Swift Chat with Meir Statman: Unlocking Behavioral Finance - Insights from A Wealth of Well-Being

In this Swift Chat conversation, Marie Swift speaks with Meir Statman, Professor of Finance at the Leavey School of Business at Santa Clara University, to discuss the field of behavioral finance. Renowned for his research, Meir Statman has recently authored a new book called "A Wealth of Well-Being: A Holistic Approach to Behavioral Finance," which offers profound insights into the psychological underpinnings of financial decisions and their broader implications for personal well-being.

Statman delves into the core themes of the book, unraveling how our emotions and cognitive biases shape our financial behaviors in ways that often defy traditional economic theories. He also shares practical strategies for making more informed and rational financial choices, emphasizing the importance of understanding the human elements that drive our decisions.

Whether you're a finance professional looking to enhance your understanding of behavioral economics or simply interested in the interplay between money and human behavior, this episode offers a wealth of knowledge and thoughtful insights. Tune in to discover how to navigate the complex financial landscape with greater wisdom and clarity.

Don't miss this opportunity to learn from one of the leading voices in behavioral finance. A Wealth of Well-Being is available now at Amazon, Barnes & Noble, and other major retailers.

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Transcript of the Conversation

​Marie Swift: Welcome back to another great swift chat. Today, we have a very special guest: Meir Statman, a professor at Santa Clara University. Welcome, Meir. It's good to see you.

Meir Statman: I'm so delighted to be with you, Marie.

Swift: It's been a while. You and I go back a bit. We’ll discuss some of that during our conversation today. One of the things that we want to focus on is your new book, A Wealth of Well-Being: A Holistic Approach to Behavioral Finance. It is available now for preorder through Amazon, Barnes and Noble, and wherever books are sold. It's coming out in April. Is it out yet?

Statman: It's almost out. I just got a few copies of the book, so I know it's underway. The 23rd is the official date.

Swift: How exciting. How many books have you written?

Statman: For the general public? I suppose four.

Swift: Many more for the profession. Many of our listeners and viewers know you because of your work with behavioral finance. Let's start with our first question. Our first subject area is well-being and how that fits into behavioral finance.

Statman: I'm often fond of saying that the biggest risk in life is not in the stock market. If you want real risk, get married; if you want more risk, have children. People laugh because the point is obvious. Yet the point generally too often gets lost when people talk about financial well-being, and they overlook life well-being, which is really what we are all after. As I was working in the field of finance, behavioral finance, experiencing my own life, and speaking with others about their lives, I was looking at this progression I had traveled through. I started with standard finance. In standard finance, people are rational, computer-like rationale, and only interested in maximizing their wealth.

This is what I learned in my studies at The Hebrew University. I always felt that something was missing there. Later, knowing the work of Kahneman and Tversky, I moved on. The first generation of behavioral finance I was part of was one where we said, wait a minute, people want to maximize their wealth, but they're making so many mistakes. They're overconfident, they trade too much, and so on. We must speak about that.
 
I could see that calling people irrational, as we called them in the first generation of behavioral finance, is not appropriate. By that description, I'm irrational; you likely are, and so are your listeners. Of course, we are not stupid people. We are smart people. We are normal. When normal people look at investments in life more generally, they look for utilitarian benefits, which is wealth, but also at expressive and emotional benefits. For example, when you buy a car, you don't just look at gas mileage and safety. You also look at style, the color, and the prestige. We all do. The same applies to financial products, whether it is hedge funds that provide prestige or bonds that provide a sense of security.
 
Then, I thought there was more to it because, eventually, we are trying to gain life's well-being. Yes, we need financial well-being to gain life well-being. But just having financial well-being is not sufficient. Again, this is obvious, but it is not what we usually study and discuss when discussing finance. There is a lot of work on life well-being done by economists, psychologists, and especially sociologists that people in finance don't know. I said it was time to incorporate that. The book goes through the domains of well-being, finances, family and friends, work, health, education, religion, and even society. These are coming together. I think that when people read the book, they will connect to it because they will see the scientific literature, which is very important but tends to be dry, mixed with stories about my life and the lives of others that illustrate those general principles and knowledge. For example, you will read about parents estranged from their kids. One thing that people will see, and that I know from my own life, is that nobody has all those domains in perfect shape. We always have some domains where we have injuries, use the surplus from other domains as medicine for those injuries, and use medicine from one another. When I disclose my pains, people respond by disclosing theirs. We can empathize with each other and offer actual help beyond empathy. All of that motivated and is reflected in the book.

