Potholes and Patches Exploring Our Predictable Financial Mistakes and How to Fix Them

First Republic Bank
December 6, 2021

Professor Hal Hershfield of UCLA’s Anderson School of Management discusses some of the common financial mistakes we all make as well as evidence-based solutions for them. 

Read below for a full transcript of the conversation. 

Stacy Allred - 35,000. That's the number of decisions adults are estimated to make every day. And while some decisions, many in fact, are simple, like what to eat for breakfast, and many more are automatic, some decisions are big, and stressful, and important and have a long-term impact, including financial decisions. We've been working a lot this last quarter with big decisions around estate planning and gift planning, and those decisions warrant deep, deliberate thinking, systems to thinking. So, on behalf of the entire First Republic team, welcome. We're just delighted that each of you used one of your 35,000 decisions today to join us on this webinar in dialogue with Professor Hal Hershfield. Hal is here to help us elevate our decision skills to combat decision fatigue and increase our awareness around predictable financial mistakes, and more importantly, what we can do to fix them. I've known Hal for many years and have learned some of my best decision-making process techniques from Hal. So, you guys are in for a real treat today. Hal is a professor of marketing, behavioral decision-making, and psychology at UCLA's Anderson School of Management. Hal got his PhD at Stanford, and his research is really interesting. It sits at the intersection of psychology and economics, and Hal's curiosity is to examine the ways that people consider their future selves and how feelings of connection to these distant selves can impact financial decision-making over time. Hal is widely published from the "New York Times" to "Harvard Business Review." And one of my favorite things is that, he recently just aged out of this, but Hal is named one of the 40 most outstanding business school professors under 40 in the world by the business education website, Poets&Quants. So, Hal, thank you so much for joining us today. We are open and curious and excited to learn from you. And can we start with, what are the four big questions that you will be helping us walk through today?

Hal Hershfield - First of all, thank you so much, Stacy. Thanks for the intro and for noting, subtly noting my age there. I appreciate that. Right, so, you know, when, and welcome to everybody. Thank you for spending some of your afternoon with us here. I really appreciate it. You know, when Stacy and I were talking about what are some of the big financial mistakes and how should we think about it? I wanted to approach this in a, you know, a little bit of a non-traditional way and think about what are some of the big questions right now, where the research has been speaking to in terms of what are the research saying about the mistakes that we make, and what can we do about it? And so, this, you know, our session today is going to be kind of a high-level overview of some of these topics. And so, what I'm hoping to talk about, what I'm hoping to touch on here is four different sorts of, questions here. So one is, how do we spend our money to maximize our happiness and wellbeing? And then we're going to move over to think about how do we seek out information to make the best decisions? How do we make optimal decisions with our partners and with other group members, especially in the financial space? And then how do we make decisions over time? How do we think about saving and spending over time? So, I wanted to start with this first question here about how do we spend our money to maximize our wellbeing? Now, it's a funny question. And I want to note that this is something economists have been talking about for a while. There's this burning question of, you know, what's the link between money and happiness? And it turns out that there's been debate over the years. Some economists have said, you know, it turned out, there's no relationship. You can have more money; richer countries aren't any happier than poor countries. And I, you know, I'm always happy to talk about this offline. This is like a pet interest of mine. But one of the sort of more recent findings has suggested that in fact, you know, if you look at the link between money and happiness, it's a little bit complicated. I love this quote here. I mean, or this cartoon, if you will. The recent research suggests that to some extent, money and happiness are related. And I bet most of you know this statistic, it's something that's kind of seeped into popular culture, the stat is that money that is income and happiness track each other up until a certain point. And everybody, you know, I bet you know the number. I know we can't interact that well, but the number that's been thrown out there is $75,000. What that means is, you know, as my income reaches a certain point, $75,000, I continue to get happier and happier. And then after that point, the relationship isn't as strong. Well, it's much more complicated now.

First off, that is over 10 years old. My bet is that it's more than 75,000 now. Secondly, that was the national average. It turns out it's a lot more. That is, income and happiness continued to go up and up to a much higher degree if you're in New York or LA or anywhere else that's more expensive to live in. But there's a bigger point here. And the point I think, is well put, it was well put by a collaborator of mine, Liz Dunn. She's a professor up at University of British Columbia and she put it this way. She said, you know, "If money isn't making you happy, then you're probably not spending it right." And the point of this, and what I love about this is that what it suggests is that in theory, there should be a positive relationship between the money that we have, how we spend it and how happy we are. We should be able to use the money that we have to make ourselves happier, but we don't do that. That doesn't always end up being the case. So okay, so what does the research say about how to spend money better? Well, one of the sorts of interesting conclusions, and I bet people have heard this before as well, let's think about how you spend it. What do you spend it on? Turns out this is a millennial sort of mantra almost. Spend it on experiences rather than things. All right. We've heard that before. But why is that true? And I want to dig into that a little bit, because if we know a little bit more about why experiences may trump things, then that may actually help us to spend our money better. So, I'll give you a couple of reasons. So one is, if we think about this, if we think about why experiences may be better than things, one is that we adapt quicker to things than to experiences. In other words, I'm sorry. In other words, one of the absolute killers of happiness is adaptation. So, we think something is going to continue to bring us joy, to bring us pleasure and happiness. But then we adapt. It fades into the background. Experiences, that's not as true, right? We can have similar experiences in a repeated way, and we don't adapt to them as fast. They continue to bring novelty to us. And that's good for our wellbeing. Second point, we anticipate and remember experiences more than what we anticipate and remember material things. I think this is so, so interesting, important. You know, when I teach this in my classes, I always ask my students, you know, what do you think the best part of a vacation is? Is it the moment before you leave when you write your away message? Is it when you're on your vacation? Or is it when you look back? And there's always debate, but it turns out researchers looked at this and the answer is clear. The best part of vacation is before you go, the anticipation.

