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Ep 20: Moira Somers on tackling investor behaviour
275 Plays1 year ago
Moira Somers is a behavioural psychologist, based in Winnipeg in Manitoba. She also advises individuals and organisations about personal finance, and she also works as a consultant to the financial services sector.
In this interview, she explains why so many people put off investing for retirement and making important financial decisions (her academic expertise, appropriately, is in procrastination).
She also discusses how women invest differently to men, why investors need to be more self-compassionate, the value of hiring a financial planner, and what parents could be doing to help their children to develop a healthy relationship with money.
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Transcript
Introduction to Tebby Podcast
00:00:04
Speaker
Hello and welcome to the latest Tebby podcast, brought to you by the evidence-based investor in conjunction with Regis Media, connecting advisors with clients. I'm Robin Powell.
00:00:17
Speaker
Today, we're joined by Dr.
Dr. Moira Summers Joins the Discussion
00:00:19
Speaker
Moira Summers, Professor of Clinical Health Psychology at the University of Manitoba at Winnipeg in Canada. Dr. Summers, thank you very much for joining us. Explain, what are you doing in the UK? I came over to speak at a conference that's being held in Birmingham, the CISI Conference for Security and Investment People. And I'm using that as an opportunity to see the beautiful countryside.
00:00:45
Speaker
Now you're starting in Birmingham to see the beautiful countryside. That's an unusual place to start, but I'm sure you'll have a lovely time.
Psychology of Money: Procrastination
00:00:53
Speaker
Can I ask you, how did you get into this whole field of the psychology of money?
00:01:00
Speaker
I've always had an interest both in terms of research and clinical practice in what makes it so hard for people to do the right things for their lives, whether that's their health or their money or their relationships. My doctoral dissertation was on the topic of procrastination.
00:01:18
Speaker
And later on as I got into hospital settings was working really closely with people around how do we get them to do the best things for their health so that they can recover optimally from disease or injury. And over time it just became obvious that many of the same dynamics and problems that were evident in healthcare were also evident in our financial lives. We also find it hard to do the right things for our financial lives.
00:01:45
Speaker
You mentioned procrastination there. I could use some of your expertise. I think we all could. But that is a major issue, isn't it? Not getting started with planning your finances and, of course, with investing.
00:02:01
Speaker
It's just so easy to lie down until the feeling goes away and to start with something that's immediate and easy and right in front of you and sometimes financial planning decisions and even discussions within families are things that get shunted off for the manana for some time later.
00:02:21
Speaker
Now, your academic background is in clinical psychology.
Mental Health and Financial Decisions
00:02:24
Speaker
You still have a psychology practice. How much of an impact do you think mental ill health, even mild mental ill health has on our personal finances and our ability to make sensible rational decisions?
00:02:46
Speaker
We know that there's a very much a cyclical relationship. So for example, poverty is a major determinant of ill health both physically and mentally. We know that in turn when people become ill, they are much more likely to court poverty and financial challenges. They're much more likely to become indebted and to have difficulty meeting their basic needs. We know that it becomes much more difficult for people to be hired.
00:03:15
Speaker
if they're ill or disabled or if they have a mental illness. We also know that regardless of income level, and this is one of the things that I find so interesting, that in survey after survey that's done of
00:03:31
Speaker
population mental health and what are the biggest causes of stress in people's lives. Money tops the list every time year after year beating out things like relationships or health or job concerns. We as a society tend to stress about money to an extraordinary degree and it has an impact on our health and our relationships.
Coping with Investment Mistakes
00:03:56
Speaker
And what about investing specifically and mental ill health? Presumably bad mental health can stop us investing in the first place. It can also make us feel very guilty about decisions that we've made in the past that haven't possibly turned out as well as they could have done. What would
00:04:21
Speaker
be your advice to maybe listeners to this podcast who possibly have those kind of issues themselves and that it's getting in the way of them making sensible investment decisions.
