Hal Hershfield is an Associate Professor of Marketing, Behavioral Decision Making, and Psychology and holds the UCLA Anderson Board of Advisors Term Chair in Management. His research, which sits at the intersection of psychology and economics, examines the ways that people consider their future selves, and how feelings of connection to these distant selves can impact financial decision-making over time. He earned his PhD in psychology from Stanford University.

Hershfield publishes in top academic journals and also contributes op-eds to the New York Times, the Wall Street Journal, and other outlets. He consults with the Consumer Financial Protection Bureau, many financial services firms such as Fidelity, Prudential, Morgan Stanley, and Merrill Lynch, and marketing agencies such as Droga5. The recipient of numerous teaching awards, Hershfield was recently named one of “The 40 Most Outstanding B-School Profs Under 40 In The World” by business education website Poets & Quants.

How do your perceptions of time influence your long-term decision-making and financial well-being? Today we speak with psychologist and UCLA Associate Professor Hal Hershfield to answer this abstract question. We open our conversation with Hal by exploring the concept of well-being. After chatting about the factors that impact financial well-being, Hal unpacks the balancing act that’s required to live in the present while safeguarding your wealth to support your future self. Hal shares exercises that can help you develop a more vivid sense of your future self and we discuss how this can lead to better financial decisions. We then dive into the role that free time plays in determining your well-being, leading into a discussion on how financial advisors can steer their clients towards achieving their idea of well-being. Returning to the notion of your future self, Hal shares insight into the importance of self-compassion, dealing with life and preference changes, and how hitting age milestones lead to periods of personal reflection and financial reevaluation. Later, Hal gives listeners his take on annuities and how retirees perceive them. We wrap up another informative episode by looking into the link between perceived wealth and spending before touching on how Hal views success. Tune in to hear more about Hal’s research and how it can give you a stronger and deeper conception of your financial future. 

Key Points From This Episode:

• Introducing today’s guest, decision-making expert Hal Hershfield. [0:00:03]

• Exploring the definition of ‘well-being.’ [0:02:28]

• Ways that Hal measures well-being. [0:03:46]

• How financial behaviours and psychological factors impact financial well-being. [0:05:17]

• Hear how your relationship with your future self affects wealth savings. [0:06:52]

• Hal talks about how we can get closer to our future selves. [0:10:14]

• Reflecting on exercises that can help you imagine your future self. [0:13:14]

• We ask Hal when the present and the future begin. [0:17:01]

• The link between well-being and your perception of your present and future self. [0:20:32]

• Distinguishing between your present and future self versus having no distinction. [0:22:18]

• Whether not having little free time is detrimental to life satisfaction. [0:23:51]

• Hal discusses whether people would rather have more time or more money. [0:28:06]

• How financial advisors can help people achieve higher well-being. [0:30:59]

• How changes in your chronological age can trigger moments of reflection. [0:35:48]

• Differences in how retirees view lump sum and monthly income streams. [0:41:49]

• Helping people get a clearer idea of the value behind annuities. [0:44:42]

• How people can develop opposing ideas about when they’ll die. [0:47:33]

• Hal’s work on the relationship between meaning and spending. [0:49:21]

• Hear how Hal defines success in his life. [0:52:40]

Read The Transcript:

Today's conversation is going to be a lot about wellbeing, so we thought we should kick this off with getting everyone on the same footing. Can you start by defining wellbeing?

Yeah, this is I think a great question, and it's always important to start on the right foot. So, wellbeing of course, can apply in a general sense. So, this can be more about how I'm feeling about my life, so we think about this as life satisfaction. And that's more of a 10,000 foot view, it's more cognitive in nature. Am I satisfied with the way things are going? Wellbeing can also encompass daily conceptions of this notion, so things like happiness. Am I experiencing more positive emotion than negative emotion?

But wellbeing can also apply to financial wellbeing too. In fact, the Consumer Financial Protection Bureau has done a lot of work looking at what they think of as financial wellbeing. Do I feel like I'm on top of my finances? Do I feel like I'm able to save? Do I feel like I'm able to sustain losses, and also have some sort of short-term savings in case there's an emergency? I tend to think of these concepts as being related. It's hard to have global wellbeing, without also having financial wellbeing. I think that's the general idea there.

You mentioned a few different components. I guess we could call them connected components of wellbeing. The answer to this question might be multifaceted, but how do you measure wellbeing?

Great, okay. So it is multifaceted, so in other words, let's just say when it comes to life satisfaction... Or I should probably step back and say, some of these things are interconnected. It's possible to be satisfied with my life, but not necessarily always experience daily happiness, but these two things do tend to travel together to some extent, but they can be separated. So, often when we ask about life satisfaction, that component of wellbeing, this is something like you might tell somebody, "Here's a picture of a ladder. There's a number of rungs, tell me where you would place yourself on those rungs, if you think of the ladder overall as representing your community." If you want a more lay definition of this, you go back to your high school reunion, where do I think I stand relative to everybody else? So, these are relative comparisons often.

Happiness on the other hand, there's questions that ask things like, "Yesterday, how happy were you on a scale of one to seven? Do you think of yourself as someone who's generally happy? Do you feel like you experience a lot of happiness?" And by the way, I'll just caveat this and say there's always pushback. Because you say, well, this is largely self-report. But people tend to know if they're happy or not, and their reports of whether they're happy or not seem to really matter for lots of outcomes, like jobs satisfaction, marital satisfaction, health, depression, these sorts of things.