The next best part is the retrospection, looking back. And then the worst part, I say worst, it's still really good. It's just not as good as the other ones, is the actual experience. And what's funny about this, if you think about it, is that what it means is that experiences give us three sources of utility. We can anticipate, we can experience it, and we can look back. We just don't have that with things as much. Here's another one. Experiences turn out to be difficult to compare. Now, I say this with a caveat. This was the finding when the research on experiences versus things first started coming about. You know, people said, "Well, I can't compare my experience to yours, Stacy. I can't compare my vacation to yours." I think one of the interesting things that's happened, especially with social media, is that we can in fact, compare our experiences to one another. And so, the irony is that social media may actually take away this component. I bring this up not to be depressing and dark, but to say, this is one way to make sure that we actually can get more utility out of experiences, by not comparing them as much. And then finally, experiences are shared with others. They're social. Material things aren't as much. Now, I think some of these things may be intuitive, but I want you all to take something away from this, which is, let's see if we can apply these insights to our purchase of material things. There's no part of me that says, "Stop purchasing things. Only purchase experiences." That feels unrealistic. But can we treat the things that we have, like experiences? Can we make them more social? Can we try to anticipate them? Can we try to get some utility out of thinking ahead to them rather than just impulsively buying things? Can we try to use them in such a way that we don't adapt to them as fast? I'm just putting those things out there to say, these are just some sort of possibilities there.

Okay, so that's one big bucket of how we can spend our money better. Let me go to another bucket here, which is, can we spend our money in ways that maximize the time that we have? Okay, it turns out that if we think about the link between money and happiness, one of the missing ingredients here is the way that we spend our money so that we can have more time. It turns out if you look at the research, there's two big resources that people have. It's time and money. I think we know this. And we all talk about being, we all talk about poverty and we talk about affluence. And when we talk about that, we talk about it in the context of money. But it's also possible that people experience what we call time poverty and time affluence. And one of the big killers of happiness is time poverty, when we feel like we don't have that much time and we want more. And in fact, as just an aside, this is an area of research that I've been doing a lot more work lately. And I think we're going to share an article with everybody after the fact that spotlights some of that work, that looks at the link between the time that we have and the happiness that we feel. Well, there's some other interesting research that's come out that says, is it possible for us to use our money to increase the time that we have? Now, before you write that off as an obvious question, serious researchers have been examining this. Ashley Whillans, she's a professor at Harvard Business School, has looked at this. She asked people, how much do you use your money to buy yourself time? There are obvious ways to think about this. Take out rather than cooking, a cleaning service rather than doing yourself. And before we go further there, I should note, of course, some of these things require you to first have the money to be able to buy those things. But let me just hold that as an aside for a second. One of the things she found was that the more people spend their money on time-saving services, the happier they are. "Okay, sure," you might say. "Well, that's a correlation. And maybe the people who have more money to begin with can do that and they're already happier." Sure. But there's two things to note here. One, they control. They take into account, how much money do you have? What's your income? What's your education? What's your age? And once you've set those things equal, you take two different people who have the same income and the same education, but one spends more on time than the other. You still see the effect of time. And then, because they're good social scientists, they run experiments.

They give people money, and they say, "Spend it on something or spend it on a time-saving service." And when you spend it on time savings, then you're happier. Now one caveat here, there's a limit. It turns out you can overdo it. And in her research, she says, you know, if it's true that spending a little to buy time increases wellbeing. Spending a lot, may not. In other words, she says you can overdo it. She finds in the data that about 100 to $200 per month on time-saving services maximizes satisfaction and wellbeing. But beyond that, we actually may experience some backlash. Anecdotally, I've seen journalists and talking to others, discuss the idea of parents of young kids spending more money on time-saving services. There becomes a sense of guilt of, am I not doing enough? And so, I mean, this is all social science. There's no one-size-fits-all solution. But rather, it's good to think about the ways that we can use these insights to spend our money a little bit differently to increase some of the happiness and wellbeing we have. Okay. So, I'm going to turn it over to you for a second. Oh, let me just say one last thing. If you're curious about that, Ashley has a book out called "Time Smart," that really covers a lot of these different questions here about the link between time and happiness, and time and money and happiness. Okay, let me turn it back to you, Stacy, before I move on to the next question I wanted to ask here.

