Jeffry Merril Liando (2002)
1. Introduction: Psycho-spiritual Aspect as Key Result Area
The psycho-spiritual aspect of personal financial planning inevitable takes place as clients deeply rely on and expect too much of their financial planner’s care. This is fairly seen as the impact of financial planner’s effort to build a strong and ongoing relationship. In this essay, a psycho-spiritual aspect is defined as a view in searching a client’s psycho-spiritual issues relating to valuation of a client’s ongoing peace of mind. Ongoing peace of mind is a remarkable main outcome of the financial planning relationship,[1] therefore this can be taken as a goal in a key result area (KRA) of psycho-spiritual aspect (PSA) for a personal financial planning (PFP) enterprise.[2]
The goal of maintaining client’s ongoing peace of mind in the KRA of PSA can be stated in objectives on which each of them is specified, measurable and possible to result an appropriate outcome in a period of time.[3] All of the outcomes are simultaneously used to achieve the goal. This essay is directed to discuss the concept, method and process of setting the objectives, appraising the PSA based on the money consciousness concept through a method of defining the key factors of prosperity and a process of qualitative valuation in the framework of the PFP process. The objectives are specified by defining the key factors of safer, happier, richer and benevolent, measurable on the critical values decided on a client’s concerns, and possible to achieve with a planner’s recommendations with respect of the financial ratios as the outcomes. All the outcomes are used to prejudge a client’s PSA condition whether prosperous (ongoing peace of mind) or scarce condition in the process of qualitative valuation. If in realisation of planning the valuation indicates prosperous condition, then financial planners achieve the goal of a client’s ongoing peace of mind and a client is recommended to follow a stewardship program.
Financial planners realise their limits in covering the psycho-spiritual aspect although they work closely with a client’s dreams, emotions and hardships.[4] This also regards the rule of competence that ensuring the member of the Financial Planners and Insurance Advisers Association Incorporated (FPIA) in New Zealand to perform services on a competent, efficient and business-like manner and only advise in those areas in which the member has competence.[5] Therefore, in order to display the PSA as a justified strategic form, it is necessary to simulate the whole strategic in the framework of the personal financial planning process. This can be seen in appendix 1, which only describes the goals of each KRA and its objectives concerning the code of ethics and professional conduct of the FPIA Association Incorporated, New Zealand.
2. Money Consciousness as Basic Concept
The basic concept used to interpret the psycho-spiritual aspect is that the money consciousness. A money consciousness is how a person feels, think, and believe about money. This consists of a prosperity consciousness (PC) and a scarcity consciousness (SC). People with a PC know that there is a limitless supply as they will receive and can generate their share more. On the other hand, people with a SC never have enough and are afraid of losing whatever they own. In other words, the PC indicates certainty in finances whereas the PC indicates uncertainty.[6]
Inconsistency in a Client’s Judgement
However, a view in the framework of capitalism-individualism suggests that there are always factors of competitiveness, unequal power and upgrading capacity in people’s mind, which may influence them to wonder whether there is a certain profitably limitless supply of money every time or not.[7] People can have their own judgement based on their record, current status and achievement. Thus, it is possible that one who actually has a PC will feel, think and believe having a SC anyway, or vice versa. Here, the role of financial planners can be to give them appropriate advice using reasonable and prudent judgement based on the fact of diagnosis, which honestly showing their financial condition. Planners then direct them to accept upgraded or downgraded objectives in the recommendation, which financially showing genuineness.
For example, a client feels have failed to upgrade his car $10,000 to a $30,000 car after five years and fears that his colleagues may underestimate him (a SC). By showing his record, he can be judged success (a PC) when brought both his wife and daughter together to Europe attending his son graduation two years ago as he spent $9,000, three times bigger from the budget. Then, he may be recommended to make a new plan to upgrade his car for $20,000 and buying his daughter a $10,000 car for the next five years and encouraged to be proud of his achievement on his son’s education. Another example, five years later he feels success to upgrade for $50,000 car and buy a $10,000 for his daughter and do not fear anything (a PC). By showing his current status, he can be judged failed to control his daughter expenditures costing $10,000 in the current month. As a result, the amount overdraft and credit card is notified over than 30% of call deposits as planned and there will be significant interest loss of 5%.