So, you mentioned financial wellbeing, what are the financial behaviors that contribute to financial wellbeing?

Great. So, these would be things like contributing to savings accounts, having a pool of emergency reserves in case there is an emergency expenditure that comes up. Feeling like I'm on top of my finances, feeling like I can cover the next month's bill. And also sort of related to that, feeling like my financial life isn't a rollercoaster, but rather has some smoothness to it. I think financial wellbeing is not a situation where I'm having to scrape by every month, and figure out how to pay the bills.

So, those are behaviors. Are there any psychological determinants of financial wellbeing?

So, I think this is a question that's really being explored a lot lately. We know that there's correlates of it, so we know that there's some psychological aspects that are correlated or related to financial wellbeing. So for example, if I have a high propensity to plan, that's something that tends to be strongly related to financial wellbeing. In my own research, if I'm connected and I feel emotionally identified with my future self, then I tend to do better when it comes to financial wellbeing. But Benjamin, the question you're asking about antecedents is a deep one, because to actually be able to pull that apart, requires some really intense longitudinal research. You'd almost want to track different kids, and see what aspects are similar between them and what are different, and then predict who ends up with higher financial wellbeing. That's hard to do.

You mentioned something interesting, just on the part of your research that looks at the closeness to future self and how that affects decision-making. One of your papers that I read had this fascinating idea of asking... So, you mentioned that the closeness to future self can lead to better behaviors from a financial wellbeing perspective. Does that actually improve the wellbeing of your future self though?

That's a great question. Okay, so let me talk about a couple different ways. So, when we look at some of this research where we try to examine how people's relationships with their future selves actually impact their decisions, I think you've kind of intuited that what we're looking at is their decisions right now. So, if I feel connected to my future self, am I then likely to save now? Am I likely to sign up for a recurring deposit program? Am I likely to increase my contributions? Et cetera. We're making an assumption that when I become my future self, and I recognize that's a vague statement, but when I get to a certain point in my life, we're making the assumption that if I've made sacrifices earlier in my life, I will be more satisfied with my life later on. But that is an assumption there, and so I want to be cautious not to say... I don't think the implication of this, is that one should not enjoy anything in the present and always sacrifice, always sacrifice so that I have all this money later on. But then what sort of memories do I have to look back on, what sort of life is that? That's an extreme case, an extreme example. But I think of things like the FIRE movement, the Financial Independence Retire Early, and these folks in that community, from my perspective they're almost living in such a strict and reduced way, that I do question how much wellbeing they're experiencing in the present, to get to that point later on.

But I can also answer this one other way. There's a recent paper that my graduate student, Joey Reef led, where we were able to actually get a data set, a longitudinal data set. These are people who are in midlife, so between 40, 50, 60s, and in 1995 they were asked how satisfied they were with their lives, so this is one component of wellbeing. They were also asked on a number of different dimensions, to predict how similar they would be in 10 years. So, how similar would they be on certain traits like being trustworthy, and honest, and these sorts of things. And then what was amazing, is that these researchers actually followed up and got these people 10 years later, and asked them 10 years later about how satisfied they were with their lives.

And what was interesting was that the more similarity people perceived there to be between their 1995 selves and their 2005 selves, so just how much similarity did they think of when they thought of their future selves, that was a good predictor of how satisfied they would end up being 10 years later. Now, even when you control out, when you statistically control for how satisfied they were with their lives earlier on, so if you took two people and they were the same level of life satisfaction in 1995, but one felt more similar to his future self in 10 years, he would end up being more satisfied in 10 years.

Now, why does that happen? We can only conjecture. We think it's because they probably make decisions along the way to get themselves into a good place later on, but we can only conjecture at that at this stage. We weren't able to measure them along the way and say, "What are you doing right now with your life?"

Wow. What can we do to get psychologically closer to our future self? Is there techniques?

Yeah. Cameron, I think this is a great question, and it's one that I, and my colleagues and students have been grappling with for a long time now. The way I tend to think of it is, I think we have to first start with the notion, and this is a philosophical notion but I think it's a relevant one, that our future selves are in many ways like other people. We treat them in many ways like we treat other people, that's okay. But what really matters, is what sort of other person that future self is. So, if I can elaborate on that, we have all sorts of different relationships in our lives, and we treat these different people in our lives in different ways. So, I treat my wife differently than I treat a new coworker at the office who I don't really know that well. And I'll probably make more sacrifices for my wife than I would for some guy at work.

And so, I think the same sort of concept is true for our future selves. Depending on how much we connect with them and how we relate to them, we're going to be doing different things for them. So, the reason I bring this up is because I think it's suggestive of what sort of things we need to do to connect with those future selves. In other words, what sort of things do we need to do to connect with other people in our lives, to make sure that we're taking care of them? So, on the most basic level, one of those things is making sure that we can vividly imagine our future selves, so that we can empathize with them more.

It's very hard to empathize with someone who is vague and distant in our mind's eye. You think about this with charity appeals, or not to get too heavy about it, but you think about this with the refugee crisis that's been happening in all parts of the world. If you guys remember, this is pre-COVID times so it feels like a very long time ago. But about two summers ago, we were getting reports all the time of tens of thousands of refugees who are getting on these boats, and they're escaping, and many of them are dying, and it's horrible. And people took notice, but not as much notice as they took when there was one single photo that made the rounds all over the world, of one small boy who tragically died on a beach. And again, not to get too heavy about it, but that was a vivid example. And boy, did that really change the conversation. Because it's hard to empathize with statistics, and it's easier to empathize with pictures and real people.

