How to help clients facing economic stress: volatility, high interest & record debt

The past decade has been a rollercoaster ride for financial clients. After the Great Recession and global crisis of 2008–2009, recovery took time and a great deal of government intervention.1 Eventually, economic expansion returned, peaking in 2020 before taking a COVID-19-induced nosedive.

Ongoing pandemic ripple effects, including impacts on consumer mindsets, have led to market conditions that few investors have much experience navigating: rising interest rates, high inflation and wages that haven’t kept pace with prices.

How are clients responding to the onslaught of financial challenges? Record consumer debt‌ — ‌and after several financial institutions collapsed in early 2022, commercial bank deposits stumbled and remain vulnerable to bank runs.2 That’s a lot of volatility to handle over a single decade, especially those with retirement beginning to loom close on the horizon. 

It’s not hard to understand why a client might overreact or allow stressful news to push them into investment decisions they wouldn’t ordinarily make. 

As a financial professional, you’re in an ideal position to help clients shore up their current circumstances with a financial plan to address their debt, which can help them reduce some of the stress that clouds investors’ thinking and leads to rash moves.

Clients can also benefit from a better understanding of what goes on in their own heads when volatility hits, and guidance on how to prevent their own emotions from becoming another risk to their financial futures.

Empower clients with debt management guidance

In 2021, 11% of adults with a bank account paid an overdraft fee during the preceding year — an issue more common among those with lower incomes, younger people and those with less education.3 The struggle with household debt continues, with the Fed reporting a 13.1% increase in revolving consumer credit (reaching nearly $1 trillion) in May 2023 after falling throughout 2020 and 2021.4, 5

You can help clients reduce their debt burdens by creating a realistic budget and exploring financial planning options that prioritize high-interest debt. Clients with high balances on high-rate or high-fee cards may be able to call their card companies and negotiate lower rates and fees. Some may even benefit by reaching out to their financial institutions to consolidate credit card debts into a lower-rate loan or balance transfer card. And be sure to educate those clients about predatory lending and how to avoid risky borrowing in the future.

Many Americans are also facing challenges with affording their mortgages, as home prices and interest rates have both been on the rise. Putting your financial planning skills to work can help homeowners lock down more affordable mortgage terms, whether that means refinancing at a new rate or loan term, making extra principal payments or even identifying available mortgage relief or forbearance options in the case of hardship.

Prospective home buyers might benefit from a little “real talk” about affordability. Encourage clients to be aware of all their options, including downsizing or relocating to more affordable housing.

Acknowledge market volatility

Many Americans are feeling anxious about the stock market, especially as inflation and interest rates rise. The inherent risk of investing in markets can simply feel bigger in the context of higher costs. You can help clients cope with volatility in several ways:

  • Encourage diversification
  • Rebalance regularly to maintain their intended asset allocation
  • Review risk tolerance and time horizon
  • Focus on their core values and long-term goals

Keep in mind that all of this volatility impacts much more than your clients’ portfolios. The stress of it can also impact the way their brains function, and can lead them to act on cognitive and behavioral biases that cloud judgment and lead to financial and investment choices they may regret later, such as:

  • Overreacting to market swings and selling low or buying high
  • Anchoring expectations to past performance and disregarding new information
  • Following the herd and chasing bubbles or trends
  • Avoid some risks due to loss aversion
  • Overestimating their own knowledge

You can help clients with techniques from behavioral finance

Market volatility, especially in combination with other challenging financial trends, can amplify clients’ emotions and biases, and that can have a significant impact on their decision-making when it comes to saving, investing and planning for the future.

When you tap into the free information and resources in our award-winning Behavioral Financial Advice program, you get more than a deeper understanding about how emotions and bias affect investors; you also get access to tools you can use to help clients better understand and articulate the “why” behind their retirement investments.

When you take the time and use the behavioral finance tools we provide, you demonstrate empathy and compassion for your clients’ concerns — and a desire to help each understand their own brain’s natural response to financial stress. That added confidence can help strengthen their emotional resilience in volatile times, and keep their investments on track with their long-term goals.

Learn more about behavioral financial advice and the award-winning tools and resources available to you from TruStage by visiting our website.

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