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Why love has everything to do with the next frontier in financial planning and our relationship to money

Swiss philosopher Ashley Curtis validates grandma's folk wisdom about money by way of Harvard, Yale and Kitces

Monday, October 17, 2016 – 8:11 PM by Guest Columnist Ashley Curtis
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Ashley Curtis: We should take into account that there is a return also on indulging the present satisfaction.

Brooke's Note: Much of what makes us Americans is the ability to define ourselves by a series of actions unburdened by an overindulgence in reflection and philosophizing. This action orientation spills over into how we address the question of money. Whether you're a debt addict with a new house, three new cars and a boat or a workaholic who saves 90% of what you make, your objectives are the same: You want to stay in enough motion that reflective thoughts have no time to kill your buzz. If you are a financial advisor, your objective is to enable this American version of Zen. But as the law of large numbers envelops our country at both a collective and individual level, the cries of dissatisfaction are reaching fever pitch. In a financial context, a large entity that is growing rapidly cannot maintain that growth pace forever. Donald Trump is just one symptom of that creeping dissatisfaction in our growth-addicted society. Where to begin plumbing for answers? How about a dyed-in-the-wool philosopher. Fortunately I happen to know one in Ashley Curtis, an American in Switzerland, who enjoys delving into these topics from his Alpine perch.

"It's all about the relationships." 

Ask a person in just about any walk of life what made them successful and, odds are, they'll give you some version of that statement. 

Yet that maxim's ubiquity doesn't extend to where it could be most illuminating -- namely in terms of our relationship with money and the calculus of how much to save. After all, while some of us are busy spending every penny we make -- and more -- many who make more pennies are putting perhaps too many of them away. Our goal is presumably not simply to amass the most money but to lead the most satisfying life. There is ample research with a notable accord to tell us the wisest spot on the spend-and-save grid to aim for.

It turns out that financial planning, as with all planning, springs from the quest for fulfilling relationships. While poverty, as expected, tends to lead away from happiness, wealth and the choices it opens up do not appear to point the way to bliss.  See: My conversation with Chris Gardner and his new Pursuit of Happyness

Consider the following apparent paradoxes (citations follow at the end of this article):

  1. The world's longest and most successful study of life satisfaction, conducted by the Harvard Study of Adult Development, finds a mighty correlation between happiness and fulfilling relationships, but none between happiness and wealth. Perhaps to no one's surprise, this indicates a lack of correlation between wealth and fulfilling relationships.

  2. The more choices we have as we make a decision, the less satisfied we tend to be with whatever decision we make.

  3. There is a positive correlation between income and life evaluation, but the correlation between income and emotional well-being ceases to exist at a household income of $75,000. Another study "provides suggestive evidence of a possible association between high income and a reduced ability to savor small pleasures." See: Why the 56-year-old scion of Wall Street barons is 'broke' but unforgiving toward the financial advisors who might have kept him rich

  4. In a recent study of affluent households, one-third of respondents with assets exceeding $10 million stated that money was a constant worry, and that it brought more problems than it solved. See: Wells Fargo targets tempting but treacherous UHNW market with Abbot Downing launch

  5. Victims of devastating turns of fate very often credit those misfortunes with saving their lives and leading them toward real happiness. Such "synthetic happiness" does not appear to be a result of cognitive dissonance or wishful thinking, but represents, as the victims claim, a happiness as "real" as any other -- if not more so. See: Why quiet co-breakaway of LPL and Ameriprise advisors in Downeast Maine speaks so loudly to Shirl Penney

  6. Six months after striking it rich in the lottery, winners take significantly less joy in everyday life. Six months after becoming paraplegic, accident victims take almost the same amount of joy in life as they did before the accident.

  7. Our ability to predict what will be important to us even 10 years down the road is poor yet our confidence in that ability is very strong.

  8. Recent surveys of millennials list their top three life goals as being wealthy, famous and achieving highly. When I conducted my own, granted unscientific, survey, almost everyone I interviewed said that might be true of others -- but not of themselves.

The secret of unhappiness

Arthur C. Brooks, president of the American Enterprise Institute, came up with two four-word "formulas" -- one for happiness and another fom unhappiness -- based on an extensive review of available research.

The recipe for happiness is: Love people, use things.

The recipe for unhappiness? Love things, use people.

And Robert Waldinger, director of the Harvard Study of Adult Development, puts it almost as succinctly: Good relationships keep us happier and healthier. Period.

So money can't buy me love, but can planning for money get in the way of love?

Obviously, it can. A father or partner who is out the door at six a.m. and returns home at nine p.m., all for the promise of a future free of monetary cares, likely doesn't have the time or energy to develop optimal relationships with spouse, children or friends -- relationships that turn out to be key not only to happiness but to both mental and physical health.

The same is true of a woman so entangled in the performance of her investments that she is always looking over her shoulder in worry, unable to be wholly engaged with her friends or family. Even the extremely wealthy, who truly need have no worries about a bum investment or two, can become so compulsive about the performance of their money that they cease to perform as humane beings. See: With $9 million in second-round VC bucks from Venus and friends on the books, Ellevest's AUM remains ground bound

The equation gets more complicated when the piling up of money is seen in the service of relationships. The parents who save and save, not for themselves but so that their child can go to the best school or face life without the financial constraints the parents suffered under, might see themselves in relationship mode.

But the relationship that confers health, happiness and longevity does not grow out of sacrifice for the loved one's future comfort. It grows out of engagement, interest active love both physical and spiritual. Importantly, it means reflecting back to the loved one what you see in him or her, and seeing your reflection, in turn, in that person's eyes. Such engagement from a parent, say, is far more meaningful than a good school in that it gives the child a reservoir of strength to deal with hardships that no financial cushion or privileged education ever will.