I tend to think of this concept as being reasonably applied to our future selves as well, which is it's hard to empathize with them when they're just kind of an idea and they're vague. But when we try our best to make those future selves vivid, whether it's through writing to them, having a conversation with them, age progressing ourselves. You can do this on Snapchat or Face App, I think there's a couple of different apps now that you can do this pretty well. I think that's a good first step, to try to actually more realistically empathize and visualize our future selves.

Those are really interesting ideas. Writing a letter to your future self is fascinating. I know you did a paper on the age progression, we talked about on this podcast in the past. When you say vividness, I imagine imagining my future self, is that a useful exercise? Just sitting and thinking about it?

Well, I think it's as useful of an exercise as you can make it. So in other words, if you said to me, "Is it useful for me to exercise?" I'd say, "Sure, but what do we mean by you exercising?" So, if your version of exercising is 10 pushups a day, I don't know if that's going to get you the results you want, depending on what your goal is. So, if you tell me, "I'm going to sit and think about my future self," but you do it for 10 seconds and then you go about doing whatever else you're going to do, that may not be that useful. But I do think if you do it in, I'm going to sound Californian when I say this, but if you do it in an intentional way, in a thoughtful way, then I think it actually could have an impact. Similarly, the idea of writing a letter. There's a website, Dear FutureMe. They have seen, I think, a five-fold increase in the number of people who write emails to their future self since COVID started. I think a lot of people want to know-what life will be like on the other side, and they want to reassure themselves on the other side. That particular site, you write an email, and it gets delivered to you at a specified future date. I love the idea because I think it forces people to actually think about who they'll be and who they want to be in the future in some realistic way.

Is it the act of writing the letter because I'm just thinking in that example of that service you were talking about, if you write the letter and then don't see it for however many years, is that the useful part, or would writing it and then seeing it often be more useful or as useful?

Oh, that's a great question. I can only guess at this because, truth be told, we haven't tested what's doing the heavy lifting there. My first guess would be that writing the letter itself would be a big step toward enhancing the relationship we have with our future self because I think it forces you to think deeply about that future self. I think so much of the problem when we talk about these future-self, current-self relationships is that the future self has been poverished. We don't really put a lot of weight on it. We don't really consider it. We don't think about it in a meaningful way.

I think it's probably akin to a young couple talking about what their kids will be like before they've actually had kids. It's really impossible to really, really think about it, those kids deeply, without them in existing. Of course, the future self doesn't really exist, but we can do exercises in our mind's eye, or conjure it up and create it and construct it.

I would imagine that the writing of that letter helps. Now, I would say receiving that letter probably helps, but for a variety of other reasons, and this is something that I'm fascinated by and we're starting to touch on and explore. In fact, this is separate from me. There's a eighth-grade social sciences teacher in New Jersey who had his... I'm sorry, sixth grade. He had his sixth graders... He's been doing this for 25 years now. He'd have his sixth graders write letters to their senior year selves, so that is theirselves in 12th grade. What would that be? About six years later. He puts them in his closet, and then he mails them out to them.

He's been recently recording their reactions as they open up these letters. It's wild because I think, to some extent, these young adolescents all of a sudden feel a connection to their past selves, which I think they can actually project forward and use to connect to their future self. That's, again, just conjecture on my part.

I think it could be useful in that regard. Now, that's a pretty extreme example. Six years is a long time to wait. You got to have somebody mail those letters to you. He's got a stack that haven't been delivered because those kids have moved, but some of those kids are now in their 30s, and he still has to reach them. I'd love to see their reaction when they get those.

Unreal. Now, we've jumped into this conversation about present and future self, and I guess past self just now, which is fascinating, conceptually. When does the present and the future begin?

Yeah. Oh, I love this question. Yeah, so my University of Toronto collaborator, a fellow Canadian, Sam Maglio, he and I have been talking about this and asking this question, in fact, the amount of time it took us to ask and try to answer this question. I think we have three kids between the two of us. But it was the present ended and started again. We decided to ask this question of generally speaking when new people think that the present ends and gives way to the future.

Now, I want to make a note here, which is that I think there's a lot of different event-specific ways to answer this question. The present could end when we finished this interview. The present could end when I get a vaccine, when you get a vaccine, but we were less interested in that because I think there's a lot of idiosyncrasies around specific events. I'm not sure what that maps on to.

We were more interested in people's general conceptions of when they thought the present, this, just, concept of the present, what is it, when they thought that ends and rolls over to the future, recognizing that this is happening repeatedly. This is an ever-occurring experience. We wanted to know whether or not perceptions of when that present ends mapped on to some sort of decisions that people make.

Now, I think one of the most interesting things is when we did qualitative research, just asking people what they thought about, and there are lots of people who said the present ends now, now, now, now, now. It's constantly ticking over. There was some people that said, "Well, about five minutes a day, maybe." There were some people who said, "The present ends when I die." This was a small portion of people, sort of the egocentric view of the present. "It's all about me."

