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How Maslow’s Hierarchy of Needs Applies to Financial Planning

By Mark DiGiovanni, CFP

Anyone who has ever taken a psychology course is familiar with Maslow’s Hierarchy of Needs.  Abraham Maslow developed his theory in 1943. The hierarchy of needs, in ascending order, is:

  • Physiological (breathing, food, water, sleep, sex)
  • Safety (physical security, employment, health, family)
  • Love/Belonging (friendship, family, sexual intimacy)
  • Esteem (achievement, confidence, respect by others)
  • Self-Actualization (morality, creativity, spontaneity)

Maslow theorized that, until one’s needs are met at the lower levels, one cannot or will not devote energy to meeting needs at the higher levels.  This assumption is valid – you can’t focus on your job if you haven’t had enough sleep or food; you can’t focus on friendships if you are about to lose your job; you can’t focus on becoming a more well-rounded person when a loved one is battling a life-threatening disease.  The hierarchy of needs is simply our way of setting priorities in life.

Getting Priorities Straight

If you are like me, you may volunteer your time and expertise to help those struggling on the lower levels, to enable them to become more financially independent and move to the higher level of needs.  Also, if you are like me, most of your clients are well past the first two levels of needs.  If they weren’t, they probably couldn’t afford your services.  It’s important to remember, though, that as someone climbs higher up on the hierarchy of needs, money plays less and less of a role in meeting those needs.  You can buy food; you can’t buy fulfillment.

If we are doing our job properly as comprehensive financial advisors, we will spend a good bit of our time helping clients set priorities among conflicting needs in the present.  We will also help them deal with the conflict between present needs and wants and future needs and wants.  Every culture is different, but this task can be especially difficult in America because, as Pulitzer Prize winning columnist George Will has pointed out, Americans define a need as a 48-hour-old want.

When we sit down with a client to discuss priorities, we face a daunting task.  The easiest part of the task may be helping the client discern between needs and wants in the present.  Our task becomes more difficult when we have to help the client set priorities among the present needs.  We all have finite resources and infinite potential uses for those resources.  We help our clients decide which uses are important enough to receive some of those finite resources.

Needs vs Wants

I think the most challenging part of this aspect of our work is one that many of us do not give much serious thought, which means it is an aspect that is often neglected.  I’m referring to the conflict between the client’s future needs and everything in the present that blinds the client to what those needs are and how important it will be to meet them.

Most people understand the need to methodically set aside income to fund emergencies and retirement.  It’s relatively easy to get someone to understand that, in order to be able to afford a car when you’re seventy, you probably shouldn’t buy the most expensive car you can afford when you’re fifty.  Our task gets much harder when we have to do an apples-to-oranges comparison.  A common example is when we attempt to educate a client that it is necessary to assume a certain amount of volatility (what clients incorrectly call ‘risk’) in the short term in order to give their investments the opportunity to grow enough to maintain their standard of living throughout their inflation-laden retirement.  What we’re telling the client in this example is that it is necessary to accept some emotional stress now to avoid the mental, physical, and psychological stress caused by financial stress in the future.

Thinking About the Future

When I meet with clients, I tell them something that they probably haven’t heard from any other financial advisor.  I tell them that I see myself as an advocate for the client-in-the-future.  The client-in-the-future is the client-in-the-present in ten, twenty or thirty years.  Going back to Maslow’s Hierarchy of Needs, the client-in-the-present may be seeking safety, which means the investments have no chance of growing enough to provide an adequate retirement income.  The client-in-the-present may be seeking love/belonging by funding lifestyles for adult children who should be financially independent.  The client-in-the-present may be seeking acceptance and respect from others through expensive possessions.  The client-in-the-future is the person who will be punished for those behaviors of the client-in-the-present.  My mission is to help the client-in-the-present act in such a manner that the client-in-the-future never has to revert to struggling to meet the first two levels on the hierarchy of needs.

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