Do you remember how great it felt the first time you earned money from babysitting, mowing lawns or an old-fashioned paper route? How about your excitement when you bought your first car, took your kids to Disney Land, or finally purchased that piece of art you craved?
While the financial industry pushes to get people thinking about saving and investing, our research proves that working and spending are far more central to people’s lives.
We spend a lot of time trying to understand how people feel about money and what matters to them, because our goal is to improve lives, not just bank accounts. We turned to Barnaby Riedel, Ph.D. and co-founder of Riedel Strategy, to help answer the question, “what is the meaning of a financial life?” Using a process based on narrative psychology, we asked 30 affluent individuals and couples to share their financial life story by creating chapters and identifying the high points and low points in their journey. We wanted to learn how people think, and compare it to how the traditional financial industry operates. For the most part, the financial industry is based on four key assumptions about people and their financial lives:
- A financial life is made of predictable stages
- A financial life is about money
- A financial life is about saving and investing
- A financial life is about financial independence
What have we learned? No two people are alike, and the concept of a “financial life” is much broader than just saving and investing money. From family histories and love stories to parenting fiascos, people included just about everything in their financial life stories and very little of it had to do with the assumptions listed above.
What surprised us was that 90% of the high points and low points people described centered on working and spending themes while only 10% focused on saving and investing (see the report). Considering how the industry and media have a constant drumbeat about “save more, invest better!” we thought this was a very important insight about the mismatch between what people care about and how they are spoken to and what they are offered.
Why are saving and investing so marginal in people’s financial life stories? People felt less control over these activities. Investments rise and fall with the stock market; house prices swing. Saving is something that happens automatically, like with a 401K, or it’s a byproduct of working and spending. It’s what’s left over. These topics felt impersonal and disconnected from the compelling story of people’s lives.
On the other hand, when it comes to working and spending, people feel responsible and they can take action or have some control. We heard tales of promotions or job losses, bad bosses, great vacations, and the way a decision about paying for college was made. For each person, the choices were deeply personal – for instance taking a high paying job isn’t always a fulfilling decision, and in some cases people looked back and felt they hadn’t spent enough money on family vacations. In other words, the conventional wisdom that more money is better, and saving is always a virtue just didn’t hold true.
When people made the right choice for themselves about work or where they spent money, they felt great. Their deepest regrets came from not paying attention to the way working and spending could impact their entire life, not just their wallet. Work can create meaning and purpose, and help you feel valued. Spending well on things that actually matter or make life long memories allows you to feel you’ve created value.
With what we’ve learned, it’s no surprise that many people don’t look forward to meeting with advisers who just want to focus on saving and investing, ignoring the other aspects of their financial lives. Since the traditional model of financial services fails to connect in a personal way to how people think and feel about money, many Americans just don’t get engaged, and that’s why they are unprepared for their future.
Working and spending well are what truly create people’s financial life stories. The way we see it, helping people think about their whole life story and what matters to them is a more empowering and effective approach to offering guidance.
We call it financial life management. Learn more about financial life management.