But I think one of the most interesting things we found was it probably matters less objectively when the present ends. There is actually some hardcore cognitive psych research suggesting that the present in our mind is about three seconds. Well, okay, what do we do with that? I think what's actually more relevant is that it turns out that, subjectively speaking, if people feel that the present ends sooner and the future starts sooner, those folks are more likely to make future-oriented choices and decisions.

I think it's a pretty straightforward thought, which is the idea that if I think the future is closer, or rather, it starts closer, then I'm going to have to do something right now to make sure that self is on the other side, that divide is going to be taken care of. I fully recognize this is a pretty abstract concept and conversation, but practically speaking, we think these insights can be useful to change interventions and messaging.

We actually worked with a group on campus at UCLA and put out messages and asked people... We just said to them, "The present ends soon. The future starts sooner," and we asked them if they wanted to sign up for a financial wellbeing course, or we changed it, and we said, "The present lasts for a long time. The future starts out here, but maybe you should still enroll in a financial wellbeing course."

We had more people enroll in the course when the present ended sooner. I would say, look, I think this needs to be further tested in the field with bigger populations, but anytime we can get any sort of message, if it's cheap to move the needle on behavior, is a win in my book because structural changes are expensive, but messaging changes are cheap, and if they change behavior for the better, that's a great thing.

How does the perception of where that future self and present self, where that point is? Does it matter where that point is on their wellbeing levels?

That's a great question. Cameron, I don't think... You guys should do the research. Look, I would love it if we did this together. I don't think, to the best of my knowledge, we have data to answer that question. Now, I'll say this. There's two related concepts here. The work that we did on when the present ends and the future begins, we made sure that it was really about the present in general and the future in general, not about present and future selves. I think that we're going to talk about much longer spans of time when I say, "When does my present self turn into my future self?"

By the way, I'm curious what you guys would say about that. Actually, with Professor Maglio and a student, Elizabeth O'Brien, we've been asking this question to people. We've just started asking this question to people. That is, when do you think you become your future self? We're just starting to dig into this. We've been trying to map this on to behaviors like saving and smoking and drinking and do I wear my seatbelt and grades in high school, but we haven't added in the sort of wellbeing ideas. I think it's a great question. I love thinking about this because I'm not sure when my future self starts or if it's already started. I think there's probably some people think, "Well, I've become my future self. That's me now," or if I'm like that's always some point in the distance and maybe you reach a certain age where you say, "Well, now I think I am kind of that guy. Things are moving along," or you'd say, "No, no, no, no, no. In about, well, five years or in 10 years when the kids go to college, maybe that's when I'll become my future self." I don't know.

That always changes too.

I bet it does. Yeah.

For me, I guess I'm saying it always, it's a bit of a moving target.

Yeah.

Is it possible and would it be beneficial from a decision-making perspective to remove or help people remove that distinction between their present and future selves?

I used to think yes. I used to think that it was what we want to do is get people to think that their present and future selves are the same and that there's no difference there. I've really come to believe that that's actually not the right way we want to do this for two reasons. One, I think, naturally, people think of their future selves as if they're other people, and so why fight that? Two, let me just make an analogy here. If you're a smoker and I'm trying to get you to stop smoking and I tell you it's bad for your health, okay, fine, it might still be hard to quit smoking.

But let's say you're a smoker, and you're trying to quit smoking, and I say to you, "That's bad for the people who you live with. It's going to affect them." Anecdotally, I think that that latter message is going to work better. I think we feel like, "Yeah, I know I'm messing up, but it's just me," but if I tell you, "You've got a duty and responsibility for someone else's wellbeing," I think that may matter. I think actually it's not a bad thing to keep that distinction between present and future selves to the extent that people may feel a sense of responsibility and duty toward those future selves, those distinct future selves.

That is so interesting to think about.

Yeah. I mean, I think all this stuff is... You got to think about what the goal is, and so.

I want to jump to a question about time. A lot of people these days say they just don't have enough time. We all hear that all the time. Is was having too little free time detrimental to life satisfaction?

This is a great question. Recently, I've a working paper with Cassie Mogilner Holmes and Marissa Sharif, two colleagues. We've been looking at, essentially, what is the relationship between the amount of time we have and our wellbeing, how satisfied we are with our lives. I think your intuition is right, Cameron. If we have too little discretionary time, that does take a hit, and that does cause a hit to our life satisfaction.

By the way, there's a subjective nature to this. I have to tell you how much discretionary time do I have. By the way, when I say discretionary time, I don't mean take 24 hours in the day and subtract out the number of hours you've worked because, of course, there's lots of other things we're doing that aren't discretionary, if you have kids, you might be taking care of them, if you have other obligations.

We're talking about the time that you have left in the day that you feel like you can do what you want with that time. It may be pretty small for a lot of people, but we've actually looked at this both subjectively, that is, what reports do people say about their discretionary time, but we've also looked at this more objectively in so much as we got data from what's called the American Time Use Survey. This is an incredible data set where people are asked to tell a interviewer every single minute of the day what they did the day before.

They get these incredibly detailed reports where you can categorize... I mean, you would crack up if you saw the categories of this thing. It's taking care of kids obligation, taking care of kids fun, throwing a ball up, brushing hair, like really minute stuff. Then we've come up with a way to say, "What of all of these categories counts as discretionary time versus everything else?" and so then we can more objectively say how much discretionary time does someone have.

It turns out that there's what we call a U-shaped relationship, so not enough discretionary time takes a toll on our life satisfaction and our overall wellbeing, but actually, too much discretionary time seems to also have an impact on our wellbeing as well. Unless we feel like we are being productive in that discretionary time, then having more seems to have a positive impact on wellbeing.

