Moral dilemmas are not easy. They make us get in touch with what’s most important to us and how we will make choices based on our values of right and wrong.

As a psychologist specializing in money management, I have worked with children and families on this issue and have been fascinated with how people of all ages justify what they do. The psychologist that is the grandfather of psychological studies on morality and moral judgments is Kohlberg. What he learned over the years is that there are stages of moral development and critical thinking which allow people to make appropriate decisions for themselves, their needs and causes in relation to what’s good and appropriate for society at large. He learned that there were people who made decisions based on the absolute of right and wrong, but many others who used their own barometer of what was right and wrong for them. People will do what they feel they need to do and justify it according to what was most important in their individual situation, but not all. So just like so many other variables in life, we humans differ on the morality scale as well.

So for those home owners who are walking away from their financial obligations to their banks and choosing “strategic default”; i.e. not to continue to pay their mortgage payments because their home is no longer worth what it was even though they can financially afford to do so, it fits. For them, the greater good is to make the right financial decision for their needs and let the bank deal with the loss of value and principal.

Public reaction to this new herd strategy of “strategic default” has been mixed with some aghast at the moral corruptness of such an act while others are in perfect accord and can empathize with the personal situation. In fact, they would do exactly the same thing even though they admit they never thought they would until now.

So what does this new trend say about how we think about what matters most? What would you do and why?

Recession lessons that will last kids a lifetime

You can use financial stress to teach children realistic money views
By Ruth Mantell, MarketWatch
WASHINGTON (MarketWatch) — I’m tempted to cover my baby’s ears while her father and I talk about luxuries to cut — should it be satellite TV or Internet? Cookies or ice cream?
The temptation to shield my child grows when Dan and I talk about curbing basic consumption: Is it worth it to get a broken boot heel repaired? Is rice or pasta cheaper (but which is healthier)? Can we learn how to cut each other’s hair without looking like a psychotic child attacked us with a pair of blunt scissors?

All of this mental haggling has me concerned that the financial stress Dan and I shoulder could somehow infect our child’s psyche.
While my seven-month-old is too young to understand that she’s growing up during one of the worst economies in decades, Dan and I do our best to remain upbeat around our baby. For families with older kids, experts say these tough times are a good occasion to teach children about financial realities, and these are lessons that can last a lifetime……

Lessons to last a lifetime
Today’s kids may end up with a more realistic view of money compared with previous cohorts as long as parents reinforce important lessons, said Kathleen Gurney, a psychologist and chief executive of Financial Psychology Corp., a Sarasota, Fla., advisory firm.
“We will have a whole generation of children growing up with healthy lifestyles, attitudes and behavior with money if we all make sure that this is not just a lesson for the Great Recession, but a lesson for a lifetime,” Gurney said.
To instill lessons, parents need to regularly talk to their kids, and keep up good spending habits.  ”I don’t think the lessons will be maintained over time unless the family decides they want to keep these financial habits,” Gurney said. “Role modeling is very powerful.”
Parents can be honest about their own missteps to teach their children a lesson, Gurney said.  ”This is a great time for families to come clean and say: ‘here’s what we’ve been doing, here’s the trouble we are in now, and here’s what we have to do.’”…

Kids can learn about money when parents let them contribute.  ”Feeling like we have some control over the situation is a phenomenal thing to learn when we are young,” Gurney said.
Kids can also learn about priorities from their allowance, especially if it’s been reduced.
“Helping children understand what is most important to them is another really valuable lesson in these times,” Gurney said. “They can’t have it all, and it’s not realistic to think they can have it all.”

Our home is our castle, our core value of security for ourselves and our family. It is a foundation of security and survival—our most basic need fulfilled. It also symbolizes and fulfills a higher need of meaning; i.e. that we have achieved a symbol of success in providing for ourselves and those we love.

Yet, so many Americans didn’t protect themselves and miscalculated the true value of their home. They perceived it as an investment that had accumulated cash value that could be used for whatever, whenever. They gambled with what they prized most and are now suffering the consequences. They gambled with their precious possession trading off its security for short-term stuff—less precious stuff.

In the end, stuff never fulfills the security need nor is it fulfilling for the soul. So now Americans recently polled by Fannie Mae http://www.fanniemae.com/newsreleases/2010/4989.jhtml?p=Media&s=News+Releases find themselves less enamored with home ownership and are less likely to take risks related to buying a home. This change in attitude may be temporary or it could be a sustainable shift in attitude.

