Money & Psychology – Part 3

For the next few weeks, I want to discuss money and psychology. What are some of the tactics of marketing that can cause us to consume irrationally?

Podcast Details:

Podcast Title:  Money & Psychology – Part 3

Podcast Series: The Maven’s Keys to Financial Contentment

The Maven’s Keys to Financial Contentment is my idea that true financial contentment can be found when an overlap of money and beliefs occur.  Many people ask the question of how to be “financially content” and this is a discussion to uncover those answers.

Link to Show Episode

So last week we covered 2 ways marketers have used tactics that influence us into decisions on how we spend our money. Go back and listen to episode 25 to play a little catch up as I want to move right into Part 3 discussing two additional tactics.

“Pavlovian” Association

“Pavlovian” Association -This is the idea of associating a product or idea with something we are already familiar.

I think the biggest exploitation I’ve seen is when athletes (or celebrities) are used to promote products. I’ll be dating myself here, but back in the day, Reebok came out with this pump technology for their basketball shoes.   And apparently the idea was that the pump gave you a more secure feel around your foot and ankle making the show inherently more comfortable–essentially a tighter shoe. But I know my peers were thinking they could jump higher and all types of things just from wearing this shoe. Well, then Reebok was wise enough to get Dominique Wilkins to endorse this product which obviously affected sales positively.

(1989 Reebok Pump Commercial – featuring the “Human Highlight Film” -Dominique Wilkins)

Social Proof

Social Proof – This idea is closely tied to “Association” in my opinion, but it takes it to another level when our peers say that something is good.

Right? I looked up to Dominique Wilkins as an aspiring 15 year-old wanting to play in the NBA, but when the captain of my basketball team in High School is wearing the same shoe….well I had felt like I needed a pair!  (I wanted to dunk too!!)

Animated GIF  - Find & Share on GIPHY

(Needless to say, I didn’t need the Reebok pump to pull this off…)

Social proof is how companies like Amazon or Google use “reviews”. These are your peers telling you that the product is good or bad…they are providing these endorsements based on what they have experienced. If we aren’t careful we’ll consider all social proof as objective advice which it is not–but marketers are counting on the fact that we will.

Next week we’ll put a nice bow on all this and talk about how we use all this to make better decisions with our finances that affect our life.

 

#finlit
#behavioralfinance
#behavioraleconomics
#moneymindset
#psychology

 

Helpful Links:

Rob Cialdini’s Influence Book

Charlie Munger Talk on YouTube

About Me:
Dominique Henderson, CFP® is founder of DJH Capital Management, LLC., a fee-only, registered investment advisory firm specializing in comprehensive financial planning and wealth management.

#FinancialLiteracyBootCamp

Sound bumps provided by www.bensound.com

Money & Psychology – Part 2

For the next few weeks, I want to discuss money and psychology. What are some of the tactics of marketing that can cause us to consume irrationally?

Podcast Details:

Podcast Title:  Money & Psychology – Part 2

Podcast Series: The Maven’s Keys to Financial Contentment

The Maven’s Keys to Financial Contentment is my idea that true financial contentment can be found when an overlap of money and beliefs occur.  Many people ask the question of how to be “financially content” and this is a discussion to uncover those answers.

Link to Show Episode

The 5 Ways to Spend Money

So last week we discussed the 5 ways to use money.  And I invite you to go back and listen because you’ll need context for today’s discussion.
Today I want to start uncovering some of the hubris that plays a part in that “manipulation”.   A lot of what I’ll be discussing going forward will be the synthesis of things I’ve heard from a couple of sources primarily and that is a speech given by Charlie Munger at Harvard back in 1995 and some things I’ve read in Bob Cialdini’s book “Influence”.  I’ll put links to both in the show notes.
Basically, both describe how we as humans fool ourselves into bad judgment and poor decisions because of cognitive biases we have.  Here are some examples of our irrationality…

Psychological denial
Psychological denial – The premise is that our reality is too difficult to bear, so we make up something to justify our behavior.
I think the most common instance of this being used against us in when people play the lottery.  So statistically speaking, you have a better chance of being struck by lightning than playing the Powerball.  I don’t have to even get terribly scientific to prove that either.  There are 300 million people in the US so that means there’s at least a 1 in 300,000,000 chance for starters, but when you factor in that people buy multiple tickets…

Consistency and Commitment Tendency
Consistency and Commitment Tendency – This is the idea that we as humans like to be consistent and stick to our word.