I think there's something that's intuitive about that, but to measure it... and I'm sure this is something that resonates with a lot of people, especially in COVID. I think we've all heard reports about the person who... Taylor Swift coming up with however many new albums. Well, she seems like she's been productive with her discretionary time. Then there's the rest of us who feel like, "I don't really feel like I got as much done as I was hoping to." Lots of people, to your original point, Cameron, say they want more time and they don't feel like they have enough, but it's not always the case that more and more and more time is going to be equal to more and more and more wellbeing.

Interesting. That is really interesting. It's about given sufficient discretionary time, how you're using that discretionary time is more closely linked with wellbeing than just having the time.

I would say that insight is similarly true of the other most important resource in our life, which is money. I think there's debate all over the place about what's the right amount of money to have and what's the relationship between money and happiness and life satisfaction, but I do think one of the strong conclusions is what matters is how we spend it. I think the same is true for time. It's not the amount that we have, but what matters is how we spend it and how we're able to spend it.

Of course, this is, to some extent, coming from a privileged place. There's people who say, "Yeah, I'd love more discretionary time, but I don't have it. I have to work more jobs. I have to get more money." Unfortunately, that's where we look at that lower end of the spectrum in terms of discretionary time, not having that much because I'm spending it working. Now, that could be true of an executive who's working 75 hours a week, and it could be true of somebody who's just at the poverty line who's also working that many hours a week to try to scrape by unfortunately. But in both cases, there's a time crunch.

You're edging into one of the other questions I want to ask, which is, given the choice, do people prefer to have more time or more money?

We asked this to actually the thousands of people, Cassie Mogilner Holmes and I, my colleague here and a student, Uri Barnea. Actually, by the way, I should say, we asked this question to thousands of people and there was another group, Liz Dunn at University of British Columbia and Ashley Whillans, who is there as well, but she's now at Harvard Business School, also asked the same question. We were doing it at the same time and we came to similar conclusions, which is that the majority of people say they want more money than more time. It's not terribly surprising. About two-thirds in our studies, I don't know what the numbers were for theirs, prefer money over time. It's a funny question. Like if I were to just approach you on the street and say, "Hey, Benjamin, would you rather have more time or more money?"

Well, okay. Am I given the choice? Is they're a genie in a lamp? What else are they giving me? But I think what's less important is the reality of the question and more the diagnosticity of the question. What's it diagnostic of? It turns out that the people who say that they want more time rather than money tend to be the ones who are happier, and now I just want to be clear, that's when we've set the stage to be equal in terms of baseline levels of income, education, gender, age. In other words, it could just be that the people who have more money and more education and who are older are the ones who want more time because they already have the money that they need.

But as researchers, we want to control for that statistically and keep people on the same playing field and then see how diagnostic is.

Then in fact, experimentally, we asked people to think about, well, what would it be like to have more time? We tried to get them to want more time. We had another group and we asked them, "What would be like to want more money, think about wanting more money?" The immediate impact of those exercises is that the people who write about wanting more time tended to be happier afterwards. I think part of the reason is that they start thinking about how to spend that time in ways that could be productive. When I say productive, that could mean I go to the wood shop and build something, but it could also mean productive. I'm going to call up a buddy I haven't talked to in six months, I'm going to spend some more time with my family. These are productive uses of time, too.

That was fascinating data that you're just talking about. Controlling for a financial circumstances, people that want more money or less happy. Is that right?

That's right. That's right. Also controlling for, we can look at things like what we call like a materialism scale. So it could be the case that you control for all these things, but somebody who puts more value in the type of car I have and the type of handbag I own and the clothes I have, well, maybe those are the folks who want more money and maybe materialism isn't necessarily the best route to happiness. But even then, we ask people about their materialistic preferences and even when you control for that, we still see the same findings there as well.

What do you think about just on this topic, in addition to having this podcast, Cameron and I have a wealth management business where we have a bunch of clients who we give financial advice to, how do you think someone in our position, or even more broadly speaking, someone who's leading the household finances, what kind of conversations do you think we can be having to help people make the right decisions in terms of what's going to lead them toward more wellbeing?

Well, first off, let me just commend you by saying that last part is what's so important because I always think it's important to say, " What do we mean by the right decisions?" Because my right decision, maybe my right decision is I need to have an 80% replacement ratio in order to feel satisfied in retirement. I don't know how I came up with that, but somehow I did. But someone else is going to say, "No, no, no. I don't meet all that money in retirement." What's most important is can we first identify what's the right metric so that we can say, "Okay, well, what is, a given person, what do I need? What does somebody else need?"

Some of this stuff we can't know and I want to come back to that in a second, but I would say that one of the most important things that we can do here is to think a little bit more deeply about who we think we'll be in the future, who we want to be in the future and what that future life will look like. I mean that from the standpoint of what will we be doing, where we'll be living, how much time do I want to have, and do I need to have? These are really hard questions to answer and I'm not suggesting that people are going to have the answers to them.

But I think one of the problems that I've observed, anecdotally, in the financial advisory and financial decision-making space is that people set goals for the future. We know this is such a common practice in the wealth management business. "Let's see, what goal do you have? When do you want to retire? How much money do you want to have? How many trips you want to go on?" But they set those goals before they really think about what life will look like and who they want to be from a more holistic standpoint.

