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Three surprising ways you can help your clients save

Getting people to set money aside involves tapping into their psychology – and forcing their hand.


Date: March 8, 2016

Questions about how to meet savings goals are a perennial favourite for clients of financial advisors. “It’s a common theme,” says Rona Birenbaum, president of Caring for Clients in Toronto. “They’re looking for tricks to make that happen.”

Those tricks involve capitalizing on behavioural economics, adds Marc Lamontagne, a financial planner with Ryan Lamontagne Inc. in Ottawa. He says that getting people to stay on track with their savings really comes down to forcing them to change – and preventing them (with their buy-in, of course) from accessing their savings all too easily.

Here are three ways that advisors can help clients save more money.

Approach budgeting like it’s a fitness plan

People often compare saving with dieting. It’s not a lot of fun, it’s hard to do and it generally takes time before you see results. Technology, though, has helped people lose weight. There are numerous diet apps that track how many calories someone burns working out – and how many they’ve ingested.

Using technology to track spending can work in a similar way. A site like You Need a Budget (YNAB) forces users “to plan their spending in advance, where they’re accountable for what they spend on a day-to-day basis,” says Ms. Birenbaum. She regularly tells her clients to make use of this site.

Here’s how it works: A client creates a budget for something and then the program displays how much they have left in any given category, based on the settings the user has previously established.

So, if a client has allocated $200 to their meal budget, YNAB will show how much of that sum is left at any point in time. And because the program includes a mobile app, that reality check can happen anywhere.

But as with dieting, saving has to be adhered to.

“Like anything, it requires commitment,” says Ms. Birenbaum. “It’s like having a gym membership – you won’t lose weight if you don’t go.”

The payoff, though, is knowing exactly what you’re spending and being able to control it.

Borrow to save

Most people equate loans with debt, and feel that debt is best avoided. But advisors may want to get their clients to rethink that idea, says Ron Graham, president of Edmonton-based Ron Graham and Associates.

“I find people are very good at paying off loans – but not saving money.” For that reason, he says, using loans to save can be a very effective approach to saving in a low-interest-rate environment.

Borrow some money, make an investment and then pay off the loan, is Mr. Graham’s advice. For example, if a client wants to save $1,000 per month, he advises that they borrow $10,000 in January and invest it, and then put $1,000 a month back on their line of credit.

“So over the year, their line of credit is down to zero, but they own those securities for the whole year,” he says.

Of course, this is a risky savings route to take. A client will have to be able to actually pay back those funds and cover any interest costs that they may accrue over time. There’s a general rule of thumb around borrowing to invest that says if you can’t pay back the money with in a year then don’t do it.

But keep in mind that this is savings strategy – the idea is to create a situation where you have to save. In this case, the saving is upfront – that $10,000 goes into an investment account – while the $1,000 a more disciplined client would have saved per month gets paid back to the bank. Again, only take this route if the client can pay the money back.

Use patterns to build savings

People love patterns, and once they’re in one, it can help them to save inadvertently, says Mr. Lamontagne. A car loan, he suggests, is an excellent way to use patterning as a savings strategy.

“If you get a car loan, it would be paid after four or five years. At the end of the four or five years, what would happen is, [a client would say]: ‘Oh, that’s great – it’s paid off, I have more money to spend,’” he says. “What they should be doing is saying to themselves, ‘I’ll always have a car payment.’”

Clients should already be used to spending less money because of the previous loan, so once it is paid off they should continue on the same track and start saving the exact same amount as the former car payment.

“That way, you just always keep that money aside,” says Mr. Lamontagne.

The key, say experts, is knowing how clients behave – and using these behaviours to ensure they forcibly save.

“Ultimately, [advisors] have to deal with the psychology of money and the day-to-day decisions that people make,” says Ms. Birenbaum.

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