00:04:34
Speaker
I think that there comes a time when we do have to really court self-compassion and forgiveness and to say, you know, everybody's going to make some mistakes along the way, the most important thing to do is to figure out how can you most sensibly recover from them if you've made them.
00:04:52
Speaker
Another thing that I find though is sometimes what people construe as mistakes aren't really things that they could have done anything about. There were market corrections and that's a predictable and repeatable phenomenon. And so sometimes what we need to do is really educate ourselves and increase the overall financial literacy.
00:05:15
Speaker
individually and corporately, so that we come to develop a little bit of resilience and give in being able to ride through some of the tougher times. You can be so risk averse, as you know, that you can fail even to keep up with inflation.
00:05:33
Speaker
You can also be so tax averse that you invest in crazy tax shelters and really blow far too much of your money on speculative investments. So I think that we have to find our own middle ground and it certainly helps to surround ourselves with people who can provide us with good counsel.
Gender Differences in Investment Strategies
00:05:56
Speaker
How much of the work that you do is with couples? And in your experience, a big subject I know and sort of slightly sensitive in many ways, but how do men and women think about money and particularly about investing? How do they think about investing differently?
00:06:17
Speaker
It is, as you say, sort of a changing landscape right now because of years of attempts to really raise the tide for women and to increase their earning capacity. But my understanding of the current state of the research is that women are still much more conservative investors. They often wait far too long to get into investing.
00:06:42
Speaker
When they do start investing though, they tend to have better returns than men because they are more prudent. They don't seek the extreme reward end of the spectrum. They're content with more modest returns and they tend to achieve them. So the standard deviation, I guess, around the risk reward stuff is far narrower for women.
00:07:06
Speaker
Women tend to invest much more with safety in mind and with well-being of the children in mind.
00:07:16
Speaker
We know also another interesting thing about another gender difference is that women tend to stress more about money. They will acknowledge that they lose sleep more often than men do. And sometimes that's because they do not have sufficient knowledge of their own family finances. They're not the ones in control. You know how sometimes it's harder to be a passenger in the car than a driver?
00:07:42
Speaker
You're glad somebody else is driving, but you still have absolutely no control about what's happening. And so it's a different kind of stress. But specifically talking about investing, as you know more, the rules of successful investing are actually really quite simple. I mean, it's not to say investing is easy, because that's why we need people like you.
00:08:08
Speaker
The rules of investing are simple. Does it bother you that more women don't understand the basics of keeping your costs low, diversifying, investing for the long term and so on?
00:08:23
Speaker
I think they know it in some domains. It distresses me that they don't know it in the financial domains, and when we survey them, when we work with them to say, how come this isn't so easily transferable for you? You have brilliant skills in household management.
00:08:40
Speaker
Why is this not translating into a broader financial picture? And some of it, frankly, has to do with mistakes that advisors make. There are some real big turnoffs, real big mistakes that just leave women feeling stupid.
00:08:59
Speaker
and embarrassed and uncomfortable and so they vote with their feet. So it's not just trying to raise the tide for the women's boats, it's also about training advisors how to do things differently.
Sudden Money Institute's Approach
00:09:14
Speaker
Now you've done quite a lot of work with something called the Sudden Money Institute. Now I know all about the Sudden Money Institute and Susan Bradley, who started and so on, but I'm guessing that a lot of our listeners won't. Just briefly explain what it is.
00:09:29
Speaker
I think it's a name that she very much regrets now. I think she gets a lot of calls every day asking how they could get some money. The name of the Institute, I believe, is actually changing to the Transitionist Institute. It was Susan Bradley's attempts to train advisors about some of the excitability that can exist around money in motion.
00:09:58
Speaker
I believe it started as she was watching what was happening in a very big class action suit as women were preparing to receive settlements and would engage in things like pre-spending. So you encode this unknown amount of money, because the settlement isn't in yet, you don't know, the suit hasn't been won, you just somehow mentally encode it as
00:10:24
Speaker
The whole big whack load of money is coming my way. And because it's that unanchored and vague, you start spending it.