Which in and of itself is a great thing–we want people to honor commitments (especially the ones they have made to us).  But what if what you are sticking to is just DEAD WRONG.  I’ve covered this in a previous episode of the FLBC, where I’ve seen investors that own a company stock and they hold on to that investment even though it is losing value and this is because of a bias they have.  Marketers realize this and they know that even if they sell you a bad product or service you will continue to buy because of your commitment to what you have said you will do.
 
Next week I’ll cover 2 more common tactics that are used by marketers as we continue our discussion on Money & Psychology.

#finlit
#behavioralfinance
#behavioraleconomics
#moneymindset
#psychology

 

Helpful Links:

Rob Cialdini’s Influence Book

Charlie Munger Talk on YouTube

About Me:
Dominique Henderson, CFP® is founder of DJH Capital Management, LLC., a fee-only, registered investment advisory firm specializing in comprehensive financial planning and wealth management.

#FinancialLiteracyBootCamp

Sound bumps provided by www.bensound.com

Money & Psychology – Part 1

For the next few weeks, I want to discuss money and psychology. What are some of the tactics of marketing that can cause us to consume irrationally?

Podcast Details:

Podcast Title:  Money & Psychology – Part 1

Podcast Series: The Maven’s Keys to Financial Contentment

The Maven’s Keys to Financial Contentment is my idea that true financial contentment can be found when an overlap of money and beliefs occur.  Many people ask the question of how to be “financially content” and this is a discussion to uncover those answers.

Link to Show Episode

The 5 Ways to Spend Money
For the next few weeks, I want to discuss money and psychology.I’m going to begin this series with a concept I read in Ron Blue’s Book “Master Your Money”. And I’d like to use that as context to set up the first part of this discussion. He mentions a lot of things in this book and I highly recommend it for its principles and content.

There are 5 ways to spend money he says:

1) Tax Payments
2) Debt Payments
3) Giving
4) Lifestyle Support
5) Saving

I bring this up because of these 5 ways there are some that are pretty constant…the first 3 ways are going to be “constants.” No matter how much you try, most of your income will be spent in those categories.  Taxes alone can take almost 40-50% of what you make over your entire life span…even when you die!

So this means that lifestyle support and saving fall to the bottom of the list in priority and proportion of income remaining to allocate there. Further, if you are over-consumptive in nature, you will have even less to save and invest.

And this is where “marketing” psychology comes into play.   I’ll discuss this more in Parts 2 and 3 of this series for you.  But, in short, you have to realize that the greatest marketing companies which are out to sell a good or service understand this hierarchy (of spending) and they are vying for a piece of the pie. They are hoping and putting a lot of effort into the “bet” that you will regard #4 over everything else on the list. Therefore, they use various tactics to make you consume more, when in reality a large portion of that consumption is unncessary at the time you consume it or AT ALL.

Next week, we’ll discuss some of those tactics that are being used “against us.”

#finlit
#behavioralfinance
#behavioraleconomics
#moneymindset
#psychology

 

Helpful Links:

About Me:
Dominique Henderson, CFP® is founder of DJH Capital Management, LLC., a fee-only, registered investment advisory firm specializing in comprehensive financial planning and wealth management.

#FinancialLiteracyBootCamp

Sound bumps provided by www.bensound.com

Financial Idioms and What They Might Really Mean…

Today, our conversation is on the subject of language and the terms or “financial idioms” we use to describe our finances. Perhaps these statements suggest a picture of our “real” feelings.

Podcast Details:

Podcast Title:  Financial Idioms and What They Might Really Mean…

Podcast Series: The Maven’s Keys to Financial Contentment

The Maven’s Keys to Financial Contentment is my idea that true financial contentment can be found when an overlap of money and beliefs occur.  Many people ask the question of how to be “financially content” and this is a discussion to uncover those answers.

Link to Show Episode

Today, our conversation is about the language we use around our finances. You may or may not believe that words are just containers for our emotional thoughts.  What we speak or say about something is truly how we feel it about.  Note:  Ever been around someone at Happy Hour and they start to reveal “TMI” (aka too much information)????

When it comes to our finances there are several things that we say or have heard others say that are popular in our language (“financial idioms”) and I think these statements have an underlying meaning that could really reveal a lot about where we are financially and/or emotionally.