This shift in attitude may become permanent if people are not connecting the dots or making the appropriate attributions for what caused that investment to be risky. It’s not home ownership that created the predicament; it is what homeowners did with that asset. Some people—too many people– used their home as an investment that they foolishly felt was a cash machine with a bottomless source of cash for their short-term whims. It was never meant to be used or perceived as an ATM machine, nor was it to be perceived as an investment. It is considered by experts to be a “non-performing asset”. It’s not meant to be an investment if it is your primary place to live.

It is important to perceive and attribute causes for predicaments of loss correctly so previous mistakes won’t be repeated, appropriate choices will be made in the future and meaningful rewards will still be sought such as owning one’s own home.

Unfortunately, this is just another example of financially naive consumers making self-sabotaging decisions under the influence of savvy self-serving salespeople. It is also an unfortunate example of the powers of emotions managing our inappropriate use of money, so education must be two-fold: facts and personal psychology.

In the end, we are in charge and the managers of our security needs and should respect them. Our homes can be our castles of well-being if we care for them as an extension of ourselves and what makes us most content. We don’t have to give up on that reality and dream if we don’t give up on ourselves and making the best use of our money.  See www.kathleengurney.com.

I ALWAYS enjoy Fareed Zakaria’s show, GPS, and watch or tape it every Sunday. It never disappoints and certainly didn’t today. One of the guests, Michael Lewis, has written about Wall Street for the past two decades making notoriety with his first book, Liar’s Poker, about the bond scandal which he predicted would bring down “The Street”. He was admittedly wrong then and has hope that the new regulatory movement and measures will protect consumers from themselves.

What caught my attention was what he said about our inability to protect our self-interests. He went on to say that for some reason people are not good at protecting their self-interests when it comes to money. In all of his work and focus on the financial industry, he has observed people making inappropriate decisions in their inability to figure out complex financial issues. Because of this weakness, they need to be protected.

The greed of Wall Street and their inherent conflict of interest only compounds the situation; i.e. the same people trading their own accounts are selling financial products and advice to consumers. In his opinion, these interests do not serve the financial consumer in an unbiased way.

He predicts that there will be a new Wall Street because the old cannot sustain itself. The only way for it to prevail is to protect people from Wall Street excesses, greed, and conflict of interest. Consumers have proved that they cannot do it for themselves.

I must say that I agree after almost three decades of working with both financial consumers and the financial industry. While I have experienced individuals breaking out, movements of fee-only advisers growing in numbers and influence, the industry is still product-driven vs. client-oriented. The jury is still out whether these proposed regulations will make a significant impact in altering the long history of Wall St.

In his most recent book, The Big Short, Lewis tells the story of the few dozen or so odd-balls or heroes that were able to perceive the absurdity and fatality of the herd of villains on Wall Street betting on their ultimate demise and the destruction of the American financial system bringing down the U.S. and the rest of the world. When asked what characteristics they had in common that helped them not only perceive the problems and contribute to their courage to bet against the herd; Lewis said it was individualistic for the most part so it was difficult to say but they were always outsiders/oddballs who didn’t have a strong need for social approval unlike their colleagues.

I, for one, will be a reader of his new book and I hope his predictions will prove to alter the course Wall St. has been on helping it survive but in a mutually beneficial way for consumers as well as financial players. So the bottom line is again “buyer beware”—know your individual situation and your personal blind spots that trip you up in making the most suitable decisions for your individual situation. For more information, see http://blog.kathleengurney.com/?p=35 and http://blog.kathleengurney.com/?p=3.

In an article in today’s Wall Street Journal, “Economic Policy ‘Nudge Gives Way to Shove’ it again became apparent that economic pain is relevant only on an individual basis. The Obama administration naively thought that institutions would feel consumer pain and alter their policies and practices so that the individual consumer would be able to make suitable and rational financial decisions. If only consumers could benefit from what they proposed to be “plain vanilla offerings” they would not be victims of institutional lack of transparency and self-serving products and policies. To that end, they thought public shame and exposure of these self-serving practices would alter the institutions’ behavior and they would adopt the administration’s suggestion of “plain vanilla” offerings. Ah, such naïveté.

What they have learned is that “institutional decision-making” is not driven by emotions such as shame, pain, and empathy for others. Rather it is much closer to rational economics; i.e., profit is profit and there is nothing personal or emotional about it. Shame is not part of the equation for institutions.