Stacy - Okay, great. And thank you, Hal. A few things, quickly. You know, we've been hearing for years about the research that experiences make you happier than things. I think it's so nice to dive into a little bit more of the reason why, so that as we're making those decisions, we're making more informed decisions. And Hal, going back to the best thing about vacation. When my son was young, I asked him what was the best part about vacation after a recent one. And he really liked going through the conveyor belt of airport security. So, I need to plan better vacations. So next one, one of the biggest villains of decision-making, comes into play with this next one of how we seek out information. So Hal, can you share with us a little bit about what are some of the traps in how we seek out information, and what we can do about it?

Hal - Absolutely. Okay. So, you know, I think I, you know, I want to be clear, you know. So, we're sort of talking about four big buckets of things today, and this is the second one. And each one of these buckets, I should say, could be its own, you know, hour-long lunch talk, but we wanted to make sure we covered a lot of things. And I want to encourage you, if you have questions, you can pop them into the Q&A and we will address them. But to this next question, this really gets at the idea of, you know, how do we seek out information to improve the quality of information we get, so that we can make better decisions? You know, I want to be clear about what sort of, the end goal is here. So okay, so to talk about this, let me do a little demonstration. I actually see in the Q&A that I have one former student here. So, they might know that, you know, classroom demonstrations, you never know how they're going to go, especially on Zoom. So, you guys are going to bear with me while I try this out. Okay. So, here's what I'm going to do. I'm going to give you a series of numbers. Okay. And I'm just going to tell you it's this. These numbers were picked according to a rule, 2, 4, 6. Okay, everybody. So far so good, I think. I have no idea what you guys are thinking because I can't see you, but I'm just going to guess that everything is going really well so far, okay? Stacy, we're good, right?

Stacy - Yep.

Hal - Okay. So now I want you in your head, don't write anything down yet, to think about what the rule is that governs these three numbers, 2, 4, 6. Think about what that rule is that governs these numbers. And so, you know, you're going to guess by suggesting other sequences, and I will tell you if it fits the rule. So, you can use the Q&A to guess other sequences here. So, you're going to put down other numbers and I'll be able to tell you, does that fit the rule or not? Okay. So, anybody who wants to jump in. Okay. So, Adele writes, 1, 3, 5. I see 8, 10, 12. Somebody says, add the previous two numbers, could be eight. I'll tell you right now, yes, those are all right. All right. Anybody else want to take other guesses? Okay. Well let me do this. Let me go to the next question. What do you think the rule is? All right, go ahead. I told you, Sarah, I answered you. Yes, you're right with both of those. Jen, 8, 10, 12, you are right. Adele, you are right. Anybody want to take a guess at what the rule is? You can write it down in the Q&A. So, I see Carl. Carl says 10, 12, 14. And I know you all can't see this. This is like, I can see this. All right, nobody's guessing what the rule is yet. Okay, so Trudy says, "The next three even numbers," Even numbers, even numbers. Interesting. All right. So, anybody who guessed, okay, I think it's 8, 10, 12, or 14, 16, 18, I said, "Yes. That's right." And then you guessed even numbers, you're also right. Now, Carl guessed, three consecutive, even integers. Hm, close. Here's the interesting thing about this. I'm going to tell you where this came from. It came from a research paper all the way back in 1916. He did just this. He said, "Okay, you know, look, it's 2, 4, 6. Now, guess the rule." Somebody would say, "8, 10, 12." Sure. That's right. That fits the rule. But then, here's what's interesting. The actual rule is any sequence of increasing numbers. Nobody guessed that in the chat. Maybe you privately knew that. All right. But here's what's interesting, when you guess things like 2, 4, 6, what you're doing is guessing sequences that fit your hypothesis of the world. But another way to test out your ideas is to ask questions that don't fit with your initial hypothesis. So, let's imagine you would have said, "Maybe it's even numbers. Well, let's see.

Would 2, 4, 5 fit?" And if I said, yes, then you would know, wait a minute, I was wrong with the even numbers. It must be something else. And so, what this demonstrates is something known as the confirmation bias. And what this is, is the tendency to seek out information that confirms our favorite hypothesis about the world and to avoid questions that seek information that might disconfirm a favorite hypothesis. Now I know that's written in sort of psychological speak, but here's the basic idea. Whenever we approach decisions in our worlds, by the way, financial, but also otherwise, right? When we're approaching decisions about our careers, about our relationships, about, you know, simply what dinner to go to, any time we engage in any sort of prospective decision-making, part of what we're doing is trying to come up with a hypothesis of what the world will be like if we do end up engaging in that particular course of action. And in trying to answer the questions that we've raised for ourselves, we seek out information. We try to seek out information about whether or not we're right. We try to seek out information potentially about whether we're wrong. Now, the problem here is that when we go about this, what we normally do is ask information that confirms our hypothesis and doesn't really test it. Okay? So, let me give you an example of this. And then I'll talk about its direct relationship with financial decision-making. Here's an example of this. It turns out that there are some people who at one point in time thought that feminism, the feminist movement, was a plot developed by the CIA to destabilize the world. Okay. That may sound ridiculous to you. As it turns out, it is ridiculous. It's not true. But here's, what's interesting. Let's look what happens when we look at Google searches for this idea. So, if I look up and I say, "Okay, let's test the hypothesis that feminism was invented by the CIA in a plot to control the world." If I look up "feminism, CIA," the hits that are returned to me are all ones that essentially confirm the hypothesis that I've put out there. It's all about how in fact, yes, feminism was created by the CIA. Now, you can look at these sources and tell, hm, these are probably not realistic sources, but they're there, nonetheless. But here's the important point. If I look at say, the opposite, is this a myth? Well, now the return of the hits that I get are all about how it is in fact, a myth.

