Traditional economic-only financial planning models often overlook the complex interplay of factors that extend beyond economic resources. Even when financial recommendations make perfect mathematical sense, unaddressed underlying issues can create insurmountable barriers to following them. If planners don’t understand what is happening in their clients’ lives holistically, they may find themselves fighting against invisible obstacles.

The Biopsychosocial Model offers a new compass for financial planners—not as a replacement for traditional financial planning, but as a necessary evolution of it that helps planners identify potential barriers to their clients’ financial well-being.

Understanding the Biopsychosocial Model

The Biopsychosocial Model looks at three domains combined: biological, psychological, and social. Each domain presents unique challenges and opportunities that must be addressed holistically. Together, they represent interconnected systems that influence each other and can collectively determine an individual’s financial well-being. Understanding each domain—and how they interact with and influence each other—is essential for developing effective financial planning strategies.

The Physical Domain

Good physical health functions as a primary financial asset—its depreciation represents one of the largest and most unpredictable liabilities on an individual’s personal balance sheet. Poor physical health is a potent financial stressor that rapidly depletes assets, increases debt, and destabilizes financial plans.

Poor health often creates a triple threat by creating direct financial burden, generating indirect financial burden, and causing psychological distress, which further degrades an individual’s cognitive abilities to navigate financial situations. This leads to a vicious cycle where poor health creates financial stress, which worsens health outcomes, which in turn creates more financial stress.

Actionable Strategy: Automate Financial Management Tasks

Systematize and automate financial processes as much as possible, especially for clients who are going through health crises. This might involve setting up guaranteed income streams such as annuities to cover basic expenses, ensuring dividend payments go to cash accounts rather than being reinvested, or establishing automatic transfers. The objective is to remove financial management tasks that consume cognitive space, allowing clients to focus their energy on health recovery or caregiving.

The Psychological Domain

This domain includes psychological factors such as mental health, cognitive abilities, financial literacy, and emotional well-being. Based on my research, this is a critical area for financial planners to consider because mental health is the single strongest predictor of financial well-being.¹

Clients who are experiencing psychological distress may engage in financial behaviors that appear irrational or self-defeating. This represents another vicious cycle that a client can get caught up in. Financial stress has a negative cognitive impact, impairing decision making and executive function. Impaired cognition leads to suboptimal financial choices, which in turn create more financial problems. Worsening finances create more financial stress, and the cycle continues.

Actionable Strategy: Frequent Check-ins

When a client is going through a high-stress period or a major life transition, consider implementing more frequent check-ins with them. These check-ins don’t need to be formal meetings but can be simple, caring messages that demonstrate genuine concern for the client’s well-being.

A simple text or email saying “I was thinking about you, hope you’re doing well” can be surprisingly powerful. When a client feels cared about, seen, and remembered, it can help pull them out of psychological distress and prevent them from making poor financial decisions during emotional turmoil.

Check-ins like these help transform the advisor-client relationship from purely transactional to genuinely relational. This human element is becoming increasingly important as it represents something that cannot be easily replaced by advancements in artificial intelligence technology.

The Social Domain

This domain includes relationships, support networks, caregiving responsibilities, and community resources. Complex social dynamics bring a counterintuitive finding in this area: a negative relationship between social connections and financial well-being. This likely reflects financial strain from caregiving duties, direct financial support to family members, and other social obligations that create a financial burden. However, social isolation and loneliness are also health and money risks. Despite the financial costs associated with them, social networks function as a crucial financial safety net, especially for older adults.

Actionable Strategy: Discuss Family Financial Liabilities

To help mitigate the negative impact of a client’s social network, planners need to initiate difficult but crucial conversations about family financial liabilities. Starting these conversations requires intentionality and the courage to simply begin. The key is in making space for them to occur and having the confidence to explore beyond surface-level financial topics with your clients. Two areas to look at include your clients’ intended bequests and other familial financial support.

Many clients have already mentally allocated their intended bequests, which can significantly impact how they view their available assets. For example, if a client has one million dollars but has mentally allocated $400,000 for their children, they effectively view only $600,000 as available for their own retirement planning. If the planner hasn’t uncovered this mental accounting, they will struggle with asset allocation recommendations that the client perceives as threatening their children’s inheritance.

Another common family financial liability is a desire to provide financial support to their family or friends. At times, this comes with a risk to their own finances. In these cases, it often helps to have a conversation with them about setting boundaries and putting their own mask on first. Before they can help others, they need to be healthy and financially viable. If they aren’t, then they will only be able to help others for so long.

Leveraging the Biopsychosocial Model in Your Practice

The Biopsychosocial Model offers a framework for understanding how physical health, mental well-being, and social relationships all impact financial decision making and outcomes. While incorporating these factors into your process makes financial planning more complicated, that doesn’t make it less worthwhile. The Biopsychosocial Model provides a more comprehensive understanding of client needs and behaviors, leading to better outcomes for both clients and planners.

Watch my on-demand webinar, The Graying of America: Why the Biopsychosocial Model is Your Most Valuable Tool for Older Adult Financial Planning, to delve more deeply into the Biopsychosocial Model and to get more actionable strategies for applying it in your practice.

Sources

1. Bennetts, Chet. “Biopsychosocial determinants of financial well-being in older adults: A structural equation modeling approach.” PhD diss., Kansas State University, 2024.

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