00:10:36
Speaker
Mentally often and we keep it in silos, but the silos don't really communicate and sometimes it's not even a mental Categorization people actually start pre-spending actual current dollars that they have well in advance of the windfall And so what her concern was was how do we get people to settle down and to make decisions? How do we get them to realize that these are often tax? pre-tax amounts
00:11:06
Speaker
How do we get them to really ground it in a real number? How can advisors be helpful in this? What do advisors do that is not helpful at all? And the same thing happens then with respect to inheritances, divorce settlements, big insurance settlements from traumatic life events like car accidents or industrial accidents.
00:11:31
Speaker
And now we're seeing, of course, that the money in motion has begun, the inheritances that boomers are receiving, the inheritances that some of the older boomers are now leaving to their children. And do we have capacity within the advising profession to really help people settle down and behave in a manner that's consistent with what they say they want to experience
Managing Sudden Financial Gains
00:11:58
Speaker
in life?
00:11:58
Speaker
Now, you're talking about sudden money. You've done also some work with the with the NFL, with with American football players. We have exactly the same issue here with Premier League soccer stars in the UK, basically young people still growing up suddenly coming into a lot of money and
00:12:25
Speaker
very often not being very sensible with that money. And of course, we all know about these stories about lottery millionaires who lose it all. How do you think that happens? And it's a nice problem for someone to have, I suppose, but what would your advice be to someone in that situation?
00:12:47
Speaker
There's a lot of client blaming that goes on. There's a lot of client bashing, and it's particularly fun somehow. We all get a little schadenfreude out of bashing the rich, stupid young pup who just blew it all. But there are a number of factors involved, and one of it is just some basic financial literacy. How much money did you have at 20?
00:13:09
Speaker
How much did you have to manage? Well, what on earth would have equipped them? So can we equip them is the answer. And the answer is indeed yes. If you give some training, pre-season, about
00:13:25
Speaker
where this money could go about what the biggest dangers are, including not just overspending it, but divorce and child custody, kinds of payments, child support payments, and how do you set it up so that that doesn't happen.
00:13:42
Speaker
Encouraging people to park it until the off-season so that they can focus on the game, what they really want to. There have been a whole number of things that the NFL has done to great success to help people settle down. But the other thing that they've done, Robin, is that they have
00:14:00
Speaker
increase the demands on the advisors to provide more skillful advising, not technically more skillful, but more skillful on the personal side of advising. There's a growing awareness that it's not enough to just be a smart guy. That has historically been one of the problems. The players will be frank and talk about you go into a room with these guys and it sounds like Charlie Brown's teacher.
00:14:29
Speaker
and they don't begin to understand it. And that's the very same dynamic that a lot of the women we described earlier also feel, that there's just gobbledygook coming at you.
00:14:43
Speaker
And it's not fun. But the point is, it's also not necessary. Advisors can do better. They have to do better. We demand that now of lawyers, we demand that of physicians, we demand that increasingly that people provide plain language explanations of the services they offer of the risks and rewards of working with
Maintaining Financial Health for the Wealthy
00:15:07
Speaker
them.
00:15:07
Speaker
Exactly right. You deal with a lot of wealthy people, as we were just discussing, some of them very young who come into a lot of money early in life, but also presumably you deal with many people who've built up really successful businesses, really successful entrepreneurs and so on, who have very good money habits.
00:15:32
Speaker
tend to be the good money habits of wealthy people from your point of view.
00:15:38
Speaker
There are a number of them. One of them is that they tend to be conscious of money. They tend to be aware of how much they have and what it's currently doing for them and how they're spending it. So they don't kind of go into a money fog or a money coma where they're not as aware of it. You know, there's one writer who says, money likes to be paid attention to.
00:16:04
Speaker
That's a little woo-woo, but it's kind of a good metaphor that if you know how much you own, if you know how much you owe, you can actually start influencing that. And so the wealthy tend to have a much more accurate awareness of what they have.
