PLANSPONSOR - February/March 2019 - 61

bad, but we often sacrifice our long-term
security to these short-term goals.
One way we can overcome " shorttermism "
is to spend some time picturing
the future in fine detail. The more
vivid our mental imagery, the better. By
picturing the future in clear and specific
terms, we trick our minds into caring
more, which can give us a natural boost of
motivation to save.
Plan sponsors might benefit from
offering ways for people to do creative
thinking exercises that get them to think
about their retirement years more clearly.
How do they want to spend their days?
Where, specifically, do they want to be
living? With whom? How often do they
want to travel? What kind of car will they
be driving?
These details serve to make the
imagery more vivid, which increases the
emotional response and helps foster that
internal motivation needed to save.
PS: Can financial regrets become
teachable moments?
SN: There seems to be little formal
study on financial regret. However, we
do know that stories are powerful motivational
tools.
Stories of financial regret and
mistakes can serve as reminders when
we are tempted to make poor decisions.
For example, a decade after the financial
crisis, many of us know people who lost
money trying to profit from the housing
boom. These stories serve as cautionary
tales today when people are considering
trying to " flip " a property for a profit.
We also know people who lost money
in the stock market during that period,
and that has made some people wary of
investment. However, the people who
lost the most were those who sold their
assets at a loss rather than waiting out
the crisis and selling later once prices
had recovered.
The point here is that stories of real
people who made financial mistakes and
regretted them are powerful and can be
used to our advantage. In my experience,
the worst financial mistakes I've seen are
when people take a large portion of their
assets and roll the dice, trying to speed
up their earnings. For example, I've
worked with people who mortgaged their
homes to start a small business, having
little to no experience in running a business.
Not surprisingly, these people were
often on the verge of bankruptcy rather
than retirement. Knowing the difference
between sound investment and risky
speculation is important.
PS: How can one's social comparison
impact a person's financial
well-being, and how can this be
applied to retirement readiness
as well?
SN: In my research, I found a significant
negative correlation between making
upward comparisons and feeling good
about one's own financial life. What this
means is that when we compare upward,
we could be damaging our own wellbeing.
But making upward comparisons
is not the same as having a role model,
and the distinction is important.
PS: How can a specific financial
role model be associated with
goal attainment?
SN: I wanted to know if financial role
models had a positive or negative effect
on well-being, so, in a follow-up survey, I
randomly assigned people to one of three
groups. In the test condition, I asked
people to choose a specific financial role
model and answer a couple of questions
about his or her behaviors and what they
admire about that person. A second group
was asked to describe who they normally
compare themselves with, and a third
group was given no introductory questions.
All three groups then answered
the same set of questions about financial
well-being and their confidence to meet
their financial goals.
The group that chose a role model
was significantly more confident than
the other groups, suggesting that the
act of choosing a specific financial role
" Stories of
financial regret
and mistakes
can serve as
reminders when
we are tempted
to make poor
decisions. "
model has a different effect on confidence
than [do] normal comparisons.
Something is different about comparing
ourselves with a role model vs. making
general comparisons with our peers,
family, neighbors, etc.
PS: What
is the best practice for
choosing a financial role model?
SN: Focus your attention on someone
you believe has achieved contentment and
stability in retirement rather than the big
spenders. Who do you know that seems to
have made sound financial decisions, and
how can you emulate that person? Who do
you know that is a great long-term saver,
and how can you take a small step to be
more like him or her?
PS: Would someone such as Warren
Buffett be a positive role model for
participants?
SN: The research on role models is clear:
There is such a thing as a bad choice of
a role model. If you don't truly believe
that you can achieve what that person
has achieved, then do not adopt him or
her as your role model. Warren Buffett
is a great investor, but most of us are not
likely to achieve his level of success. When
we choose a role model that we, deep
down, don't think we can measure up
to, the effect is demoralizing rather than
empowering. A better role model could
be someone you believe you can be like
and who exemplifies a behavior or state of
mind you truly admire.
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