Money as Energy
From a holistic point of view, money is thought often of as energy that is not a thing to be possessed but an action to transact, transfer and exchange.[8] The psycho-spiritual view of this concept is how human being uses money for purpose and finds satisfaction by not looking at the amount but through assessing the positive things affected when achieving, aligning and balancing the goals. For example, for the same amount of personal income, it can be derived whether from an independent income from salary or a dependent income from income support. Paying for purchases can be considered whether on cash or by credit card. Loans to family member can be decided eventually as a gift. Moreover, there are choices when allocating funds whether for buying lifestyle assets, holiday, travel, saving/investment or charity.
3. Defining the Key Factors of Psycho-spiritual Aspect in Financial Planning
In order to apply the PSA in PFP, using the interpretation of money consciousness and money as energy, financial planner can judge a client’s psycho-spiritual conditions whether prosperous or scarce, using qualitative valuation. Although both conditions can be known based on a client’s judgement, several general factors need to be defined by financial planners when carrying out the PSA in the PFP services. Defining the factors that are significant in judging both conditions, financial planners can then ask a client to determine his or her tolerance in numbers for particular factors. For example, one of particular factor of a prosperous condition is to have appropriate overdraft or credit card facilities. After asked, a client determined that his secured bank overdraft and credit card facilities has to be up to 30% of call deposit account with interest loss level up to 1%.
Money Capacity
Hence, the factors to view psycho-spiritual conditions will be discussed in regard with the rationale of money capacity. Money capacity can be suggested as one’s ability in both action and amount to transact, transfer and exchange in and over lifetime. Relating to the personal financial planning process, a full capacity of money may include all items of balance sheet, income statement, budgeting, portfolio management, risk management, retirement planning and estate planning. For the purpose of defining factors of PSA in the framework PFP, a full capacity consists of a given capacity, a psycho-spiritual capacity, and a disregarded or irrelevant capacity.
Basic Assumption of Given Capacity
As basic assumption, a given capacity of money means a client’s ability to handle all basic expenses, mortgage, all items in risk management and taxations using current account funded by his regularly permanent personal income. This also means a capacity that has to be existed, sustained and stable, therefore as given factors these do not have any effect to the peacefulness and the fearfulness in a client’s mind in financial planning. Every people must cope all their basic living expenses, have and repay the mortgage for housing, cover all the risks they have, such as emergency fund, income protection, security of the home, provision in the event of debt and health cover. It is important to note that covering risk by providing emergency fund relates to maintaining unused capacity of bank overdraft and credit card along with accumulating fund in call deposit account.[9]
The Key Factors Indicating Prosperity from Psycho-spiritual Capacity
A psycho-spiritual capacity can be then defined as a client’s ability to provide money for the purpose of: (1) repaying bank overdraft and credit card without any significant interest loss, being safe as showing accountability to creditors, (2) financing lifestyle assets expenditures and travel and holiday expenses, being happier as realising dreams and enjoying life, (3) rising net worth, being richer as sustaining growth, and (4) giving a portion for charitable funds (or other types of donation), being benevolent as shares grace to others. These four factors, in my opinion, are then the most suitable and reasonable factors to view and judge a psycho-spiritual condition whether prosperous or scarce.
Irrelevant Capacity in Displaying the Psycho-spiritual Aspect
A disregarded or irrelevant capacity, which can be disregarded and is not relevant to concern only when examining a client’s current psycho-spiritual condition, is ability to finance financial assets gaining appropriate returns (as in portfolio management) and to provide appropriate funds or net worth for retirement planning and estate planning. Portfolio management seems like more technical-analytical aspect, moreover this factor is likely refers to examining a financial planner’s competence in advising a client’s portfolio decisions. Retirement planning cannot be chosen as a PSA factor because it depends on how great a client generates net worth before retired. Being prosperous at retirement depends on being prosperous when still productive. Estate planning has been covered by the term of life insurance in the given capacity of risk management.
