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How to Talk About Lifestyle Creep with Clients

Emily Koochel September 8, 2022

Understanding your clients’ wants and needs for their lifestyle is a critical part of delivering accurate financial guidance.

Clients generally think of their lifestyle as their chosen living conditions and typical habits. Lifestyle spending accounts for an individual’s needs, which are must-haves for a safe and healthy life, as well as their wants, which may make life easier or more enjoyable.

The “creep” in someone’s lifestyle occurs when their spending starts to persistently increase. Lifestyle creep can grow slowly over time, or it can grow rapidly when an increase in income leads to more spending.

By simply helping clients to identify when lifestyle creep is occurring, financial professionals can add significant value. If you can educate clients on how their spending behaviors may hold them back from the future they envision, you will create lasting impact on their financial lives.

Why Lifestyle Creep Can Affect So Many

How many of your clients would agree that at some point their spending creeped beyond what they thought?

There is no income range or household profile that falls prey to this—actually, consumers across the wealth spectrum battle lifestyle creep. This habit has even become coined in society with the term ‘keeping up with the Joneses.’ But not all lifestyle creep is about comparing ourselves to others.

It can start when one more small indulgence, like buying a daily coffee, becomes a need. These small habits compound and progressively take up more of the budget. It can happen as consumers get more comfortable with their financial situations and they exhibit less scrutiny towards their finances than they once did. Something once considered to be luxurious or aspirational becomes a necessity.

The sneaky part about lifestyle creep is that it can come on very unconsciously. People become pretty gracious to themselves when they stop being as diligent about where their money goes. When an individual gets to a more secure and stable point, whatever that means for them, they may relax a little bit. That relaxation can allow for spending increases or the larger adjustments to whatever that new luxury is that is no longer being accounted for.

In a market where inflation has reached its highest levels in over 40 years1, the cost of people’s wants and needs are rising, and suddenly spending has increased as well. According to our recent consumer survey2, advice-seekers want help on better understanding their spending and savings, to identify any discrepancies their current behaviors have on their future goals.

Tapping into Emotional Intelligence to Track Your Clients’ Money Mentality

Each person has their own set of ideals and emotions about money—their money mentality. Shaped by someone’s personal history, their money mentality influences their thoughts, feelings, and actions with money.

For a client whose goals are a moving target or is outspending themselves and can no longer maintain the standard of their lifestyle, there is emotion attached to any reset or adjustment they may need to make. This can be quite difficult for people as they have gotten accustomed to a new “need.” They may be feeling shame, guilt, and stress about their situation.

To help, financial professionals must tap into their softer side. An empathetic approach is necessary to discuss lifestyle creep and guide clients on how to better align their goals and behaviors. In particular, financial professionals can assist clients with closer observation of their spending and further discovery into their money mentality.

Creating Awareness About Clients’ Lifestyle Creep

To move forward, sometimes the best idea is to take a step back. Financial professionals can begin to help clients by challenging the basic truths in their money mentality alongside the reality of their spending. Ask clients to tell you what they think they are spending. And then together take a look at what they’re actually spending.

Because the creep in lifestyle spending can feel small when people don’t feel it rising, conducting a spending exercise like this will enlighten clients about the impact their transactions are having. Having up-to-date account records allows financial professionals to have a data-driven approach in the discovery. They can be specific with clients to uncover more of the why behind their spending behavior.

Awareness and Identification of Current Habits Builds Room for Change

This spending exercise also creates a solid foundation for you to provide further support by:

  • Staying proactive with monitoring. Help clients create a system to keep a close eye on their spending, such as digital access to account aggregation and budgeting tools.
  • Inspiring new thinking. Foster your clients money mentality by using ‘what if’ questions and modeling scenarios for them to react to. For example, show them that as their living expenses increase, their savings rate must rise as well to accommodate additional income needs in retirement. Framing their behavior as goal reevaluation keeps it personal to them and may help them stay motivated.
  • Providing education. Whether it’s through having discussions with them or sharing content that is relevant to their situation, building their financial knowledge will impact their money mentality.
  • Partnering with them. When making recommendations inside of the financial plan, it’s well-received when it seems that both parties are putting in those efforts. For example, “Client, I would like you to go check on this and send me X statement. In the meantime, I’ll look into this suggestion that I gave you and share that back with you.” Having mutual accountability is especially helpful when somebody is feeling so overwhelmed and they need reassurance you’re in it together.

Client Discovery Is Continuous in the Planning Process

We know that money is deeply personal and that clients’ attitudes towards money and their actions with money are constantly evolving. Understanding a client’s values is an essential step in building them a realistic financial plan that will help them achieve their most important goals.

Whether it’s helping them adjust from lifestyle creep or determining what their financial goals are, asking the right questions throughout the course of your relationship can help surface productive conversations that inevitably inform the ongoing process of planning. Here are 44 questions that can help start the right conversations.

To learn more about helping couples who have financial communication issues, watch the webinar embedded below. Experts Meghaan Lurtz, Ph.D., FBS™, and Megan McCoy, Ph.D., LMFT, AFC®, CFT-I™, join me to discuss financial management considerations for both partners.

 

Sources:

1 Ivanova, Irina, “Inflation Hit 9.1% in June, Highest Rate in More Than 40 Years,” CBS News, 13 July, 2022.

2 eMoney Consumer Pulse Survey, July 2022, n= 1,201

DISCLAIMER: The eMoney Advisor Blog is meant as an educational and informative resource for financial professionals and individuals alike. It is not meant to be, and should not be taken as financial, legal, tax or other professional advice. Those seeking professional advice may do so by consulting with a professional advisor. eMoney Advisor will not be liable for any actions you may take based on the content of this blog.

About the Author

Dr. Emily Koochel is an experienced financial professional, academic, and researcher. She currently serves as a leader for eMoney Advisor’s Financial Education and Wellness initiatives in her role as the Senior Financial Planning Education Consultant. Dr. Koochel’s PhD in Applied Family Science and Master’s in Financial Planning provide a multidisciplinary lens to inform her work where she focuses on understanding the effect of financial behaviors and financial decision making on personal and financial wellness. She serves as a subject matter expert in the field, reviewing and authoring peer-reviewed journal articles, book chapters, and contributing to public scholarship. Most notably, she served as a co-author for the CFP Board’s book – The Psychology of Financial Planning - and was awarded 2020 Outstanding Research Journal Article of the Year by the Association for Financial Counseling and Planning Education. She holds the Certified Financial Therapist – I designation and is an Accredited Financial Counselor.

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