Swift: In preparation for today's conversation, I read your article. I believe it was on HumbleDollar. Jonathan Clements, who many of our listeners and viewers know, is a longtime contributor to the body of knowledge for personal finance and now has his own platform, HumbleDollar. As I read, I learned so much about you. It made me reflect on my own life. I've been thinking lately about how happy I am. I wasn’t sure why until I started contemplating some of the things you've just described.

Statman: That is right. Being a bit on the older side oddly adds to well-being. As we age, our health declines. People have found a U curve where life well-being tends to go down from early adulthood till middle age and then begins to go up. That is true for me. This is because, in early adulthood and middle age, our aspirations are much higher than our situations. People like me, you, and your readers are conscientious, responsible, and striving. We want to get someplace. So, we invest in studies or in starting a business. We are trying to move ahead and achieve higher well-being in the future and sacrifice well-being in the present. We study for the exam instead of going to a party. When we get to be my age, I'm now in my seventies, I let things slide. It’s not that I've accomplished so much, but rather that my aspirations have been pushed down. I have pushed them down sufficiently to be closer to where I am.

Years ago, if I read an article where someone failed to cite my paper or said exactly what I did, I would send a polite note saying, you might be interested in this paper. I don't do that anymore. I don't care. I quote Jonathan Clements often; he said, ten years after I'm gone, only my children will remember me, which is such a wise comment. That is the way that it is. I hope that some of my students remember me. I hope that my friends will remember me. But all that fades away. What really matters is what we do daily and how we enhance the well-being of other people and, through that, enhance our own well-being.

Swift: That's so profound. Many of our listeners are financial advisors. Let's talk a little bit about the role that advisors play. We've talked about finances in life well-being, but what about financial advisors?
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Statman: I spoke to financial advisors several months ago about bridging the gap between financial and life well-being. Advisors know financial well-being; they can figure out your withdrawal rates in retirement, can tell you something about what the Fed is likely to do, and so on. Some of them have great difficulty moving from financial well-being to life well-being. Speaking about how your family is doing and other things in your life that are not going precisely as you planned. Will you disclose your own pain and vulnerabilities to open the door for your clients to speak about theirs?

One woman said, isn't it true that women find it easier to go from financial well-being to life well-being and speak about those important things where financial advisors can help? I said that women generally find it easier to cross that boundary, but it is a skill we can all learn. I'm shy by nature, yet here I am on the stage, speaking to all of you. We can learn that. I think one of the uses of my book, in addition to teaching advisors, is helping them cross that boundary.

If they share that book with clients, they can follow up by asking them what they liked and didn't, what they agreed with and didn’t, and then ask specific questions. Meir writes about giving with a warm hand versus a cold hand. Many parents think that to teach their children responsibility, they have to withhold financial assistance when the kids are in their twenties when they are just beginning, and when they are squeezed. I think otherwise. Not all advisors and clients will agree. The book can prompt these conversations. Once you begin those conversations, you can get into what matters to people and how you, as an advisor, can enhance their life well-being.

Swift: I've been following George Kinder's work for many years, and this reminds me of the Kinder life planners' work with their clients; it's a more holistic conversation. It occurred to me from recognizing some of the distinctions from George and listening to you that my relationship with our wealth manager is about her caring about us and not so much the performance returns. We have a relationship and know that she cares about us as human beings because she asks those questions. I'm going to make sure she gets a copy of your book.