In conclusion, taking the four factors defined in the psycho-spiritual capacity as the required conditions, a prosperous condition can be judged as a condition on which a client is safe, happier, richer and benevolent. On the other hand, a scarce condition can be judged a client is not having all of the criterions together. The critical values of the factors or criterions are therefore decided based on a client’s concern, worry or desire. However, to portray the PSA in the PFP process using the defined factors above, qualitative valuation is need to employed.
5. Qualitative Valuation in Portraying the Psycho-spiritual Aspect
Financial planning is an art therefore should not be identical between the clients and covers unique requirements and circumstances (the psycho-spiritual aspect) as much as possible to gain from the services provided applying a “modular” planning. Ongoing peace of mind should not be ignored as a main outcome of the financial panning relationship. The key factors determining the successful outcome “are highly dependent upon the planner’s ability to establish empathy and trust with the client and to build a strong and ongoing relationship.”[10] Therefore, a client’s ongoing peace of mind about money can be used as a measure of achievements in establishing empathy and trust along with building a strong and ongoing relationship. However, a client’s current financial condition as caused by his decisions is viewed quantitatively whereas on going peace of mind about money is a qualitative measure.
Overall Process of Qualitative Valuation
The technique of portraying the PSA in the PFP process uses qualitative valuation. At the stage of establishing goals and objectives in the PFP process, qualitative valuation starts through offering a client the four PSA factors as qualitative criterions, i.e. safer, happier, richer and benevolent, and then determining the critical values of each factor using financial ratios. Then, it continues to qualitative assessment, which is carried out mainly at the stage of regular review and monitoring for the purpose of PSA analysis. Quality assessment consists of two steps, first, through financial ratios analysis detecting each factor of qualitative criterions regarding its critical values and concluding a client’s condition as a planner’s prejudgement. Second, through interview observing each factor of qualitative criterions regarding its attitude scales and finding out a client’s judgement of PSA condition. Third, based on early warning signal system, determining the level of critical values of the PSA factors to predict a prosperous condition in the future.
Financial Ratios Representing Key Factors
At the first step of quality assessment, financial ratio analysis is used to evaluate the four PSA factors focusing on bank overdraft and credit card balance, expenses for lifestyle assets, travel and holiday, net worth balance and disbursement in charity donation. This will refer to both cash flow and balance sheet items shown in a client’s financial report and several financial ratios used in financial modelling and analysis.
The first factor is to ensure that a client is able to repay and gain both bank overdraft and credit card without any significant interest loss. This can be interpreted by comparing the total amount of bank overdraft and credit card account to the total amount of call deposits. Moreover, any significant interest loss can be interpreted by comparing the total accrued interest fees payment of bank overdraft and credit card to the total accrued interest incomes receipt of call deposits.
Here, client is asked to determine concerned percentages for both ratios. Client is recommended to avoid using overdraft and credit card to cover all basic living expenses (incl. foods, clothing, accommodation and transportation), mortgage repayment, insurance expenses (incl. health, income, life and house insurance), and taxes. Besides that, client is expected to have willingness to keep an appropriate amount for saving and call deposit accounts along with keeping an unused capacity for overdraft and credit card facilities in the current account. However, this is done after covering other expenses, such as investment cost (on planner’s advice), entertainment expenses and lifestyle assets.
The second factor of condition is to ensure that a client is able to finance lifestyle assets purchase and pay for other expenses (including dinner-out, shopping, holiday, entertainment and overseas travel). The ratio for this is the comparison between actual and budgeted of other expenses plus life style assets expenditure. Here, a client is asked to determine concerned percentages for the actual-budget variance and committed to spend expenses more than or at least equal to those he has planned or dreamed.
The third factor of condition is to accelerate the net worth every time. This can be interpreted by calculating the growth of the net worth every time. Here, a client is asked to determine a desired growth every time. A client has to understand that the growth cannot go down at least it has to be maintained at same level.