My question is how meaningful are those goals if you've come up with them before you really had that conversation with your future self or with your future selves, especially, I think a lot of these decisions are joint decisions, family decisions. What does life look like on the other side for my whole family? That's one of the first pieces of advice I would give was to have that conversation, to think about that self and think about all these other aspects of time and the trade-offs we want to have.

Now, the second thing I would say is, I guess, it would be have some self-compassion, have some respect for the idea that preferences can change over time. I'm fond of quoting this, or rather referencing this thought experiment that a philosopher named Laurie Paul came up with and she's a philosophy professor at Yale and she talks about the, she calls it the vampire problem.

It goes something like this, where she says, "Imagine all your friends are becoming vampires and they tell you that you too should become a vampire and you don't really know what it's going to be like, but they say, 'Look, look, look, you like to stay up late, check. You like to wear black, so good. That's another plus.' Maybe you have a predilection for novel foods. This is good, but you can't really know what it's like to become a vampire until you actually decide to pull the trigger and become a vampire. But here's the catch. Once you become a vampire, you can't undo it. You are now a vampire and the big thing is that once you become a vampire, your preferences might change. You might become a slightly different version of you because now you're a vampire and can we fully anticipate that?" Her argument is that no, we can't and we have to be okay with that.

Now, by the way, this is an analogy, right? It's an analogy for becoming a parent. It's probably an analogy for other things too, but she most directly likens it to the process of becoming a parent, which is that I can think about what it might be like, but it's only once I actually have kids, that I now know what it's like and my preferences might change in irrevocable ways. One conclusion from this is that life is inherently unknowable and unpredictable and this is really, this could be terrifying.

I actually take a more positive conclusion from this, which is that we have to be okay with the idea that preferences might change. I might save up because I think in retirement I'm going to be traveling the world and traipsing all over the place, but I could also reach retirement and be older and value more ordinary experiences and actually would put a lot of value in spending time at home with my kids and my grandkids and this sort of thing. I don't know.

If those changes happen, so be it. But I think one of the considerations we have to make, again, coming back to your question is we can only go so far in trying to predict what our life will be like, but we have to also respect our future selves enough to recognize that their preferences and decisions might change and can we account for that in our decisions that we're making right now? Maybe it means giving ourselves some more option value.

This is so interesting. It makes me think of the paper you co-wrote about approaching new decades in your chronological age. We have very dear clients that did exactly that. "In our 50s, we're going to have this lifestyle and the house. In our 60s, we're going to travel much more. In our 70s, we're going to sell her house and downsize and have a place in the South," so they viewed all these different decades deliberately on the decade, like on the zeros. Can you talk about how changes in the chronological age trigger some sort of special reflection and does that help in viewing your future self by having this potentially predictable future vision?

I love that those are the conversations that you've had. Of course, in a way I'm not surprised that clients have these conversations and thoughts. I mean, I think one of the amusing things about these conversations is, as we all know, turning a new decade from one day to the next doesn't really change anything. Going from 29 to 30, going from 39 to 40, it's not like, well, actually one of my best friends when he turned 40, literally that day, his back gave out. So I think for him, he saw a real qualitative change, but literally, but I think for most people, obviously time is continuous, change is gradual, and the ticking over from one year to the next, to some extent, is arbitrary. This is based on calendar years and our special focus on these milestone birthdays, I think, is a consequence of our numbering system and the fact that we have a Base-10 system.

It's funny in a way, because why should it matter that now I'm 50, now I'm 60? But it does and I think what happens is that milestone birthdays and these decade markers provide an external reminder for us to stop and reflect in the same way that a new year provides a reminder for us. It's an external force that makes us pause and stop. There's nothing to say that you couldn't decide to do this when you're 45 and a half, but people don't do that because life takes over and the present is all consuming and you're busy. But oh, I'm about to turn 50. This is a good time to stop and reflect.

Actually one of my best friends and collaborators, Adam Alter, we looked at this question and we did find that when people turn these milestone birthdays, or rather when they were at a nine-ending age, that is before the milestone birthdays, they were more likely to be searching for meaning in their lives. That's a small effect, I'll say. This is something we did. We looked at tens of thousands of people with what's called the World Values Survey. It looks at all these people around the world and ask questions like, "Are you searching for meaning?"

I'll note, it's not surprising that it's a small effect. Think about how many different factors are impacting our search for meaning in our lives. I'd be surprised if it was a big effect, but it's there and I think it's suggestive of the idea that we are reflecting on our lives when we're about to turn these milestone birthdays. By the way, we've seen this experimentally and we see other research groups have converged on these findings as well.

I actually think what's maybe more interesting is what happens as a function of that taking stock or that reflection. I think your intuition, your guys' intuition that this is a good time to try to make some changes. It's a good time to think about how we want our life to be is right on. Because even though it's arbitrary, that is the ticking over of the decade is arbitrary. Why not tie that to decisions that could change our course in some ways for the better? What we found in our data was, we looked at a lot of different behaviors and we noticed that people engage in these funny behaviors around these milestone birthdays. When I say funny behaviors, I mean, behaviors that we think of as meaning-seeking behaviors. For example, we found an uptick in the number of people who signed up for their first marathon right before they turned a milestone birthday.

I think that one resonates. It's like I turned 40 a year and a half ago and I remember around that time, a lot of my friends from high school, seeing them post things on social media about, "I'm going to undertake this thing this year, anybody want to join me? I got to do it before I turned 40," this sort of thing.