Statman: Thank you. You probably know this because I've been using it for many years; I refer to good advisors as good financial physicians. I expect all physicians to be knowledgeable about their fields in the same way that I expect financial advisors to know their field or finances, but I also expect bedside manner and, more importantly, personal relationships. I should be able to speak openly about things that are painful or embarrassing and get empathy and good advice on how to proceed. All the technical skills of pie charts, asset allocation, realizing losses, and so on are now generic. Robo advisors do it for a fraction of the typical fee of human financial advisors.

What differentiates financial advisors is not their knowledge of what the Fed will do next but the creation of that personal contact, empathy, and understanding. Not all clients are ready to open up like that. An advisor told me years ago about a couple who came to him, and they said, before you plan for us, you should know that we have a disabled son, and we have to have a plan for him for the years after we are gone. That is a case where a client opens the door, but many times they won't. You have to probe gently, not as a psychologist, as a friend. We have our pains. We have an older daughter who lives with bipolar illness. When I tell a colleague, their response is always to tell me something about their lives, whether it is a disabled child or something else altogether. Some advisors came to me afterward and said to me about their kids who are disabled. Others told me about, for example, working with a client during their last years. That is more than giving him advice about how much he can spend; it is the empathy we all need, whether in our early or later years. In a way, it’s so basic and easy, yet we find ourselves asking, can I disclose that? What will they say?

I assure you they will respond with empathy, and now you will regard each other as colleagues and friends. You may ask, why haven't we done this before? Many advisors know what I'm talking about. I will provide more details. I'm not suggesting that all advisors find it difficult to cross their boundaries, but many do. I encourage the rest of them to do that. It would help them, not just professionally but also personally.

Swift: From what I'm hearing, you're saying that financial well-being might be less important than life well-being.

Statman: No, not really. Financial well-being is important in two ways. First, it is important on its own. Second, financial well-being underlies all the other domains of life well-being. Having more money adds to your well-being: evaluative well-being, how you evaluate your life, and experience well-being, your emotion. That by itself is important; even more important is that financial well-being underlies well-being in all domains. You cannot maintain and support a family and yourself without financial well-being. You cannot see a doctor without money.

Even when it comes to religion, if you go to church or synagogue, they'll pass the plate, and you should have something to put in it. You need financial well-being, but it is not enough on its own. It is always important to know how to translate financial well-being into life well-being, to know that you can enhance the well-being of your family if you can afford it. If you have more, you could support the community, donate to the university, and donate to less fortunate people. That is what we do. For example, my wife, Navah, has volunteered at the National Alliance of Mental Illness for many years. This started decades ago because they helped us with our older daughter, who lives with bipolar illness. Since then, she has been helping so many people. We also contribute as much as we can because they have many programs that cost money, and we are in a position where we can help. As they say, you don't want to be the richest man in the cemetery; you want to give with a warm hand and help others. As you give, you enhance the well-being of others and your own well-being, knowing that you are doing good for others.

Swift: That pivots nicely to my next question about overspending or underspending. I know people like me who have worked hard, worked their way up and didn’t have a silver spoon in their mouth; sometimes think, can I afford to do this? If I don't do it, will I be shorting myself? I'll be the richest woman in the cemetery. Could you speak about overspending and underspending?

Statman: I think that is really important. Some people don't have much beyond what they need for themselves and perhaps their close family, and you cannot ask them to contribute beyond what they can. Many advisors and their clients have quite a bit. We have accumulated a good amount of money because we have good habits. Whether they were taught by our parents or inside of us from the beginning. We are responsible people, and responsible people know how to save. They think about tomorrow; they don't spend it all today, and they take pride in their ability to save.

