How to Get Clients to Spend More Money

We financial planners spend a lot of time calculating and debating safe spending rates for our clients. In response to a recent piece I wrote, Challenging Morningstar’s Safe Withdrawal Rates, Bill Bengen, originator of the 4% rule, commented, “I am really tired of talking about the ‘safe’ withdrawal rate.”

He is right – our clients are wealthier than the average American. I share many of my clients’ problem of underspending. We are afraid to spend the portfolio we worked so hard for so long to build.

I’m not suggesting we get our clients to spend for the sake of spending. But for many, myself included, there are psychological barriers that prevent us from spending that would bring more enjoyment and happiness. Intellectually, the client understands that dying the richest person in the graveyard isn’t a good goal. But emotionally, they can’t increase their spending.

Below is some research on why our clients built a sizable portfolio while others had high income but little savings. Then I’ll address some specifics on how to get savers to enjoy their money.

Savers and spenders

In the 1996 best-selling book, The Millionaire Next Door, authors Thomas Stanley and William Danko revealed the behavior of millionaires. While millionaires were high-income earners, they were also hoarders of that income who rejected the big spending lifestyle. They tended to drive older cars, shop for bargains, and not tout their wealth. Millionaires attained and maintained that status by hopping off the "hedonic treadmill," which is the tendency to adapt a higher level of income to higher expectations of material goods.