All or less

The first and most essential paradox in our above eight-point catalog -- the lack of correlation between happiness and wealth -- should remind us that it is crucial to determine whether our financial planning is likely enhance or detract from the important relationships in our lives, not sometime in the future, but now. In fact, this must be the first question to ask of any plan for anyone whose goal is happiness, health and longevity. See: How my career path to become an RIA included pay phones, American Express, the pressure of being a physician's son and facing down robbers as a bank teller

The second item, regarding choices, is a strange one. If too many choices lead to dissatisfaction with any decision, should I aim to restrict my choices knowing also that a too-restricted field of choices can equally lead to dissatisfaction? How much choice is right for me -- and am I not one of the outliers who should have everything? See: The 4 biggest investment performance myths -- and how they can torpedo advisor-client trust

It is clearly absurd (or at least radical -- the vow of poverty comes to mind) to engage in financial planning with the goal of limiting one's choices. But this item provides a valuable background for such planning nonetheless because our tendency is always to assume that more choice is better, and having the greatest possible number or choices must be the best.

This item, then, serves as a pressure remover. It can tell us that if we shift our goal of choices from unlimited to some finite number, we are not being stupid. It can allow us to ask and answer the relationship question without the feeling that if we cut down on our future choices in order to invest, now, in our relationships, we are likely not making a decision that we will regret.

Murky crystal ball

Items three through six boil down to the conclusion that being wealthy is not necessarily fun.

Again, a pressure reliever. More property means more cares about property, which is   "thing" rather than a person. Above a fairly modest threshold (that corresponding, approximately, to the mean U.S. household income), greater wealth does not mean, statistically, greater emotional well-being. The example of lottery winners, whose great riches tend to make them miserable, typically leading to patterns of overspending, poor relationships and alcoholism, certainly lays to rest the idea that money is a panacea. The phenomenon of "synthetic happiness," in which downfalls lead to greater well-being in a "lesser" state, suggests also that our instincts concerning money, status and happiness may be off base. 

Item seven, perhaps the most counterintuitive on the list, states that we are abysmal at predicting what will be important to us a decade ahead, and even worse, two or three decades, hence.

This is, however, exactly the time span relevant to a financial plan! When examining the question of how much present sacrifice am I willing to make for a future return, we ought to be aware that our evaluation of the future return is, at best, extremely suspect. A "thing" doesn't change -- the boat, the retirement home, etc. -- but what the thing will mean to us 20 years on is essentially unknowable. See: Favorite succession plan of RIAs remains the same: none at all

Finally, the finding, though anecdotal, about item eight -- that the first seven points might apply to others but never to oneself -- ought to give us pause before we dismiss the ideas in this article as generally relevant -- just not to us. See: In what may be a first, an RIA brings on a psychologist as a financial planner

Now's the time

Although none of ideas translate directly into a financial plan, the point is that these are important considerations to be aware of as one makes a financial plan. And perhaps now that they are no longer folk wisdom, but based on scientific research, they will speak more loudly to us. Taking together, these eight ideas converge as we make key life decisions. When we invest, we are almost always trading present satisfaction for a future return. (This is equally true, but in the opposite direction, of running up credit card debt.)

Into this calculus, however, we should take into account that there is a return also on indulging the present satisfaction. We can postpone making use of our wealth until we are older when we can buy that boat or lavish it on our children or grandchildren or the humanitarian causes we support. Money can always be spent later, and probably more abundantly.

But it is the opposite with relationships. We cannot wait until we are 65 to build meaningful relationships with spouses, partners, lovers, children and  friends that are the largest determining factor in how long we will stay alive and healthy, both physically and mentally. See: Strategic philanthropy: Exactly how to bequeath your values -- not taxes -- to the next generation

Age 65 is too late for that.

In the worst case, I have spent my youth and middle age sacrificing toward the good life later. Now later comes, and no good life is waiting in the wings. I've been too busy sacrificing it to let it grow. There never was, or is, a good life. And then it ends.

Sources for items 1-8:

1. See Robert Waldinger's TED Talk. Waldinger is the Director of the Harvard Study of Adult Development.

2. See the presentation delivered at the Aspen Institute by Paul Bloom, professor of psychology at Yale.

3. See High income improves evaluation of life but not emotional well-being, Kahneman, D., & Deaton, A. (2010).  For the study associating high income with a lack of appreciation for small pleasures, see Quoidbach, Dunn, Petrides, and Mikolajczak (2010) Money giveth, Money taketh away. Psychology Sci 21:759-763

4. For a report on the study by PNC Advisors, click here

5. See Dan Gilbert's TED talk here. Gilbert is a professor of psychology at Harvard University.

6. See the much-cited 1978 Northwestern study of of paraplegics versus lottery winners six months after the accident or lucky number. 

7. See Michael Kitces' article reviewing recent research on goals-based investing.

8. This is anecdotal evidence based on interviews I have conducted. The survey results about millenials are reported in Robert Waldinger's TED Talk cited in item 1.

For Arthur C. Brooks's "formulas" see this. 

Ashley Curtis is the author of Error and Loss, due out in February 2017. He lives in Piemonte, Italy.

Jeff Spears

Jeff Spears

October 18, 2016 — 4:08 PM
This insightful article turns everything upside down. At 54 and a 30 year "career" in wealth management I have found the 8 items to be true BUT very hard to live by and implement. I keep trying and articles like this encourage me.
Dennis Clark

Dennis Clark

October 18, 2016 — 8:29 PM
My demographic is similar to Mr. Spear's and I agree with his assessment. However, I would add that at least half of my meaningful relationships are ones fostered as a participant in the business for which I earn my livelihood.

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