We also, unfortunately, saw some evidence for the darker side of this too. In other words, you can imagine that the process of taking stock of your life could result in a more positive impression. "All right, there's other things I want to accomplish. I'm going to try to accomplish them." It could also be psychologically difficult where I say, "Look, these are the things I want to do and I'm falling short," and may cause one to withdraw. There's a theorist named Roy Baumeister who's talked about this idea and we saw evidence for this.

We got access to a large data set from Ashley Madison, the dating site for people who want to have extramarital relationships. We actually saw that there was a slight uptick in the number of people on that site whose ages were just before those milestone birthdays. Now, there's some question marks there. If they're going to go on Ashley Madison, are they reporting the right age and we did some analysis to see are there's any evidence of systematic lying and we didn't necessarily see that. But there's been some other, not peer-reviewed, but other reports suggesting similar things.

But we also saw this, we looked at suicide rates for a ten-year period and we saw very slight upticks around these milestones as well. I'm not saying this has to be darker, it has to always be this way. But I do think that these milestone birthdays, which I conceptually think of as a time when people turn over from one present self to a future self, I think of them as being times when people naturally do take stock and, on the one hand, and on the other hand, I think of them as times when we might be able to have that extra bit of motivation to make some change.

Shifting gears a little bit, for retirees, are there differences psychologically and I mean we know this totally, I guess, but are there differences in the way that a retiree perceives a financially equivalent lump sum versus a monthly income stream.

Right, so in some work with Dan Goldstein, we were trying to look at what happens when people are, if you want to kind of tie this in, you know, what happens is people are looking ahead to a future self, especially as they're looking ahead to the retirement years. They're near that stage of retirement. And they're faced with a decision which is, you know, do I cash out my savings and try to invest it? Do I roll it over into an annuity so I can have some guaranteed lifetime income? Or some sort of middle of the road option. Now, one of the things that we found, actually, one of the things that my colleague, Shlomo Benartzi noticed, he was on a call with a financial advisor call center, and an employee called in and said, well, I think I want to lower my savings rate. And the call center employee said, oh, how come? Let me just ask you why? And the employee said, well, you know, I've got a lot saved up for retirement. This is like probably like a 40-something, I think. I'm not positive.

And the call center employee said, well, let's see. Yes, I see you've got $50,000 saved up. That is a lot of money. And of course, $50,000 is a lot of money. It's not enough if you want to retire at a reasonably young age and possibly have that fund you for 15 to 30 years of retirement, right? But the sort of catch here was that when you think about that lump sum, the lump sum may feel psychologically bigger or more adequate than if you were to do the math and convert it into some annuitized stream. And I think this kind of hearkens back to something we were talking about earlier, which is the idea of vividness, you know. We can think about our future selves in abstract ways, or we can think about them in vivid ways.

The same is true for money. We can think about some amount of money in the future as an abstract concept, you know, $ 50,000, $100,000. Undoubtedly, a lot of money, and more money than most people are used to dealing with in a single setting, save for maybe a down payment on a home. And even then we rarely do this. But when you turn that into a more vivid representation, that is, you turn it into an annuitized stream, then I think people have an easier time understanding it because I know exactly, I know what my monthly expenses are, roughly speaking. I know what my rent check is or my mortgage check. I know what my car payment is. I have a sense roughly speaking what my credit card payment is. So if you were to say to me, these savings equate to about a thousand dollars a month, I could pretty quickly tell you that's not going to cut it, you know? And so that becomes more vivid.

So given what we know about, you know, annuities being beneficial, do you have any suggestions in terms of how the decision to annuitize could be framed to get people to be more vivid, to use your word about going the annuity route?

I do think one thing that we have to think about is just what we were talking about there, which is how much money do you actually need month by month in retirement. And you know, this to me is where financial advisors and wealth managers really come into play because it's helpful to help people make that translation. What are your savings going to amount to? What do you actually need? And you know, of course where's the shortfall? However, you know, where the shortfall is, that's a tough one to go because I think people see that and say, oh, I'm about a thousand dollars short or I'm about two thousand dollars short. And then those optimism biases kick in and they say, I'll figure out how to make it up. I'll be able to handle it. So that may not be the best route, right? But expressing vividly what amount you'll have and what you might need, I think could be helpful.

Now the power of annuities in my mind is that it forces people to recognize that they may outlive their savings and that here's a product that could help sort of bridge that gap. Now, it's not a perfect product for everybody, right? If I'm relatively wealthy, I can almost sort of self annuitize, right? Or self-insure against outliving my money. If I'm on the lower end of the spectrum and there's Social Security that's going to essentially create 100% replacement ratio, I don't know that it makes sense to turn what little savings I have into an annuity and lock it up that way. But for the, you know, sort of the middle swath, I think this can be a product that's really beneficial. Not saying that everyone has to fully annuitize, but even some partially so could provide a lot of security. My colleague, Craig Fox, and I have done a lot of thinking about this because the way an annuity is framed also matters. You know, if I tell you this as an investment product, it doesn't look so great. But if I talk about it as a product that is essentially going to give me some spending power, I put it in terms of spending rather than investing, then it starts to look a lot better. And there's some research suggesting just that. Because I could probably get a better return, especially if I look at recent trends, right? So, you know, one of the things we know is that recent trends in the market seem to have an undue influence on people's decisions to annuitize or cash out.

