Traditional thinking suggests that financial success leads to happiness.
Broadcast Retirement Network’s Jeffrey Snyder discusses how big a role emotions play in our use of money with Biola University’s Shane Enete, CFA, CFP.
Jeffrey Snyder, Broadcast Retirement Network
This morning on BRN, the link between your emotions and your money. Joining me now is Dr. Shane Annette, he’s an associate professor of finance at Biola University. Dr. Annette, great to see you. Thanks for joining us in the program this morning.
Shane Enete, CFA, CFP, Biola University
Yeah, thank you for having me.
Jeffrey Snyder, Broadcast Retirement Network
Yeah, and as I was saying in our virtual green room, this topic couldn’t come at a better time because I don’t know if you were prescient or what, but there’s so much turmoil going on in the economy, the markets. I think a lot of people have a lot of concern. Is there a connection between our emotions, what we feel and money?
Shane Enete, CFA, CFP, Biola University
Yeah, so I’ve been researching in the area of personal finance and institutional finance for a while. What you see so often in the literature is people will say, you get a lot of money that creates positive emotions, that creates happiness. Over time, that idea has really been debunked.
We’re the richest society in the history of civilization and yet we actually have the highest amount of depression, the highest amount of anxiety. There’s actually not a strong relationship between wealth and positive emotions going that way where the causation of wealth creating emotions and part of the big reason is we get used to it. So we have this thrill when we get more money, but then we adapt and so we are like whatever level of wealth we reach, we get used to it and it no longer provides that boost of emotion.
I really, using a lot of psychological research and theory, started to see that it’s actually the opposite. So when people experience a positive emotion, that actually triggers a type of sequence, a type of growth in ourselves that leads towards greater net worth, leads towards greater income. And so that was just a really powerful insight that I wanted to study and to test.
And then the opposite is true that when people, so it’s not that if you lose your money, you all of a sudden are now going to experience permanent negative emotions because you get used to a lower level. And this is if you have your basic needs of food and shelter and clothing kind of met. Apart from that, once those basic needs are met, then there’s not that kind of sustainable effect on our emotions.
But if you are in a cycle of anxiety, of being sad, of kind of experiencing these negative emotions, that actually will contract your ability to grow, to be able to think about money in the right way. And so that leads, and empirically in my paper, I’ve shown that that leads towards lower net worth, lower income. And so, yeah, it was really fun to just look at it the other way, from emotion to wealth versus wealth to emotion.
Jeffrey Snyder, Broadcast Retirement Network
Yeah. Actually, the way you explain it, it’s kind of the way you wrote about it. It’s actually the opposite of what I would naturally think.
Are there lessons here, Dr., for financial advisor community, those that deal with the general population, the retail investor? I feel like, I believe that financial advisors have to play a little bit of psychology with their clients. So how could this information help the FAs out there working directly with the community, their community?
Shane Enete, CFA, CFP, Biola University
Yeah, yeah, for sure. There’s quite a bit they can do. So the theory that I use is called Broadening Bills by Barbara Friedrichson.
And the idea is, as people experience contentment or joy or feelings of being interested in something, that triggers a broadening of our receptiveness, of our self-complexity, of our time horizon. We just start to think, and we’ll actually want to play more, we’ll want to kind of grow. And as we grow, that triggers skill building.
And so what I ended up seeing is the connection between emotions, creating higher net worth and income is all run through time horizon. So as we are feeling like we want to play, feeling like we’re growing and becoming more complex people, that’s satisfying and will actually expand our financial time horizon. We’ll look farther.
And that is the greatest indicator and variable that will increase personal wealth. And it actually decreases consumption. It decreases how prone you are to debt.
And then it’s a positive reinforcing loop, because as you increase your net worth and income sustainably and you become more complex and you grow as a person, then that creates new positive emotions that then creates the whole cycle again. So as a financial planner or advisor, gratitude journals are huge. So what I like to tell people is just tracking your expenses daily or weekly.