Now that we all have accepted the fact, it seems even more imperative for the individual to be equipped and empowered to determine what is necessary for self-preservation, survival and self-pride. So, financial consumers beware. Here are some simple rules to follow:

1. Know thyself and what trips you up. We all have blind spots in our money personality. Once you are aware of them, you can manage them (http://www.kathleengurney.com/fpconsumer/index.asp) (http://blog.kathleengurney.com/?p=13).
2. Invest in yourself: know what you need to know in every financial situation.
3. Look for hidden traps and read fine print—the devil is in the details.
4. If you can’t understand it, find someone you can trust that can.
5. Make sure that your financial advisers understand what’s most important to you and fulfill your expectations and goals as your partner and team member.

Over the past 27 years, I’ve watched the financial industry struggle with a system and process to engage and advise consumers in their money management. My work has focused on that challenge by trying to give investors their unique voice and tools for advisers to interpret those voices—spoken or unspoken. My first institutional presentation in 1983 was to the Securities Industry Association Board with its title, “Transforming Client Relationships from Product-driven to Client-oriented”. While I received high marks for style, the subject matter was considered too ideological and impractical.

Here we are dozens of years later and the subject matter is more relevant than ever but would the audience still feel my message was impractical for an industry built on product quotas and commissions based on results of sales of their products? I totally understand the ¬¬system and its short-term benefits for business and individual profits, but I don’t understand how the industry I’ve come to know over the past dozens of years could be in such denial of the long-term implications for engendering the trust and allegiance of clients and potential clients.

My spirits were elevated this morning when I tuned into NPR, my morning wake-up call. What I heard was not only an excellent summary of the crisis of trust we’re experiencing in our financial institutions, but an attempt to design mutually beneficial solutions which a key leader of the financial industry is recommending.

Headlines are constant reminders that our crisis of institutional distrust is warranted especially with the tangible evidence of bank bailouts, executive bonuses, and record profits. It’s very difficult to find a reason to trust again in such circumstances.

But it’s an argument that Stephen Green, chairman of HSBC — one of the biggest banks in the world — makes in his new book about banking: Good Value: Reflections on Money, Morality and an Uncertain World http://www.npr.org/templates/story/php?storyId=1033

Green is also an ordained priest in the Church of England. In his book, he proposes a “new capitalism” that brings good business and good ethics together. He says moral and spiritual values should take precedence over immediate profit.

Green states that the imbalance was caused by emerging markets in places like Asia that were exporting, saving too much money and spending too little domestically. Then, consuming nations like the United States and the U.K. were spending too much and saving too little. In that context, there was a pervasive atmosphere, he says, where institutions didn’t ask a lot of questions about what was the suitable, fair or right thing to do, provided that they found a legal market for the financial product they were offering.

“When you look at the compensation practices in the financial industry there were clearly distortions,” Green says. He adds that it is “entirely understandable” that there’s widespread public anger over executive pay, especially in cases of companies that collapsed.

Perhaps if the message is delivered by a colleague and leader in the financial industry, it will be considered more practical and worthy of a valuable consideration to transform the future sales process of financial products and compensation for financial professionals.

It’s my belief and experience that financial advisors who offer authentic client-oriented service will prevail in the long-term.

Copyright 2010 Kathleen Gurney, Ph.D.

Trust Starts Here

I recently met with a group of investors who had one nagging thing in common: they no longer trusted anyone to help them invest their money. Their former trusted advisors, in their minds, were not objective enough, didn’t deliver satisfactory service nor understood how to meet their expectations. Their complaints sounded something like “I don’t trust anyone these days”; “I’m not crazy about the guy I’m working with but I don’t think I’m going to find anyone different—they all have their own biases and act on them”; “I’m keeping my money in cash and at least I’m sleeping at night. Of course, it is a hassle having multiple bank accounts to manage”.

This scenario is quite common as I’ve heard on the news and read in surveys. Bottom line is that we don’t trust our institutions whom we’ve entrusted with our financial well-being—our government, our banks, our money managers and our employers.

We’d all agree it’s not healthy to be fearful of our security and well-being, but that’s where the agreement and clarity ends. When we have to figure out how to change the situation, we tend to ignore any meaningful personal feedback of what led us into the current situation—greed, unrealistic expectations, irrational exuberance for starters. In addition, most lamenters share in a passive approach to mastering their own financial and personal affairs.

