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investor clinic


We've all heard stories about people who can't control their spending. They dig themselves into debt, splurge on fancy cars, clothes and vacations and generally behave like irresponsible children when it comes to money.

But we don't hear nearly as much about people with the opposite problem: They have more money than they'll ever need, but can't bring themselves to spend it.

Saving is usually portrayed as a virtue. Put away so many dollars every year, the experts say, and eventually you'll be home-free financially. But for some people, saving becomes an obsession. Long after they have achieved financial freedom and can afford whatever indulgences they desire, they continue to squirrel away cash.

It's not just a matter of self-denial. In extreme cases, compulsive saving can lead to marital discord and friction with other family members and friends who don't share the person's fanatical frugality.

The problem is more common than you might think. Jason Heath, a fee-only financial planner with Objective Financial Partners in Markham, Ont., says about one-quarter of his clients have difficulty spending money, even though they can easily afford to loosen their purse strings.

"In some cases, it's not just hard, it's almost painful for them to spend money," he says. "It can create real problems with marriages. I see situations where one spouse wants a vacation, but the other spouse can't get their head around it even though they can easily afford it."

Fear of spending can hit people at different stages of life, from young professional couples who are working long hours and earning big salaries to retirees who are terrified that they'll run out of cash and be forced to dine on dented cans of tuna and beans.

Some people will continue driving an old beater that's barely roadworthy, for example, when they could easily upgrade to a new model with all the modern safety equipment.

Fears about spending often arise when people are transitioning to retirement, he says. After watching their assets grow over many decades of diligent saving and investing, people can be filled with anxiety at the thought of depleting their capital. It's not like they can flip a switch and go from savings mode to spending mode, he says. Some people will even set minimum targets for their capital: For example, they'll forgo a trip to Florida in order to keep their assets above $1-million or some other arbitrary figure.

"You see people who are irrationally focused on preserving capital for no other reason than it makes them feel good to not take a step backward," he says.

Attitudes about spending are often shaped by personal experiences. People who lived through the Depression, for example, may see frugality and saving – quite rightly – as a form of security and pass those lessons on to their own children and grandchildren. But when healthy saving progresses into something more akin to hoarding, the reasons aren't always clear.

"I find there are two different camps of people: ones that really worry about money and ones that don't. And I have no idea where it comes from," says Derek Moran of Smarter Financial Planning in Kelowna, B.C. For the worriers, money has tremendous emotional value. The more they have, the safer they feel. "It's a nice warm blanket," he says.

For some people, spending money simply isn't a source of pleasure, anyway; they prefer hiking or biking instead of going to the mall. For others, accumulating capital is like a game where the score is measured in the value of one's assets. These people derive a lot of enjoyment from watching their assets grow, and that's not necessarily a bad thing, Mr. Moran says. "These savers are just doing what is natural and fun to them."

When saving isn't fun but a symptom of irrational fears, however, telling the saver to stop worrying and enjoy their money usually isn't enough. They need to be convinced with numbers, Mr. Heath says. He starts by building a detailed financial plan – using conservative assumptions about investment returns – that shows every dollar of income people can expect for the rest of their lives from their savings, company pensions and government programs.

If he can demonstrate that they will still have plenty of capital even after 30 years of retirement – with occasional trips, nice dinners and other luxuries thrown in – they're often able to loosen up, he says. He does a similar exercise with young professionals who are burning out in their careers; when they see the math, they often realize that they can cut back on their hours, switch to a less-stressful job and spend more freely without jeopardizing their retirement.

But for some people, even conservative financial projections don't do the trick.

"In some cases, it doesn't matter what math or logic you show them," he says. "Money can be very emotional and they are going to be set in their ways."

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