I hope you guys are seeing what's happening here. When I seek out information in a certain way, when I frame the question in a certain way, the information that I get back confirms the framing that I already put in, on both sides of the coin here, okay? So, in other words, in order to get information that may test my ideas, I may be better off asking the opposite question, which could give me some information on the other side of the coin here. This isn't true just for this one case here, right? So, look at some of these other sources. If I were to look up moon landing and I say, "Is moon landing real?" 100% of the hits I get are about it's real. If I look at God and God exists about 100% of the hits are, yes, God exists. Should I get married? Sure. Pepsi is better than Coke? 83% say yes. Apple. Should I buy apple? Not as many, but 2/3 say yes. But if I flip it around, you almost see the reverse. It's not perfect, right? It turns out the moon landing fake doesn't have 100% of hits. Well, because that's the minority opinion, but you're getting more hits in that direction. God doesn't exist. Now, all my hits are about how God doesn't exist. Should I not get married? You shouldn't get married. And by the way, this may be accurate. If you're Googling, "Should I not get married?" Maybe you shouldn't get married. Again, the point is that when I seek out information that goes against the hypothesis I have, I may get different pieces of information. Now, Warren Buffet is famous for taking this into account. So, when he has his shareholder meetings, he actually has been known to invite analysts who have shorted Berkshire Hathaway stock, because those are people who in theory, don't have a positive hypothesis about the state of his company and how it's going to perform in the coming years. And he wants to know from them, why do they think that way? He could just as easily not invite them and only get information from the folks who are positive on his company, but that would then just be one sort of, source of information and wouldn't give the full story there. So, if there's a lesson here, I think, and I know there's some, the idea here is a little bit complicated, but I think it's intuitive once you get it. If there's a lesson here it's that when we approach decisions in the world, rather than just seeking out information that helps us along the sort of decision path, seek out information that may go against what we want to do or the way we think the world is, to see what that information looks like. All right, let me turn it back to Stacy. And I'm happy to answer any questions that come about here from this.

Stacy - Okay, great, Hal. We do have a question around [that]; we have two questions. Let me just kind of combine it. Can you say a little bit more about, I mean, this is getting into the question framing and then also, how do you know what information is correct? This has been a big theme in the media of kind of, you know, the need for critical thinking and looking at the source and kind of going a few layers deeper. Can you address maybe both of those?

Hal - Sure. I think these are great questions. So, the first question is, you know, is this about framing? Absolutely. So that's 100%. So, this is John Carson. I think this is great. So, it's a matter of question framing. That's exactly right. Right, the way that I frame the question dictates the responses that I get back. I think that is the point here, right? And that is the phenomenon. And, John, by the way, if I'm missing your point, feel free to follow up or write to me afterwards, in case I've missed something there. But you hit the nail on the head there. Then this further question, how do I know that the information is correct? And of course, now we get into misinformation, we get into all sorts of fun topics. There's a growing body of work actually, in marketing, academic marketing, looking at understanding when and why people actually share misinformation. And then to this deeper question, how do I know that that information is correct? Well, I mean, I don't think that I'm here to say, like, how do you know if the information is correct? We can look at sources. We can look to fact checkers. But actually, let me give a slightly deeper or different response that speaks to this, which is to say, we might not know that the information is correct, but here's a certain way to ensure that we're, here's a certain way to ensure that we're really not thinking about deeply is when we engage with more of our system when processing and consume information without going into a deeper dive on what that information is. So, Dave Rand at MIT, and Gordon Pennycook at University of Saskatchewan have been doing a really interesting series of research studies where what they have found is that people tend to share misinformation, not necessarily because they're motivated to spread misinformation, but rather because they're not necessarily thinking in a critical way when they're consuming information, especially in the social media space, which is where we get so much of our information, obviously. And so, they've found that things like fact checkers, you know, have found that this isn't, you know, that this is unlikely to be true.

Those sorts of statements don't really tend to change sharing behavior and even sort of receptive behavior about whether something is true. But rather what does, is simple questions that stop and ask people to reflect. Things like, did you read the article or just the headline? Are you sure you want to send this? You know, look at what the contents of the article say. Now, these are not perfect solutions. And there's so much wrapped up into this particular issue, Stacy, that you're bringing up, that we can't, you know, we can't really, we can't have perfect solutions. But the point is that when we can try to stop system one, that is the short-term, intuitive, reflexive thinking and more into the, you know, Kahneman and Tversky, who I know many of you have heard of, but these are sort of the founders of behavioral economics. They've talked about moving into the system two, the more deliberative, reflective thinking. That's when we have a better chance of assessing whether information is true, but to Sandy's original question, it doesn't mean we can know for sure whether it's true or not, but we have a better shot at it if that makes sense?