If I’ve learned anything about the psychology of money management all of these years, I’ve learned that greater self-trust is projected unconsciously onto others and leads to greater trust of others. We know that we’ll do everything in our power to act in our own best self-interest, control what we can and then do our best with what we can’t. So, it’s clear we need greater trust in our own capabilities and efforts to protect ourselves and act in our best interest. We have to spend the time and do our own work—whatever it takes to bring back a greater sense of certainty and control. If I don’t trust myself because of mistakes I’ve made then I can’t really trust others. I have to see and own part of the responsibility.

So we talked about this concept in the group and waded through a lot of resistance to really perceiving the role that each one of us played. I must say we all left feeling more empowered and motivated to push ahead. Sometimes it takes making peace with a dreaded situation and finding a way to deal and cope as best we can.

Over the many decades of giving advice on how to succeed in keeping New Year’s resolutions, I think about how I can make the advice unique in some way so that more people heed the advice and succeed in keeping their resolutions. But I ultimately come back to the advice that I know works when we take ourselves and our desires for change more seriously, so we walk our talk so to speak.

I’ve found three guiding principles that are easy to remember and quite easy to execute if kept conscious and actionable in our daily lives. So heeding the three R’s will work for you, also, if your resolutions are:

1) Reasonable, 2) Realistic and 3) Rewarding.

Your resolution(s) should be based on an attainable goal rather than wishful thinking and on a whim. They should be what you could reasonably and realistically achieve otherwise you’ll set yourself up to fail. Most of us set goals so that we can be rewarded by achieving them, so make sure the resolutions are going to pay off for you.

If one of your goals is to getter a greater sense of control over your money management in 2010, put systems in place in your daily life so that you have a sense of whether you are really achieving and will achieve that sense of control. Tracking money coming in and going out is just the beginning. Monitoring if you’re making the best use of your money will assure that this new system for achieving greater control actually becomes rewarding. If you don’t know what it is that you want your money to satisfy, it will never be able to bring you that sense of fulfillment. That’s where the “rewarding” factor comes in, so that you can sustain the new goal you set. Set up the goal for the new sense of money mastery and make it concrete and measurable so you know when you achieve it.

Most resolutions fail because old habits are tough to break and new ones hard to form without consistency, conscious effort and a sense of motivation to sustain this new behavior. An important part of maintaining our resolutions is being able to emotionally and financially support our goals and challenges. So, it’s not enough to focus on the finances. We must also focus on a plan to assure that our emotions don’t trip us up along the way. One way to do this is in keeping the actions required simple and small at first.

Small steps can lead to big gains if made consistently over time. Small steps are easier to make and easier to commit to in our already crowded lives. The small steps must be part of a strategy and plan, however that consistently lead to our desired payoff. They must be recorded somewhere so we are aware and responsible for following through. We want these small steps to become habitual and reflexive so they become a natural part of our lives. They have to fit into our schedule—putting them into the calendar with cues to remind ourselves that we must take action—will assure that they aren’t forgotten.

Rewarding ourselves for accomplishing these small steps will assure that our emotions cooperate and keep us on top of our game for change. So, remember small steps taken over time will lead to big gains. Now, let’s all get going and assure that we beat the statistics this year and keep our resolutions.

It may be easier if your styles of handling money are similar, but here, as with other characteristics, opposites attract. Ideally, couples should have a serious talk about their individual financial preferences before differences erupt. But in the era of romantic love (from the late nineteenth century on), we have felt that it somehow tarnished the purity of love to discuss it in the same context as money. As a result, the importance of money is generally ignored during courtship, yet it becomes a primary focus of contention during marriage.

In my years of counseling practice, the complaints I hear from married clients have changed little. A typical scenario might be: “My wife is an emotional spender. She’s not realistic about money.” “Money with him is a power struggle. My husband doesn’t hear me when I ask for things. He doesn’t know what it takes to run a family.” Some other classic mismatch combinations are: a serious money saver paired with a person who is admittedly ‘born to shop,’ a high roller/risk taker paired with a safety seeker afraid to take risks, and a materialistic status seeker paired with a bohemian. While these and other combinations all come with their own challenges and issues built in, there is hope.

