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Is there such a thing as being too frugal?

My husband and I spent years saving and now that we are retired I believe we are in a comfortable financial position. However, my husband has not been able to let go of his penny-pinching ways, even though we could afford to enjoy vacations and nice restaurant meals. Is this a common problem? What advice would you give to someone in my position?

We hear lots of stories about people who spend too much. They borrow excessively, splurge on fancy cars and expensive homes and generally live beyond their means until the creditors catch up with them.

But the opposite problem – people who have money but can't bring themselves to spend it – is more common than you might think, says Ross McShane, director of financial planning at McLarty & Co. in Ottawa.

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He estimates that about one-third of his clients have trouble parting with their cash, even when they could afford the occasional indulgence.

"I've seen this with a friend," Mr. McShane says. "He won't spend a dime – he doesn't have air conditioning and drives a car from the early 90s. Yet, his net worth would be well over $1.5-million."

People hoard cash for various reasons, most of which can be traced to underlying anxieties about money, he says. The classic case is someone who lived through the Great Depression and wants to be prepared in the event of another economic calamity. But even people who have never suffered economic hardship can take thrift to extreme levels.

Individuals in or nearing retirement are especially susceptible, because they have spent most of their lives earning money and building assets and are now faced with living off their portfolio income and possibly depleting their capital. Low bond yields, uncertain stock market returns and fresh memories of the 2008-09 meltdown only add to people's fears about outliving their savings.

Longer life expectancies and the potential costs of long-term care also contribute to money anxieties. Because of the uncertain employment outlook, even young people with good jobs can be so fearful of the future that they hoard their cash.

"A reluctance to spend sets in because they really don't have confidence that their money will last," Mr. McShane says.

If unresolved, such fears can lead to marital problems, because the spouse who wants to enjoy the money may begin to resent the one who refuses to spend it, and vice-versa.

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So what can be done?

"The most important step is for the couple to sit down and map out a retirement plan in order to determine what their capacity to spend is. Conservative assumptions should be included – almost a worst-case scenario," he says.

When running financial projections, Mr. McShane examines what would happen if the stock market fell, inflation was higher than expected and fixed-income investments continued to generate meagre returns. By looking at pessimistic scenarios, his clients gain comfort that they will be okay and can still afford to spend even if financial markets and the economy go into the tank.

People also need to be reminded of the potential tax liability to the estate if they die and leave a large amount of wealth behind. This often encourages them to spend more or gift assets to their children or favourite charities while they are alive, he says.

He also points out to clients that, if they don't spend their money on vacations or restaurant meals now, they may not be in a position to enjoy their money later. They may be too old or sick to travel, for example, or health conditions may prevent them from obtaining insurance coverage outside Canada.

For some people, frugality is so ingrained that it is difficult to change their behaviour, he says. But for most people, an attitude adjustment – aided by some financial projections – is all it takes.

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"It's always a challenge," he says. "But once they sit down and see the numbers, with both spouses at the table, and they get the reassurance that they're going to be okay, they do let go a little bit."

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