Stacy - Yeah, that's great. If there's time at the end, it would be wonderful to go a little deeper in how to teach kids critical thinking, kind of give them the skill. But we've got to keep moving. So, one quick comment, and then we'll get into the next section. You know, psychologists love the idea of pocket questions, and it's these questions that you have memorized, they're in your back pocket and you can pull them out at any time. And three of my favorite pocket questions that I use to help with confirmation bias are, is this true? Is there another way to see the situation? And what if the opposite were true? Otto Scharmer, MIT professor, kind of came up with the questions with his "Theory U" and they're just, making that a habit has made a big difference for me. Is that true? Is there another way to see the situation? And what if the opposite were true?

Hal - And Stacy, just before you move on, I think that is so smart. You know, I think you said it better than me, which is to say, those are sort of short, heuristic style question that can force you out of confirmation bias tendencies. And I, you know, I think it's obvious how to apply this. It's obvious the application to financial decisions, especially with something like, as straightforward as, you know, investing like, should I get in on a theory of now or wait, et cetera? You know, we have hypotheses that lead us to make these decisions. And I think the questions you're asking, you know, what if the opposite is true? What would the world look like, is a good way to test our assumptions. Sorry, but I think that's a good point.

Stacy - No, perfect. And, you know, I try, sometimes with people you care about, you can try sharing the pocket questions. It's a little bit more of an art, right, but really helpful. Okay, so we are going to move into the next section, which is around how couples make decisions. And I will never forget kind of early on in my career when I got the call that I've gotten many versions of since. But that first time when I get a call from a couple and they are having big differences around finances. One is a spender. One is a saver. And the more the one spends, that more the other one becomes more and more frugal. So, you go from, you know, kind of being more in the center, to very much a barbell approach. And so, they call with this issue and say that if they don't, the stakes were really high, either they're going to figure this out or they're going to get a divorce. And so, you know, we ended up holding a retreat. I brought in a PhD psychologist to help facilitate this. And before we get into the outcome, Hal, what have you found? What does the research say about how couples can more effectively make decisions? And we know the money can be at the center of a lot of these kinds of tensions. So how can they do that more effectively?

Hal - By the way, that was a great cliffhanger you just said there, like, before we find out the answer, like, no, do we know, did they get divorced? Did they stay together? You know, stay tuned and you will all find out. So, this is such an interesting question. So, first off, I was doing some of the background research lately on financial decision-making and couples. It turns out that the, you know, the three big sources of conflict in long-term relationships are, I mean, this is going to shock no one, I assume, but parenting, sex, and finances. And, you know, I think what you just brought up is sort of a classic example of one of the big sources of tension in relationships around financial decision-making. And I should note, by the way, you know, from the research side, the academic side, so much of the work that's been done over the last 30, 40 years is really about individual decision makers. You know, everything, to the extent that you've read popular books about behavioral economics, or some of the popular psychology of money books, et cetera. So much of that work is about individual decision-makers. And what's, you know, the irony here to me is that we often make financial decisions in dyads, in groups. And we need to know more about that. So actually, so, so you brought up the example of the, you know, the couple where the one partner is spending maybe too much or too freely, and then the other partner is more frugal. So, there's actually a professor, Scott Rick, he's out of Michigan. He, early on started doing some research about personality styles with money. And he identified that there's, you know, really what you talked about there's what he calls spendthrifts and tightwads. And just what it sounds, spendthrifts the people who spend too much maybe, or more than you think they might, or they should. And the tightwads, those who hold onto their money a little too tightly, and don't spend it as much. So he, you know, he documented this. There are these people, and it's a spectrum, of course.

It's not like you either are a spendthrift or a tightwad. You can kind of be somewhere in the middle, like so many other personality things. Well, one of the funny things that he found is that he started looking at couples. And it turns out, you know, everybody's heard the opposites attract saying. And then, anytime I've heard that, I wonder is that really true? Well, in the space of finances, it turns out to have some truth behind it. Spendthrifts tend to be attracted to tightwads and vice versa. And you say, well, that's crazy. Does that make sense? And of course, when you think about it, it makes sense.

Cause when you start a relationship, when you start dating, you're attracted to interesting, novel things in somebody else that is novel to something, that's different from what you have. And so, if you are somebody who spends a little much, you may be attracted to the person who feels like they've got their stuff together a little bit more, and they're more, you know, "Wow, that's really attractive. They're a little bit more conservative with their money." Or if you tend to be more frugal, you might see somebody who lives it up and has fun. You might say, "That's so cool. I like that." That's fine and well until you've been together for a little while. And then you start to have real financial decisions together. Then you start to say, "My God, why are they spending? How are they spending all that money when we should save?" Or vice versa, right? Why are they so frugal with their money? So, it turns out one of the things that we know happens in the relationships with the most tension is polarization. The spendthrifts spend more, the tightwads become more frugal, and that creates even more and more tension, right? So, one of the proposed solutions is the idea of transparency. Now, I want to be really clear, you know, I hope you weren't sitting here going, "Well, what's the answer to my relationship woes?" And then I said, "Transparency." It's like, yeah, that's obvious. But let me tell you a little bit why, because I think it becomes a little less obvious, okay. So, money, just like anything else in a relationship benefits from some sense of transparency. There's actually some research suggesting that the most extreme form of a lack of transparency in the financial space is known as financial infidelity. It's not that you're cheating on your spouse with another partner, but you're hiding things in such a way that can be extremely detrimental, like hiding debts or hiding big expenses. Or it turns out that, you know, my partner had no idea that I was buying all these clothes, or whatever it may be. Now, what the research says is that it may be the case that some little amount of hidden spending is okay. I have an addiction. There's a candy shop on campus. And they have these little peach gummies and they're really delicious. And at some point, my wife found like, a bunch of those little bags in my work bag at home. And she was like, "What is this?" And I realized, I'd never told her in all the years that we've been together that I like eating these things almost every day.

