Morningstar Investment Conference. Cape Town Join the conversation: #MICZA

Transcription

1 Morningstar Investment Conference Cape Town 2016 Join the conversation: #MICZA

2 @MorningstarInc Dr. Sarah Newcomb Behavioural Scientist, Morningstar

3 Nudging Investor Behaviour What psychology can teach us about how to improve savings rates Sarah Newcomb, PhD Behavioural Economist 3

4 Hi! I m Sarah Behavioral Economist Morningstar, Inc. Formerly an utter financial mess. 4

5 Intro

6 Intro Financial Behavior Attitudes Emotions Beliefs Identity Values Motivations

7 Agenda 1. The stories we tell ourselves 2. Changing the story 3. Working with the WHY

8 Stories Theory of Planned Behavior, Azjen 1991 Azjen, Icek (1991) The Theory of Planned Behavior, Organizational Behavior and Design Processes, Vol 50 (2).

9 Stories Beliefs, attitudes, perceptions, and cultural messages Stories (personal and social) shape our intentions. 9

10 Stories The stories we tell each other CULTURAL STORIES Money is the root of all evil. Money doesn t grow on trees. The stories we tell ourselves CORE BELIEFS & VALUES

11 Stories Core Beliefs Net worth = Personal worth Poor people are lazy Rich people are greedy/selfish Money corrupts people I do/don t deserve to have money

12 Stories Key Points Every financial decision starts with a story Healthy stories lead to healthy strategies It s only a story, and a story can change! 12

13 Agenda 1. The stories we tell ourselves 2. Changing the Story 3. Working with the WHY

14 Changing the Story Core beliefs Slow and steady wins the race. Good parents pay for college. Alternate Interpretations Don t underestimate the competition. Pride comes before a fall. Alternate Interpretations Good parents prepare kids for the financial realities of life. Good parents care provide for themselves so as not to burden their children in their old age.

15 Changing the Story Counter examples Belief: The 1% are Bad.

16 Agenda 1. The stories we tell ourselves 2. Changing the story 3. Working with the WHY

17 Working with the WHY The Cash Flow Budget Income Expenses ~ ~ ~ ~ ~ ~ What s wrong with this method? ~ ~ Saving ~

18 Working with the WHY Every expense is a strategy to meet a fundamental human need.

19 Working with the WHY Every expense is a strategy to meet a fundamental human need. Expenses Liabilities Needs $20/week Café habit Social Connection Beauty Entertainment Joy Change the strategy, but meet the need.

20 Strategies Key Points Needs are constant. Strategies are flexible. Change the strategy. Meet the need. Strategies are based on stories!

21 Working with the WHY Where does money come from? Income Expenses ~ ~ ~ ~ ~ ~ ~ ~ Saving ~

22 Working with the WHY Resources Assets Income Time Energy Labor Paycheck Intelligence

23 Working with the WHY Resources Assets Income Time Energy Intelligence SKILLED Bigger Experience Labor Paycheck Knowledge Degree

24 Working with the WHY Resources Assets Income Time Energy Intelligence Skilled Bigger Experience labor paycheck Knowledge Degree Extra bedroom Rental space $$$ Financial Capital IRA $$ Basement full of stuff Items for sale $ $$$$

25 Working with the WHY

26 Summary

27 Summary 1. Listen for the stories Beliefs, attitudes, and social norms affect your intentions. 2. Healthy stories = healthy strategies Needs are constant, but strategies are flexible. 3. Work with the WHY Make a map, not a diet. You are LOADED.

28 Disclosure 2016 Morningstar, Inc. All rights reserved. For information and/or illustrative purposes only. Not for public distribution. The Morningstar name and logo are registered trademarks of Morningstar, Inc. Morningstar Investment Management LLC is a registered investment adviser and subsidiary of Morningstar, Inc. The Morningstar Managed Portfolios SM program is offered by Morningstar Investment Services and is intended for citizens or legal residents of the United States or its territories. Morningstar Investment Services LLC is a registered investment adviser and subsidiary of Morningstar Investment Management LLC. Portfolio construction and on-going monitoring and maintenance of the portfolios within the program is provided on Morningstar Investment Services behalf by Morningstar Investment Management LLC. This Program can only be offered by a registered investment adviser or investment adviser representative.

29 Morningstar Investment Conference Cape Town 2016 Join the conversation: #MICZA