the wisdom of “sleeping on” financial decisions · 1. why we are all “ferry boat captains.”...
TRANSCRIPT
UMD Personal Finance Seminar for Professionals – May 15, 2014
The Wisdom of “Sleeping On” Financial Decisions
Lois A. Vitt, Ph.D. Founding Director Institute for Socio-Financial Studies
• For 23 years, ISFS research has had a far-reaching impact.
• Our multi-disciplinary approach has informed financial education and program evaluation worldwide. (See www.ISFS.org/publications)
• ISFS applies behavioral and societal research concepts to actual (not only ideal) financial life circumstances: such as financial mistakes.
What We Do…
Today’s Seminar
Will focus on:
1. Why we are all “Ferry Boat Captains.”
2. What we prioritize in our lives and why.
3. Some surprising realities about everyday financial decision-making!
4. Strategies to help clients/students navigate difficult challenges (loss mitigation) and marketplaces (advertorials) more successfully.
Financial Professionals must…
ü Create financial value for stakeholders, a particular community, and even society as a whole.
ü Implement content in a practical manner.
ü Be personally interesting and relevant; a program must be important, scalable and sustainable.
ü Deliver better financial results over time.
“Ferry Boat Captains” must…
ü Steer through competing social norms and human values.
ü Carry clients and students from one life “shore” to another—sometimes through “bad weather.”
ü Understand personal and social behaviors not just financial facts.
ü Recognize that financial management is complicated, emotion-laden, we all make mistakes, and that we create our socio-financial reality.
1. Understand LifeValues Principles.
2. Know what clients/students value and why.
3. Develop an awareness of societal trends and behavioral biases.
4. Have a plan for meeting client/student needs where they are and want to be.
Tools Needed
Biases, fallacies, and Errors Ø Status Quo
Ø Confirmatory
Ø Risk Aversion
Ø Conformity
Ø Over Confidence
Ø Anchoring
Ø Etc., Etc., Etc.
Human Faces Behind the Errors Ø Fears and discomforts
Ø Other emotions
Ø Off-days
Ø Life transitions
Ø Impaired cognition
Ø Mental and physical health
Ø Distractedness
Life Priorities and Financial Decisions
• Our psychological, social, and cultural environments influence everyone’s financial behaviors and decisions.
• Recognize your own LifeValues, how you developed them and why.
• What are your vulnerabilities?
• Then learn how you can use Behavioral (and Social Influences) Strategies to improve your financial decision-making and help clients and/or students do the same.
Research Behind LifeValues Tools
1. The decision making sciences. 2. The psychology of Values: Personal,
Social, Physical, and Financial. 3. Well-being, preference and choice,
satisfaction and happiness.
4. Behavioral economics and behavioral finance: biases and errors.
5. Marketing and advertising: how cultural environments influence all human behaviors.
Principle No. 1…
Ø Financial decision-making is about all of one’s life.
Principle No. 2…
Ø One’s societal and family history influences every financial decision today.
Individuals Values – Needs – Wants – Shoulds
Financial Behaviors
Organizations Reference Groups Family Media
Culture
Subcultures
Social Status
Flows of Social Influence on Financial Behaviors
Source: LVitt 2008, 2013 based on Olson
Wants “I want”
Shoulds “I should”
Values “I value”
Needs “I need”
emotions
cognitions
SELF “I decide”
Decision Dynamics Model
Source: Schweig-Vitt2006,
Wants “I want”
Shoulds “I should”
Values “I value”
Needs “I need”
emotions
cognitions
SELF “I decide”
Financial Decision Dynamics Model
Source: ISFS, Vitt 2007, 2009, 2013
Social Influences
Social Influences
Social Influences
Social Influences
Principle No. 3…
Ø One’s LifeValues drives all of their important decisions, consciously or unconsciously.
Principle No. 4…
Ø One can consciously use their LifeValue system to make better choices and decisions.
Principle No. 5…
Ø One’s LifeValues system is life long.
Break…
What are Values?
Terminology
Beliefs, attitudes, and values are terms often used interchangeably In the previous slide:
• The value is Liberty • The belief is in a Nation/System
where individuals are free to pursue happiness, religious life, etc.
• Patrick Henry’s attitude might be “I hate tyrants…”
Your LifeValues System
All LifeValues are Subjective and consist of what we think and feel about these dimensions of our lives.
• Inner/Personal
• Physical/Material
• Relationships/Societal
• Financial/Economic
Discomfort Comfort
Personal Values
Social Values
Financial Values
*Source: Lois A. Vitt.
Physical Values
LifeValues Model*
Personal Values …
Psychological • Safety and Security
• Autonomy and Control
• Identity and Social Identity
Spiritual
Physical Values…
1. Internal
• Senses
• Health
2. External
• Material
• Environmental
Social Values…
• Family and Friends
• Communities of Interest
• Co-workers and Customers
• Peer Groups, Neighbors
• Associations, Organizations
• State, Nation
Financial-Economic Values…
• Sufficiency
• Sustainability
• Appropriateness
Discomfort Comfort
Personal Values
Social Values
Financial Values
*Source: Lois A. Vitt.
Physical Values
LifeValues Decision Making*
Points to Ponder Ø You cannot “negotiate away” your unique
values. You must accommodate them.
Ø You cannot “negotiate away” another person’s values either. Think about how they were formed and instead try to put yourself in their place.
Ø You must find a decision solution that accommodates your values as well as those of a partner, family member, co-worker, client.
Ø Too difficult? Stay tuned by downloading…
Overcoming Biased Decisions
Ø Widen your thinking-decision horizon.
Ø Find and try out contrary positions.
Ø Understand your own emotions and cognitions.
Ø Maintain realistic confidence levels.
Ø Sleep on every important decision and also those with possible important consequences.
Exercise…
1. Publications: Values-Centered Financial Education: Understanding Cultural Influences on Learners' Financial Behaviors
2. On the ISFS Home Page Click on http://smartaboutmoney.org/Tools-Resources/LifeValues-Quiz.aspx • LifeValues Quiz & Other Exercises
Resources at www.isfs.org