It doesn't really cause a big dent to our finances, but do I have to come home and tell her about that? Probably not. But there's certain other things where obviously transparency can matter. Now, there's a reason why transparency can be so helpful because if I'm clear about what I'm spending and my partner is clear about what they're spending, then it makes it a little harder to be at the extremes of this spendthrift, tightwad dimension. If I am constantly tempted to spend a lot of money, but I know that my partner is looking at our joint account, then it's going to be harder to make those expenses. If on the other hand, by the way, I never am spending my money and my partner sees that, it's harder to justify why am I not willing to do some fun, experiential things with my money when it's accumulating, if we can be so lucky. And so the, you know, the research to date has found compellingly that people who have joint bank accounts tend to be in happier, more satisfied relationships than those who don't. And I know the obvious, if you were in class, you'd be shooting your hand up and say, "Yeah, but it's a correlation. Couldn't it just be the case that the people who are happy and satisfied together already are the ones who have decided to put their accounts joint?" So, Jenny Olson, who is a marketing professor at Indiana, actually decided to test this idea. So, she approached newlyweds, and this was a two-year long study, she approached newlyweds and she divided them into three groups. And in one group, she said, "Spend your money. Do your thing with your accounts however you want to do it." Another group she said, "Keep your accounts separate. Don't join them." By the way, to be in this study, you couldn't have joined your accounts already, okay. She says, "Keep your accounts separate for the two years." And then she has a third group, and she says, "Join your accounts." Okay, so this is a real test to see whether or not a transparency-inducing intervention, that is joining your bank accounts, can actually produce more relationship satisfaction. So, they look at these couples over a two-year period of time. Okay, I'm going to show you the relationship satisfaction. This paper, well, actually it hasn't come out yet. It'll come out next year. I'm going to show you the relationship satisfaction over two years. I don't want you to freak out if you're about to get married. These are the people who just did whatever they were going to do. No instructions. And this is the relationship satisfaction over two years. Okay, it goes down.

By the way, this is true for everybody. One of the big things we know from all of the romantic relationships research is that marital satisfaction goes down after you get married. Because part of the reason is that it goes up quite a bit when you do get married. There's that excitement there. All right, don't despair. Okay. Now, then we look at people who are in the separate condition. They've been told to keep their bank accounts separate. Their relationship satisfaction also goes down. You know, you don't need to pay attention to the numbers too much here. The point is, it's about the same. It goes down about the same amount as the folks who were told to just keep their money and do whatever they were doing with it to begin with, okay. But now let's look at the folks who were told to keep separate accounts. This is going to be in red. And what you can see here is it looks like it's trending up. That's from a statistical standpoint, it's not significant. But here's the point. It doesn't go down. If anything, it starts trending upward. But the bigger picture point is that by keeping their accounts together, by joining them together, they're less likely to suffer relationship satisfaction, decline, okay? And the thinking is that the reason this happens is because of the transparency. I now can see what my partner is spending. They can see what I'm spending. It forces both parties to have conversations about how money is spent. And that's the bigger point here. It's not that you should keep your accounts together if you want to be happy. That may not work for you. The bigger point, and I really think it's intuitive, is that one way to ensure, or to try to preserve relationship satisfaction surrounding money is to try to put it out on the table and be as transparent about it as possible. These conversations are not easy to have. You know, anecdotally I've heard from folks who say they save these conversations once a quarter or once a year even, or whatever it may be. Because if you're constantly having this conversation, that's not fun. And it can really suck the sort of, the air out of the room. But it brings up bigger points, bigger conversations about values and how do you want to spend your money? And what do you want to do with that money? And, you know, some of these conversations are best had before you get married, of course. I think we all know that. But sometimes you get caught up and you don't want to have those. But what the research is suggesting is that by making it more transparent, that's actually a good thing for relationships. All right, Stacy, I'm going to turn it back over to you there.