That’s a financial gratitude journal. So that’s the moment where you can recognize and be grateful that there’s provision, there is food, there is shelter, there’s all these things. And if studies, and I’ve done a study that has shown over and over again, if you engage in gratitude, that’s the greatest way to create positive emotions.
And so it’s like wave after wave of positive emotion will kind of allow you to expand your time horizon because you’re going to want to think about the future because you’re experiencing these good feelings. And so then the opposite is true. So as a financial analyst or planner or advisor, if you see your clients are engaged in a cycle of anxiety, a cycle of fear, of sadness, what that’s going to do is it’s going to contract their ability to think about the future.
They’re going to be in a chronic fight or flight where they’re always in their kind of reactive kind of mode. And so you have to kind of go through what are called positive psychology interventions, a gratitude journal being one of them. But there’s other ones about future self.
So if you can help someone dream about their future selves, what they want, then that’ll actually start to recalibrate their mindset. So they start to maybe create some positive emotions as they have some vision and some hopes and dreams about a better future.
Jeffrey Snyder, Broadcast Retirement Network
Yeah, there was a book, as you’re describing this, Dr., there’s a book that I recall reading in the 90s called Don’t Sweat the Small Stuff and It’s All Small Stuff. You may not have heard of it, but I’m probably a lot older than you are. That was a book that kind of puts things into perspective.
And I don’t know if the audience can hear. My cat is, we have a kitten. She is screaming at me.
Hopefully it might be coming through. You know, we’re a pet-friendly program. Let me just kind of close out by asking, you talked about the benefits for financial advisors in terms of understanding their client a little bit better.
What about marketers or advertisers? I feel, I believe, I always say I feel, but I do feel that maybe some of the advertising is a little antiquated in terms of some of the products and services that are out there. Are there some lessons here for how to shape messaging for our friends in financial services in terms of their marketing, the ads that we see on TV, the ads that we see on the internet?
Are there some lessons here as well from your work?
Shane Enete, CFA, CFP, Biola University
Yeah, I’d say if you can, I felt like there’s been quite a few financial service advertisements that are trying to engage people in aspiration, trying to engage people in a hopeful future, and they’re giving them a vision of a future self that is in control, that is, you know, excited about what they’re doing. So I feel like they’ve actually, you know, engaged this script and they know it intuitively, even if they may have not known the theory behind it. And, you know, my research has also shown that anger is actually a little bit different type of negative emotion than the other negative ones.
So I wouldn’t want to engage anxiety or sadness. And I think in many ways, marketers should always avoid creating those emotions because that’s just going to cause people to kind of shut down. But anger is what’s called an activating emotion.
So sometimes that actually does create some positive movement in wealth building or income growth, as well as, interestingly, I found loneliness was a different type of negative emotion. And that one is a little more complex because often wealth separates us from people and then they’ll feel more lonely because they’re the only one in their big house, you know, and they’re kind of far away from people. And so it’s hard to say which one comes first, you know, between wealth and loneliness.
But but yeah, it’s all I had to say. I think marketers are engaged in the script already. And and if they they should always avoid activating kind of anxiety or fear.
But I think if they activated anger, that actually could trigger positive movement for people to to engage in wealth building.
Jeffrey Snyder, Broadcast Retirement Network
Yeah, it’s so interesting, doctor. I mean, your research is it’s so telling. It’s just so interesting how we’re driven.
I mean, we’re emotional creatures. Everything we do is kind of keyed off our emotions. And oftentimes, emotional intelligence is is is so important to making the best decision possible, knowing yourself, knowing how you make decisions and how they impact your decisions really important.
Dr. Annette, we’re going to have to leave it there. Great research. Thank you so much for joining us.
And we look forward to having you back on the program again very soon, sir.
Shane Enete, CFA, CFP, Biola University
Thank you so much.
Jeffrey Snyder, Broadcast Retirement Network
And don’t forget to subscribe to our daily newsletter, The Morning Pulse for all the news in one place. Details, of course, at our website and your subscription helps support all this great BRN content. And we’re back again tomorrow for another edition of BRN.
Until then, I’m Jeff Snyder. Stay safe, keep on saving and don’t forget, roll with the changes.