You move money from your income to your savings and probably follow the self-control rule: don't dip into capital. It's tough for people to make that switch and get to a position where they are older, retired, or perhaps working but have more money. They might dip into their savings to spend on themselves, their family, or the community. Advisors tell me, on the one hand, that people don't save enough. On the other, people have money, but they don't know how to spend it. You can make suggestions, like taking a cruise around the world. They have the money to do that, but it does not appeal to them. It does not appeal to me, if you sent me on a cruise, after a week, I would jump overboard. People find joy in different places. For some, it could be taking the entire family on a nice vacation, giving money to kids and grandkids for their education, or a down payment on a house, and so on. For others, it is pampering themselves and going to high-end restaurants. For me, if I fly long distances from the US to Israel, I buy business class tickets. They are awfully expensive, but frankly, I can afford it. As a friend of mine says, if you fly coach, your son-in-law will fly first class, so you might as well enjoy it. These are the kinds of things that you have to remember. There is a problem with too little self-control; people fail to save and spend everything now. There is such a thing as too much self-control, where you shortchange yourself, your family, and your community. I think that one of the roles of financial advisors, even though they are responsible, is to recognize when they can enjoy life more than they do, given the resources they have. If they do that and help their clients do that, it will be a great service.

Advisors who help their clients help their children are going to be rewarded in many ways. Adult children always look for another advisor when their parents pass away. It would be nice if the kids knew that you are the one who recommended that their parents share some of the wealth with them when they needed it. Not when their parents are gone, and they are 65, but when they are just beginning their careers. That is the time when young people are squeezed. That is the time to help them.
 
Swift: I remember many times like that when my husband and I were early in our marriage, and our parents on either side helped us with something important. Those contributions made a big impact in setting us up to have the life we do today. Let’s talk a little bit more about finances and family dynamics, particularly dating and marriage. We can discuss work, education, and religion if we have time. What would you add?

Statman: One thing I find interesting in the education category is an observation about our neighborhood. We live in Silicon Valley. Many parents are very well-educated and ambitious. Lots of them are immigrants like me, mainly from India and China. They aspire for their kids to go to Ivy League colleges. Sometimes, the pressure they exert and the pressure the kids exert on themselves becomes unbearable. I can see where the parents are coming from because in places like India and China, getting into a top college opens the door to a good life. In the United States, there are many ways to have a good life, at least financially, whether you attend a top college or not.

The income of graduates of Ivy League colleges is not much higher than that of those who attend a less prestigious college. This occurred to me when I spoke about it to my neighbors, many of whom came from India. Many of them see that there is no point in having that pressure, that it can be counterproductive, and that their kids are better off picking a college that is right for them rather than aiming for prestige alone.

Swift: Interesting. There's so much more that we could talk about. In closing, let's discuss the motivation for writing the book. Why did you decide to write this book now?

Statman: I decided to write this book because, as a professional, a scholar, and a teacher, I could see the need to expand the circle of finance beyond finances and to the issues of life well-being. I talk about them with my students, who are delighted. They speak with one another about those issues and exchange impressions, information, and experiences. That is enriching their lives and my own as a teacher. I also thought about it in terms of my own experiences. I know from experience that there is more to life than money, and money is important, but it is not the only thing.

I learned more about it from people who have studied various aspects of it, and I put it together. The scientific literature and everyday examples from sociologists, psychologists, other scientists, and everyday people who tell you about their lives bring it into focus and touch your heart. You will see that when people write an article where they disclose their pain, whether it is the early death of a child or a divorce, people in their comments will tell similar stories and offer empathy. We are going to be gone someday. How can we live the best lives now, and how can we enhance the lives of other people? That is what matters in the end.

I hope that when people read my book, they will nod and say, this is something that I recognize, and I can see that Meir cares about his well-being and other people, including me. I hope they will take it from there and open conversations with family and friends, and if they're advisors, their clients. I hope to do good for everyone that I can.

Swift: This has been a fantastic conversation. The book is A Wealth of Well-Being: A Holistic Approach to Behavioral Finance. It's currently available for preorder, and I have an advanced copy. Thank you, Meir. There is a transcript of this conversation and some links in the show notes for all our listeners. You can find this on ImpactCommunications.org, on our blog, in the Swift chat series. Thank you again, Meir. I hope to catch up with you again after I fully read the book, and we can have an even deeper conversation.

Statman: Thank you so much, Marie. It is delightful to be in touch, speak with you, and hopefully help those who listen to this podcast.

Swift: Thank you.

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