Stacy - Okay, great. And John has a nice comment in the Q&A of sharing not just the bank accounts, but also the credit cards, right, being really transparent. I would encourage all our participants, Hal's really good with off the cuff questions, can go off script really well, as you can see. So please put more questions in the chat cause we're going to have some time at the end to really kind of unpack any other things you would like to within the realm of decision-making. So, to kind of come back to our story, what was really important with this couple was to really start with the value behind, why was frugality important to one and spending important to the other, and really kind of unpacking and understanding the why, right? Toyota is famous for asking the question "why" five times to get to the root, and then coming up with the shared value around that. So, what would a shared value look like with someone that's a spender and someone that's a saver, right? It might look something like this. We value finding the middle ground between frugality and excess. So that's kind of where the shared value was. And then the question is, what's my policy and the practices to help support that value? So, if you're looking for behavior change, you know, it's not easy. It doesn't just happen. So, in this couple, they agreed to work with a bookkeeper, meet on a quarterly basis, and they came up with an explicit, they went from expectation to agreement that for any financial expense over a certain dollar amount, they would have an explicit conversation. And years later, I'm happy to report that that, you know, kind of that intervention of getting clear on the values and putting a practice behind it, you know, did the trick for them. And the interesting thing also was that the spender afterwards said that they felt relieved that, you know, kind of one, to have had the conversation and then two, to have kind of a practice around it.

So, before we move on to the next topic, Hal, I just want to share one other thing on kind of couples’ decision-making. When we are working with couples, kind of on the estate planning side and they are in kind of, there's tension around something. It's typically around the decision of one might want to be giving more of the estate to charity and the other more to kids. And so that's a very interesting process to go through. Understand, again, the viewpoints, the values, and find the middle ground. Where's the compromise? And there's kind of, the African proverb of, if you want to go quickly, go alone. If you want to go far go together. Sometimes it's kind of the tension and pushing back that you end up with a stronger decision and more well thought out plan in the end. So, go ahead.

Hal - You know- Just going to jump in, Stacy, because actually in the chat, or in the Q&A, you know, John said, you know, what about beginning by agreeing on financial goals? Which is, I think speaks to exactly what you're talking about, right? And you know, it's easier said than done, but it's a conversation there, right? We have assumptions. We go in as: I assume the money is going to go to charity; you assume it's going to go to the kids. Well, if we frame our kids as charity cases, maybe that's okay. But the bigger point there is to become aligned on the initial goals. And then on a more practical sense, Carl said, you know, you can also have two joint accounts that are shared so that you have the transparency, but the account management is easier, which is exactly anecdotally, how we do it in my family. And I couldn't agree more with that practice. Okay. So.

Stacy - Okay.

Hal - Yeah, go ahead.

Stacy - Do you want to get into, there are a lot of questions in the chat. We're going to get to those right after this next session, this next section. So, Hal, we know to be successful in life, you have to balance YOLO, you only live once, right, with this long-term thinking and planning. And so, this is one of the research areas that you're so well known for in the field. And you helped pioneer of this thinking about, you know, saving and spending and future self. So, can you give us some of the background and some pointers on how to balance YOLO with that long-term thinking?

Hal - Yeah, sure. I'll speak to this for just a couple of minutes because I know we have a lot of questions here too. So, what Stacy's talking about, I think about, you can think about YOLO versus long-term. I think about it as these, you know, short-term, long-term trade-offs. One of the things that I've been studying over the years is how we think about and how we relate to our future selves, to the extent that so many of the financial decisions that we make and so many of the big career and life decisions we make always involve consequences that we experience both now and later. One of the things I've been trying to delve into is, how do we think about the later? How do we think about the person that we will become in the future and how do we relate to them? And one of the things that we've been finding is that in many ways, our future selves seem as if they may be different people. This idea may sound foreign to you, but let me, I'll show you one of my favorite modern philosophers, Jerry Seinfeld. He talks about this on a very short timeframe. And he says this, if you've ever seen him talk about this, you may know this, but he says, you know, "I never get enough sleep. I stay up late at night because I'm 'night guy.' 'What about getting up after five hours of sleep?' That's morning guy's, problem. That's not my problem. I'm night guy. Stay up as late as you want, watching another episode of 'Succession' or whatever it may be. You get up in the morning with your alarm, you're exhausted and groggy, and you have that one thought, man, do I hate night guy." And by the way, Seinfeld has this solution, this brilliant solution. He says, "The only thing that morning guy can do is to try to oversleep often enough so that day guy loses his job and night guy has no money to go out anymore. So, what I love about this is the basic idea that there can be a separation between selves. You know, he talks about it night to morning. I think about this in the short term and the much longer term, whether we're thinking about now and mid-career, or now and retirement, or we're about to retire and we're trying to think about long-term care insurance and annuities, these sorts of decisions.

Now, the research that I and others have done have found that in many ways we do think of the future self as if it's another person. In fact, I've been involved in some neuroimaging studies showing that the brain, when we think about a future self, the pattern of activity in our brains looks more like the pattern of activity that comes about when we think about another person. So, in our brains, in our mind's eye, our future selves seem like other people. And one of the conclusions we've made from this work is that when it comes to long-term decisions about spending and saving, it may be okay to think of our future selves as other people. But what really matters is what sort of other person our future self is. If it's someone that we don't feel connected to, if it's more like a coworker that you know, but don't really relate to, then you're not going to be motivated to save or make other sacrifices on behalf of their lives. If on the other hand, your future self is more like a best friend, somebody you feel a close sense of connection to, then you'll be more likely to make sacrifices today for their benefit later. Now, I know that we're approaching the end of time, but over the years of my research, I've been trying to look at different ways that we can try to improve relationships with our future selves. One possible solution is to try to make that future self more vivid, make it more emotional. Write a letter from your future self. Stop and actually think about what your life is going to be like at some distant, future time. And I don't mean that in a trite way. I mean that in a deep way because everybody knows that there'll be a future version of themselves. But my contention is that we don't think about that self deeply or for nearly a large enough amount of time. And to stop and actually think about the details can change the decisions that we have now, the conversations that we have with that future self.

