think is one of the worst symptoms a person could experience. I have named this syndrome deprivation anxiety. It shows up when people literally can’t sleep because of worries about finances, when couples bicker about who is spending too much, or when the partner in charge of the finances keeps the purse strings tight, always insisting that “We don’t have enough money for that!”

Sometimes the pain gets so bad that people are driven to come into one of our offices, even though they have only a vague idea of what we do and how it relates to their financial health. They feel confused about all the paperwork and uncertain about what it will take to meet all their financial obligations. They feel guilty that they haven’t put more time into their financial development, and a surprising number of them realize that there is no quick fix.

When they see that I understand their dissatisfaction and have worked with many other people with the same problems, they smile with relief, of course, I tell them that their situation is not hopeless, and then I help them realize that their financial problems are caused, in most cases, by factors they can control. For example, money is a taboo subject in many, if not most, families. People never talk around the dinner table about money the way they talk about sports. Many grow up to be really good at handicapping the chances of their favorite football or baseball team, but not so good at figuring out which deductions they are or are not entitled to under Code Section 408(a) governing Roth IRAs. Most Americans aren’t even sure if it is best to pay off their mortgage or not and don’t know how to diversify their portfolio.

Another issue underlying financial dysfunction is the thousands of people who advertise themselves as trusted advisors but are really nothing more than salespeople. This isn’t to say that salespeople can’t behave honorably, although it is suspicious when a client is sold an inappropriate investment that carries the highest rate of commission. We see a lot of people in our offices who have been given bad advice, and they didn’t have any way to recognize it until their financial distress was painfully apparent.