00:16:25
Speaker
Another thing that they do is they don't spend up to the level of their earning. So they do indeed allow themselves to get a better car, but they don't get a Bentley usually. You know, they may go from a $40,000 car to a $60,000 car, whatever the...
00:16:42
Speaker
equivalent might be in pounds, but in a really interesting study that was looking at wealthy, where it was about 10 times the net worth and the earnings of the middle class, that was the difference in overall net worth, the wealthy did not spend 10 times more on housing, on cars, on entertainment, on vacations. They allowed themselves
00:17:07
Speaker
the upgrades, they allowed themselves some of the special things, but not to the same level of magnitude. And so with that difference, they saved more, invested more, and that then becomes a self-perpetuating dynamic, doesn't it? That the less you're spending, the more your net worth is growing. And so the wealthy tend to have those really good financial habits,
00:17:32
Speaker
because of the blessing of having enough and making sure that they keep it that way.
00:17:39
Speaker
We start this conversation by talking about mental ill health and the negative impact that that can have on attitude towards money and the way we deal with money and so on. I suppose the opposite is financial wellbeing, and that's a phrase we're hearing more and more about lately, isn't it? Big question, but what are the golden rules as far as attaining financial wellbeing is concerned?
Principles of Financial Wellbeing
00:18:10
Speaker
Well, from the time of Dickens, we've known that if you keep the expenditures under the... That one's just hard to work around. It's very hard to...
00:18:22
Speaker
not be financially stressed and to become ill if the expenditures are greater than the income. So absolutely we need to look at that. And again, looking at some of the differences in men and women, women still tend to get paid less and are often under earning. And so one of the pillars of financial wellbeing is to earn sufficiently.
00:18:47
Speaker
Something that I find fascinating is the research done by your fellow countrywoman, Elizabeth Dunn, at the University of British Columbia, and she has researched spending wisely. In other words, how you spend money to make yourself happier, I suppose, if you like.
00:19:09
Speaker
For those who aren't aware of Elizabeth's work, just summarise what she says. I think her book is called Happy Money. I think that's right. She and her co-author and a number of other people have demonstrated over time that
00:19:25
Speaker
Happiness and money do not share some sort of linear curve or do not create a linear curve where more of each is, you know, you get more money, you automatically get more happiness. It tends to kind of level out and the amount at which it levels out varies from country to country. What we know is that there needs to be enough, like I said, you've got to deal with under earning or over spending or you can't get on the step.
00:19:52
Speaker
Once you are on the step, how does money make you happier? Well, it makes you happier by giving it away. When you're giving to causes that matter to you, that packs a disproportionate wallop for your happiness. So that's a good thing to be thinking about. How is it that you'd like to be a blessing to other people through this? We know that it tends to make us happier when we spend on experiences rather than stuff.
00:20:23
Speaker
We know that it tends to make us happier when we use it to reduce burden in our own lives. So if we take care of the things that are constant annoyances or that are kind of putting ourselves at risk,
00:20:38
Speaker
In Canada, it may not be really sexy to buy a set of snow tires, but if you're living in the mountains in the snow and you have disposable income and can use it to buy a good set of snow tires, it takes away that niggling, worrying, am I going to be okay?
Educating Children on Money Management
00:21:00
Speaker
If you can use money to offload tasks that you find unpleasant, like perhaps house cleaning, or if you can use money when you're really busy at a time of work,
00:21:15
Speaker
to just bring in a sitter a little more or to allow yourself to bring in some ready-made food, some prepared food. In other words, being really deliberate about looking at where the stresses are in your life and where can money reasonably be used to address that.
00:21:37
Speaker
If you want to have a healthy relationship with money though, you have to be really concerned that you're not using money to do things that it was never meant to do. It was never meant to cement love.
00:21:50
Speaker
It was never meant, it can't provide you with a full on sense of security. And if you rely on money to do things like that, that's when you start getting into kind of the twisted or the unsavory aspects of relationship with money that end up causing problems.