The fourth factor of condition is to ensure that a client as a success human being has given a portion of his income by sharing grace in charity or any other donations to others or society. The ratios are suggested as follow, total charity and other donation to total interest income and total church donation and gifts to personal income. This seems like idealistic because a client is unlikely to mention how much they have spent for those. Therefore, this factor can be assessed only with a client’s honest himself.
From diagnosing of these four factors, a financial planner would be able to analyse a client’s PSA condition, as a prejudgement, whether a client is in prosperous or in scarce. A client can be said in prosperous condition if all of the conditions are achieved, whereas a scarce condition is judged if any of those are not achieved.
However, the prejudgement at the first step of valuation may be inconsistent with a judgement, which a client really feels, thinks and believes. This regards the limits of financial planners in applying PSA in PFP. As the ongoing peace of mind can be considered as an expected outcome the financial planning relationship, a prosperous condition should reasonably and prudently be portrayed by a financial planner. Therefore, a planner has to conduct an interview, at the second step of valuation, diagnosing the factors of PSA and analysing qualitative conditions to find a client’s judgement. This can be done through questioner with attitude scaling basis.
As the process occurs during the time of planning relationship, qualitative valuation can continue to the third step, that is an early warning signal system. Using statistical probability methods, a prediction model of a client’s condition in the future is judged by scoring the multiple regression function of the PSA factors. By putting current ratios of PSA factors into the function, the probability of prosperous condition then can be predicted. However, this method is not discussed further in this essay.
Stewardship and Coaching
After undergoing the qualitative valuation of PSA analysis, financial planners will know a client’s condition whether prosperous or scarce condition. If a client’s condition is prosperous, this means that a client has the ongoing peace of mind and thus the planner gets achievement in providing PFP services to him. However, there is a follow-up service relating to whatever the condition is. For prosperous condition, the follow-up service can be a stewardship, and for scarce condition, the follow-up service can be a coaching.
The concept of stewardship is explained as: “implications for the handling of money are especially evident in twentieth-century understanding of stewardship. These implications include exercising fiscal responsibility in the budgeting and spending of one’s money, giving a portion to charitable causes and restraining one’s expenditures on unnecessary consumer goods. Stewardship thus has implications for the normative restraint of economic life.”[11] In the framework of financial planning, this can be interpreted as the fourth factor of PSA discussed above. Here, the role of financial planner is to take responsibility in allocating the surplus of a client’s net worth to charity, other donation, church donation or gifts. Financial planner has capacity to connect a non-profit organization, such as charity foundation, church, mosque or local social organization either on a client’s order or as offered as financial planner’s initiatives. For a qualified client, there would be a yearly program of “public award of successful human being” given by coordinating the event with public media services.
Coaching as a tool of carrying out the PSA in PFP is defined by the International Coaching Association: ”Professional coaching is an ongoing partnership that helps clients produce fulfilling results in their personal and professional lives. Through the process of coaching, clients deepen their learning, improve their performance and enhance their quality of life.”[12] This technique is useful for a client with a scarcity condition as financial planner has capacity to develop a client’s psycho-spiritual condition relating to personal life, work, business and social relationship. For example, introduce a client to personal development program, seminar or prosperity website, or conduct a meeting between clients for the purpose of digging the story one’s success to be shared to others.
7. Conclusion
In conclusion, displaying the psycho-spiritual aspect of financial planning is quite hard and complicated to put into practice. Financial planners may offer this technique as ensuring the financial planning outcome of a client’s peace of mind. However, there is a cost for a client as he or she is helped to understand financially his or her prosperity condition regarding the four key factors as the indicators. Meanwhile, financial planners initially state to take full responsibility in the risk management and portfolio management they offer in the services.
[1] Ed Vos: 2001, p. 42.
[2] The ongoing peace of mind is becoming more important after achieving the material goals the needs to include a comprehensive goal that concluding the psycho-spiritual views of a client’s condition. In conducting a personal financial planning business, the goal of ongoing peace of mind can be put as one of the key strategic factors.