For example…
  • My spending is “out of control”.  What does that mean?  Well at first glance, you’d say that this person is recognizing a lack of discipline with how much they spend possibly in relation to what they make.  But think about what it looks like when other things are out of control or get out of control (e.g. a car).  To say that your spending is “out of control”, you may very well be dealing with a discipline issue.  But, aren’t you really saying that you don’t know what you are doing? You are likely playing in an area where you need more education/knowledge.  Another saying similar in connotation could be “living paycheck to paycheck” or I keep having to “rob Peter to pay Paul”.  All these statements suggest a lack of knowledge in regards to implementing a strategy to allocate resources properly.
  • I hear a lot of individuals say “they don’t have enough time”.  Similar statements could be:
    • I can’t afford to do that
    • I wish I had more time to do that
    • I’m too old for that

All these statements relate to an issue of stewardship.  Stewardship is just an old word that means to “manage” something–which is by the way, different from ownership.

NEWSFLASH:  You are really the owner of nothing.  

All successful and wealthy people understand this concept which is why they are so content with giving away what they have because they realize they are ultimately stewards. People like Bill and Melinda Gates and Warren Buffett do things like the “giving pledge” because they realize that they are not owners, they are just stewards.  To me, when people say “I can’t afford to do that”, or something similar it tells me they don’t really understand their role as a manager/steward.  Stewards are in control of an asset.  And can manage it to their wishes, but eventually, have to give an account to the owner for what they have done.

Consider your time as an asset, in which you have full control on how you spend it.  Therefore, it is imperative that you utilize or spend that time responsibly since you receive the same amount as anyone else.

#finlit
#behavioralfinance
#behavioraleconomics
#moneymindset
#financialidioms

 

Helpful Links:

About Me:
Dominique Henderson, CFP® is founder of DJH Capital Management, LLC., a fee-only, registered investment advisory firm specializing in comprehensive financial planning and wealth management.

#FinancialLiteracyBootCamp

Sound bumps provided by www.bensound.com

The Social Cartographer Series: Monitoring

How important is it to have a map when traveling to a destination? Using maps is a very reliable means of navigation. We also use mental maps to navigate our lives. This series is a discussion of our financial maps.

Podcast Details:

Podcast Title:  The Social Cartographer Series:  Monitoring

Podcast Series: The Maven’s Keys to Financial Contentment

The Maven’s Keys to Financial Contentment is my idea that true financial contentment can be found when an overlap of money and beliefs occur.  Many people ask the question of how to be “financially content” and this is a discussion to uncover those answers.

Link to Show Episode

So last week we talked about “PRESCRIBING“…and today we’ll cover “MONITORING”.

So a brief recap…

In DIAGNOSIS we have to have a DESTINATION DECISION and DESTINATION ADJUSTMENTS.  This is inevitable.  Although possible, it is rare when you are traveling long distances that you won’t have to make an adjustment to the route and/or itinerary.  Well, the same with reaching your financial destination.  Inevitably, some life event, job change, or recession (God forbid!) will happen to cause you to make route adjustments to your financial map.

This is the reason we put a plan in place!
In PRESCRIBING, it’s important to realize this is all about behavior adjustments.  This can only happen after you realize that the results you are getting aren’t the ones you want.  You have to first acknowledge this and then change your belief system so your behaviors change.
In MONITORING, we are trying to maintain a steady pattern of progress on our way to FINANCIAL CONTENTMENT (if you are not already there.)  The tricky thing about this is that as we begin to have success, it is human nature to get distracted.

Often the path that creates success is not the path that sustains success.
We do so much as it relates to discipline and focus in order to build momentum that will carry us towards success.  But then as we begin to have it, we will begin to let “success” take over.  An example being, more hours at work means less time with family and other relationships.  So how do I as a financial planner help with this paradox of GOAL ACHIEVEMENT equals SACRIFICE of [insert here whatever you value]?
Well, the answer is with care because it can be difficult.  Take a corporate executive that values the PRESTIGE of his or her position versus the PEOPLE you can reach in the position.  Which do you think is easier to maintain?  How long before it becomes evident to those around this person that PRESTIGE is valued over PEOPLE?  And which is easier to marshal your resources behind?  A team will always rally behind the cause of “serving the customer” instead of your climb up the corporate ladder.
This is where my formula for financial contentment really helps.  Because to be content you can’t chase success (of any variety) as the goal.  The goal has to be DEEPER.  This is so you never end up sacrificing what you believe or value for the success.

#finlit
#finance
#financialadvisor
#moneymindset
#behavioralfinance
#behavioraleconomics

 

Helpful Links:

About Me:
Dominique Henderson, CFP® is founder of DJH Capital Management, LLC., a fee-only, registered investment advisory firm specializing in comprehensive financial planning and wealth management.

#FinancialLiteracyBootCamp

Sound bumps provided by www.bensound.com