WORKING THROUGH YOUR FINANCIAL DIFFERENCES

Be involved and invest in your relationship. It is one of your greatest assets in life. Understand your differences and plan around them. Take equal responsibility for managing your money so both of you are informed. For example, if one person routinely pays the bills, the other should file the paid invoices.

Respect each other’s differences instead of judging them. Look for patterns and issues that continually crop up and then look at what attitudes and feelings about money and what emotions are creating those behavioral patterns. Next, discuss ways to avoid falling into those patterns in the future. You might want to schedule a monthly “money talk” as a forum for these discussions. Remember that good financial communication works both ways – listening as well as talking. The price of not communicating is to proceed to the point where differences appear irreconcilable.

Watch for telltale signs of financial compatibility while courting. Deal with these issues when they present themselves. Don’t think it will get better when you are married or living together.

If you don’t deal with issues up front, your differences may get blown out of proportion. The key is to try to understand your partner’s feelings about money before lashing out in response. One of the most reliable ways to work with your partner is to take Moneymax®. It’s positive, eliminates emotions getting in the way, it’s fast and easy, non-threatening and objective. It shows potential problem areas to be discussed and considered, and reveals ways to manage money more harmoniously as a couple and ultimately in a way that will satisfy the needs of both partners.

In every couple, no matter what your income level is, there are daily decisions to be made about the allocation of money. Among low-income families, money is a constant source of irritation because of its short supply, but it may also be a chief irritant among the more affluent. A shortage of money is not usually the real problem in a money fight. The problem may be differences in attitudes, preexisting grievances, or any number of factors. According to the Family Service Association, of marriages ostensibly threatened by money arguments, only 6 percent of the couples were actually short of money. The most ferocious marital money conflicts occur when there are irreconcilable differences in money personalities, such as when a saver marries a spender.

It doesn’t have to be that way. Even if you haven’t met your ideal financial match, you can learn to diffuse the money conflicts in your relationship by discovering, understanding and working with your financial personalities. So turn your much ado about money into much ado about nothing.

Three years ago, Jim and Laurie were on top of the world, rich in money and spirit. They had done well in the stock market with their 401k plan. They were so confident in their future that they decided it was time to plan for retirement.

They had been researching second homes in the Southeast, and settled on the west coast of Florida—a good value for a waterfront condo. They stretched themselves and spent more than their budget allowed. As a result, they had to refinance their principal residence and take much of the profit that had accumulated. They put more money down on their new vacation home so the monthly payments would be affordable with their current monthly cash flow.

Like so many other couples, they never dreamed the market would plummet and that they would experience the “Great Recession”. They never dreamed they would lose 60% of the wealth they had accumulated for retirement. Moreover, Jim never dreamed that his job would be eliminated—yet Laurie and Jim were indeed hit with this double whammy of financial challenges.

When I met him, Jim had found another job. However, his salary was two-thirds of his former salary and he had the same level of responsibility. He worked long hours, seven days a week.

Jim and Laurie are similar to other American couples who had to digest and adapt to significant losses—both financial and emotional—that they weren’t anticipating. They could no longer afford the lifestyles they were living.

They were faced with the very scary pressures of meeting monthly payments that they no longer could afford. They thought they might lose their home. They were also starting to borrow money on their credit cards and unable for the very first time to pay off their monthly balances. Throughout 18 years of marriage, they had always made a point of paying off monthly balances.

When I met Jim and Laurie earlier this year, they were living with a great deal of financial and emotional stress. Laurie was feeling the effects physically. Jim was just trying to make it through day-to-day with his heavy work schedule; but he, too, was feeling the effects in not sleeping well and not getting any exercise.

Jim and Laurie had options they hadn’t explored. For example, they hadn’t thought of renting their condo, which had the potential of being a great vacation rental. They also hadn’t thought of meeting with their bank and other creditors and asking them to modify their monthly payments so they better reflected their current monthly income..

Although Laurie was initially upset at the thought of strangers living in her home, she quickly adapted to the idea when she learned how much rent their beautiful condo would provide—it would practically pay for itself with just the high-season rent. They would use it themselves, off season, when they could afford to get away. They wouldn’t have to give it up at all.

Jim and Laurie were fortunate in having the focus and persistence to make their new circumstances pay off for them. They took a realistic look at their circumstances, reached out for help, and then applied themselves in achieving the goals that mattered most. Their open and flexible mindsets empowered them to regain control of their money and their lives.