The other solution here is to try to make any sacrifices we're engaging in right now, feel a little bit easier. So, some of my research has shown that, you know, if you frame sacrifices in an easier way, people are more likely to make them. We ran a study where we asked people who were signing up for a savings account if they wanted to sign up for an automatic savings account. And we framed it in terms of a monthly amount, 150 bucks a month, a weekly amount, 35 bucks a week, or a daily amount, $5 a day. It's the same amount of money, and it's not a ton of money, but this is just a starting point. And what we find is that four times as many people sign up when it's framed as $5 a day, in part because that feels like a much easier sacrifice to make than $150 a month. And I raise this more from a conceptual level to say, are there other cases where we can change the nature of the sacrifice that we're making right now to make it easier on our current selves to do better by our future selves? All right. So, let me stop there. My contact info is here, or you can reach out to me on LinkedIn or Twitter or whatever. But I'll stop there and turn it back over to you, Stacy. Thank you guys so much for your attention throughout. I appreciate it.

Stacy - I'm just loving the activity in the Q&A, and I feel like we're almost out of time. We can go a really long time with these questions. I mean, we have everything from the P word, prenuptial agreements has come up, to, you know, kind of the impact on our judgment with making riskier decisions and feeling comfortable with retirement. Even when the financial advisor says we're okay to retire, how do we get comfortable there? So, we're going to have to make some choices here. A couple things, Hal's working on a book and he has a book coming out in the, well, it would be fun to have Hal back when the book's out and continue this dialogue, given the amount of interest. But let's start, Hal, with this one. At least one report showed that as we age our judgment changes, and we may make riskier financial decisions. How can we keep this in mind in our investing?

Hal -Yeah, this is a great question. So, the research on aging and decision-making is nuanced and it's fascinating. So, there's some work showing that as we get older, we tend to actually make more emotional decisions. I don't mean that in a way that it may sound, which is to say, we use our emotions more. Because as it turns out, older people are more motivated by emotions and feeling. As we approach the end of our lives, we're more likely to sort of draw on that. Now, there's a couple of things to note here. One is, in the most extreme case, when it comes to say, like scams, and we know that the elderly are a disproportionate target of financial scams, it turns out that the people who are most vulnerable, that is, the people who get scammed the most are not exactly who you think. It turns out to normally be older white men who used to be in executive positions. The point of this is that it's often the folks who think that they're, who have the most confidence with their ability to grapple with financial decisions, end up being scammed the most. And so, your question is a good one. How can we keep the idea that we may make riskier decisions, that we may have a harder time with decisions? How can we keep that in mind as we age? Well, the answer is, keep it in mind. Because elderly consumers who do keep it in mind, that is, elderly consumers who have rules and who know not to make a decision unless they've sat with it for a day or two, unless they've talked to an advisor or a friend or a family member about it, they're the ones who don't get scammed as much because they've kept these rules in mind. It goes back to Stacy's point about pocket questions. And so, I mean, I know we don't have that much time, but I think the point is to make it something explicit and set some decision rules around in order to not sort of succumb to some of the problems that we see documented in the news a lot.

Stacy - Hal, we are at time. And we have so many questions in the Q&A, we could go another hour with this. I think what we'll do is, there's everything from some resources around, you know, helping teens make smart money choices, to grandparenting, to retirement, that second chapter, couples. We'll put together a few ideas and send it in the follow-up. And please feel free, as Hal said, to reach out. We would love to continue the dialogue, and thank you for such a robust discussion. This is one of my favorite topics, decision-making, because it's so practical. So, Hal, in the last minute, what would your parting words of advice be for our participants to elevate decision-making? Kind of like, just in a nutshell.

Hal - I would say two things. One is, I apologize for not getting more of the questions, but do reach out. And then the second thing is, you know, I think there's a theme that's true across the four buckets. And the theme is, at the risk of sounding like I'm solidly based in Southern California, the theme is to be more mindful about the decisions that we make. And I don't mean that in a mindfulness meditation way. What I mean is that in any of these domains, relationship, decision-making, money and finances, long-term saving, how we go about seeking information, there's always an easy, intuitive way to do something. And then there's also the more deliberative, thoughtful, slowed down approach. And I think what we're finding, what the research has shown again and again, is that when we stop and think through how we want thing A to connect to thing B, whether it's money and happiness or, you know, money and relationships, whenever we stop and think about how to connect those things and think deeper about it, then we end up with outcomes that are more satisfying. I know it's easier said than done, but I think keeping that as a high-level point is a good one.

Stacy - So that metacognition, thinking about how we think, slowing it down. So, with that, I would just thank you for everyone for again, making the decision to spend this hour with us. We look forward to continued dialogue. And thank you, Hal. Fabulous, fabulous discussion.

Hal -Thank you, Stacy. Thanks everybody.

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