The idea of happiness needs to be applied to the financial planning process, founder of the Institute of Financial Wellbeing and author of two financial wellbeing books Chris Budd says.
Speaking on the NextGen Planners Podcast, Budd discussed his new book ‘The Four Cornerstones of Financial Wellbeing: Create a Pathway to a More Healthy and Meaningful Life' with Adam Owen.
In the podcast, he said there was an the "intricate" link between happiness and our interactions with money, which Budd argued needs to be applied to the financial planning process.
"The relationship between money and happiness needs to be understood," Budd argued.
Budd highlighted the importance of understanding a client's mental landscape and how good financial planning can support a positive outcome. This means creating a financial plan to be happy.
He discussed how this has not been previously recognised in the advice industry as the financial planning process only focuses on money.
Budd also noted that financial advice is still a new profession as it is "only a decade old" and was not needed previously.
"We are a new profession, and we are learning," he noted.
The idea of including the idea of a client's happiness in the financial planning process is a "development" of the advice profession - financial wellbeing is coming to the fore.
In his new book, Budd discusses the idea of the set point theory.
This is a psychological theory that we go through life at a set level of happiness and each of us have our own set level. We only temporarily rise above or below our set level of wellbeing when something good happens or something bad happens, respectively.
He used the example of when we are below our set level we make purchases, known as ‘retail therapy'.
Budd noted recent research that has shown that 50% of an individual's happiness is inherited, 10%is circumstances, 40% is intentional activity.
Budd argued that financial advice is only focused on the 10% and advisers should work on the 40 percent instead and focus on the client's approach and intentions towards money.
"We have been looking at the wrong place," he stated.
He continued and said that an adviser can encourage a client to change their intentional activity to make them happier.
Budd suggested that advisers can ask the following open questions to clients: ‘What makes you happy?' or ‘Where does purpose comes in your life?' which will in turn encourage the client to open up. After that the financial planning journey can begin.
"We need to help people be happy not just wealthy," Budd concluded.