00:22:10
Speaker
How important do you think it is to teach children about money and developing a healthy relationship with money? Oh, I think it is absolutely critical. Okay. Well, what can you do then to help your children? This is one of the dilemmas that I'm finding, you know, as we're moving to a cashless society, money is becoming
00:22:32
Speaker
more and more magical for children. They don't touch it. They don't know where it comes from. Very few children have piggy banks anymore. And there are entire countries that are getting rid of their currency. So I have to say that I don't know some of the answer to that yet, but it used to be
00:22:54
Speaker
to certainly give children an allowance, to give them some control over spending, to let them experience painful consequences with small amounts, and to not create shame and blame around that, but to say, yeah, that's what can happen sometimes. You can buy something and it turns out to be really poor quality or disappointing.
00:23:17
Speaker
Yep, that's just part of what you need to learn and to not buffer them from that experience because that's part of how you learn to be more mindful and thoughtful. I think other things that children need to learn are
00:23:33
Speaker
how to use money for some of those experience things, for the giving things. So parents who encourage their kids to participate in buying a present for granny or to give to causes with some of their allowance to take 10% and to think about what cause they'd like to use that money for. Those are all parts of it.
00:23:58
Speaker
Wow, Maura, we've covered a lot of ground. There's just one more area I'd like to ask you about before we finish, and that is financial advice.
Role of Financial Advisors
00:24:07
Speaker
Do people actually need a financial advisor as far as you're concerned? You know, every successful person that I know has some kind of
00:24:24
Speaker
financial counselor, financial advisor. And most, if you survey most of the people who operate the top CEOs in the land or running the most profitable companies, most of them will indeed have paid financial advisors. It's really important that we not try and do things on our own. Advisors are the people that stand between
00:24:52
Speaker
us and stupid, between us and regret. You need people to do that. Sometimes those advisors can even come within our own family, that a husband and wife can have that kind of function.
00:25:12
Speaker
Really, an advisor helps a good advisor, Robin, and this is the distinction I want to make. A good advisor is both technically skilled and is skilled at the personal side. A good advisor knows us so well that he or she can help us make the trade-offs that we need and be just an extraordinarily good thinking partner. And yet there is a misconception that an advisor
00:25:42
Speaker
exist to show you how to beat the stock market, for example, or to show you which funds to buy or which stocks to sell or whatever. That is a problem, isn't it? I think it's a problem for the advisory community, for sure, because there's now... knowledge is being democratised.
00:26:01
Speaker
What is it that you can't learn right now with the click of a mouse? So certainly an advisor knows a lot more than the average Joe about how to invest wisely. But advisors have so much more to offer than that. They help us behave. Back to the procrastination issue, they spur us into action when we might be frozen within decision or fear.
00:26:28
Speaker
They encourage us, they remind us, they follow up so that things don't get lost and left undone. They help us make trade-offs, you know, those decisions like, should I buy a house in the country, a bigger house, and then commute every day, or should I buy a smaller flat in the city? That's not just an actuarial decision, is it? That's a lifestyle decision. And a really good advisor acts
00:26:56
Speaker
because of the relationship that he or she has built up with you can help talk you through that decision in an extraordinarily helpful way. That's what a good advisor does.
00:27:10
Speaker
Moira, it's been absolutely fascinating talking to you. Thank you so much for your time. Enjoy the rest of your trip to the United Kingdom. And that's it for this episode. Thank you as well as to Moira Summers to our sponsor, Regis Media, if you're a financial advisor and you want to find out
00:27:29
Speaker
how Regis Media can help you to attract, retain and educate your clients, then visit the website regismedia.com. If you haven't already done so, please subscribe to this podcast on iTunes or SoundCloud. And if you really want help us, why not write a review on iTunes? It'll only take a few moments.
00:27:53
Speaker
and really will help us to educate the end investor. Until next time from Moira Summers and from me Robin Powell, goodbye.