[3] Hunger, J. David: 1996, p. 11. As the goal is too broad, this can be narrowed into the statement of objective in achieving the ongoing peace of mind of client. However, with such accounting financial ratio analysis, this can be quantitatively measured.
[4] Maureen EP Irish, Journal of Financial Planner, April 1999.
[5] Rule 2: Competence, Code of Ethics and Professional Conduct of the FPIA, New Zealand.
[6] As suggested by Joan Sotkin in her article about the framework of holistic approach to financial planning in Prosperity Place.Com, May 2, 2001.
[7] This regards the concept of inequality in the framework of capitalism-individualism explained by Goetz Kluge in Poorcity.Richcity.Org. http://poorcity.richcity.org/entdiff.htm
“ In a system consisting only of unintelligent wealth (E) and intelligent people (A), looking at redestribution in terms of osmosis helps to distinguish between two extreme (as such non-existing) cases and to create a third case:
- Merit: If unintelligent wealth cannot move and intelligent people are mobile, distribution determined by people is the result.
- Luck: If unintelligent wealth is mobile and intelligent people cannot move, arbitrary distribution to people is the result.
- Luck and Merit: If unintelligent wealth as well as intelligent people are mobile, arbitrary distribution and determinable distribution coexist. This is reality.
Capitalism, individualism: For this equivalent society, wealth is a "territory" for which individuals compete by merit. Pure capitalism, a free market and pure individualism are the reference ideologies for this system. In order to describe the extreme side of capitalism we use its socialist caricature: no emphaty between individuals; permanent and "hot" fight between individuals; winner takes all (unfair distribution of all wealth: a part of all individuals own everything); personal advantage only is dominant incentive; trade is war.”
[8] As suggested by Ronnie Kahn in Journal of Financial Planning, Feb, 2001.
[9] Ed Vos, 2001, p. 48.
[10] Ed Vos: 2001, p. 41-42 and p. 60.
[11] Robert Wuthnow, Religion and Economic Life, in “The Handbook of Economic Sociology”, 1994, p. 363.
[12] As suggested by Mell McDonnell in Journal of Financial Planning, October 2000.
Bibliography
Ed Vos, Personal Financial Planning for New Zealanders, 2nd ed. 2001, Dunmore Press Limited, Palmerston North, New Zealand.
Goez Kluge, Wealth and People: Inequality Measures, What's the difference? © Munich, 1999/03/28. http://poorcity.richcity.org/entdiff.htm
J. David Hunger and Thomas L. Wheelen, Strategic Management, 5th ed. 1996, Addison-Wesley Publishing Company, Inc, USA.
Joan Sotkin’s, Money. 2000, Prosperity Place, Santa Fe, USA. http://www.prosperityplace.com/excerpts/money.html.
Robert Wuthnow, Religion and Economic Life. In “The Handbook of Economic Sociology”, Neil J. Smelser and Richard Sedberg, editors. 1994, Princeton University Press, New York, USA.
The Code of Ethics and Professional Conduct. 2000, Financial Planners and Insurance Advisers Association Incorporated, New Zealand. http://www.fpia.org.nz.
Journal of Financial Planning:
Catherine Newton, Letting Go: When Planners and Clients Part Ways. Journal of Financial Planning, October 2000 ed. 2001, Financial Planning Association, Denver, USA. http://www.journalfp.net/psychology.cfm.
Maureen E.P. Irish, Psychology and sipirituality: How deep do planners want to go? Journal of Financial Planning, Denver, April 1999. Lecture file.
Mell Mc Donnell, Getting to Know You. Journal of Financial Planning, October 2000 ed. 2001, Financial Planning Association, Denver, USA. http://www.journalfp.net/psychology.cfm.
Ronnie Kahn, Money Consciousness: A Psychospiritual View of Financial Planning. Journal of Financial Planning, February 2001 ed. 2001, Financial Planning Association, Denver, USA. http://www.journalfp.net/psychology.cfm.
APPENDIX 2
copyright by Jeff Liando 
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