If I see the market's been relatively stable and steadily increasing, I tend to think it's going to keep going that way forever and I'd be better off cashing out, you know. But if I see volatility, if I see drops, if I see sort of possible uncertainties, then the tendency is to want to purchase an annuity rather than cash out.

Yeah. The annuity psychology is just fascinating.

I also find it fascinating because it also, by the way, it pushes up against something no one wants to think about, which is death. You can have a conversation about annuities without explicitly bringing up death, but there's pretty much no way to do it without implying it. Because the first calculation I have to make is the hardest one, which is how long do I think I'm going to live for? And by the way, just that question alone, the way you frame that question, if I asked you, how long do you think you'll live until? You'll give me a different answer than if I asked you, when do you think you'll die by, on the magnitude of about 10 years. And it causes people to think about different things. When will I die by? Well, I think about my uncle who died a little early. I think about this guy I know died a little early. When will I live until now? I think about my grandmothers living a nice long life and oh, there's possibilities there. So the anchor is different things. That's work by Suzanne Shu at Cornell university.

Wow. That's so interesting. It's crazy.

Yeah, it's a really subtle thing, you know, but it matters.

Unreal. When you dig into the annuity stuff, there's some interesting papers out there and practitioner research too, I guess, showing that there is a sort of statistically optimal allocation to annuities for that middle bracket that you were talking about. But even then, even if we can tell someone, this is statistically optimal for you to do the framing and the conversation is so important. It's not enough just to say, look, this is optimal.

Statistically optimal is the type of thing that appeals to academics who study financial decision-making and financial advisors and wealth managers. But it's not the thing that I find resonates with everyday people living their lives, you know, because what matters is what's emotionally optimal. And by the way, statistics operate on averages. And nobody likes to think of themselves as an average necessarily.

Right. We touched earlier on how people spend their money being more closely linked to well-being than how much money that they have. You've got a recent paper that talks about the relationship between meaning and spending or what meaning people ascribe to the act of spending. Can you talk a little bit about that?

Sure. And I just want to say, you know, Heather Barry Kappas, who's a professor at London School of Economics, she's the real spearhead on this project. And she actually had this observation. I think it was a funny observation. It really made me sort of scratch my head when she first brought it up, which is that when people look around at others, they look around at their neighbors or the people in their lives. Is it possible that we attribute spending to wealth? In other words, the people who spend a lot may be wealthier. Now the irony of course, is that the more I spend, the less money I have. Now, she actually took this observation actually from, you know, you look at some people in this FIRE movement, right? Somebody says I have the plainest house on my street, but what my neighbors, don't know that I probably have the biggest bank account because I haven't been spending.

So one of the things that we looked at in this paper, and this is also alongside Joe Gladstone, who was at University of Colorado, was how do these perceptions of what other people spend, or rather how do my perceptions of other people's spending and wealth relationships matter for my own financial wellbeing? And it turns out that if I think that spending implies wealth, I'm actually going to be more financially vulnerable. We actually, you know, Joe had access to a data set of real consumer transactions and we were able to survey these people and ask them to what extent do you think that spending implies wealth? I'm sort of paraphrasing the questions that we use. And again, you know, it's important to statistically control for lots of other things here, which we did. And it turns out even setting aside all these other factors that you think would matter to the extent that I think spending implies wealth, is indicative of me being more financially vulnerable and me spending in more conspicuous ways and me having lowered financial wellbeing.

So, you know, I think it does raise some really interesting policy questions and it raises interesting questions regarding, you know, well, how do you change these beliefs? I think to some extent, just stopping to think about it for a second matters. You know, I think most people have knee jerk responses. Then you start really doing the math and you say, wait, if they bought this, this, this and this, they can't have that much wealth. And then by the way, this boils down to another question, which is, well, what does matter? How much money do I need? How do I want to spend that money for my well-being overall?

Is that nature or nurture?

You know, I think, like many other psychological concepts, it's got to be some blend of both.

Do people change over time or did they reflect their upbringing on how they spend?

I think that they do to some extent reflect their upbringing. But I think that change in this space may be hard because, you know, we get kind of set in our patterns, in our ways, right? And so to make a change, this kind of hearkens back to our earlier conversation, which is that to make a change, we really have to find the right incentives and the right sort of motivation, the right impetus to do that. And so maybe that's the type of thing that can happen when we're having these life changes like a new decade. Or maybe because the type of thing that can happen when we have some new family change or some sort of external motivation to make a change.

So interesting. So our final question for you, Hal, which we always ask, looking forward to your answer on this one, how do you define success in your life?

Such a great question. I've been thinking about this a lot lately. How do you define success? I mean, I think there's external markers of it so you can look at how you progress through your career, and you can look at your bank account. And those are easy and quantifiable metrics, right? But I think more than that, it's having what you want. I would also add, it sounds a little cliche, wanting what you have. And I also think, lately I've been noticing that I think success means having the time and resources to be able to spend my time the way that I want to. I think about that, especially with regards to family and especially with regards to being able to be present when I'm spending that time. You know, I think for me personally, there's been times where objectively speaking things could look successful, but I'm stressed out, worried or so focused on the next thing that I have a hard time being here right now.

And if there's one upshot to COVID, it's, you know, forced us to spend a lot more time at home with the kids and see sort of how quickly they've been moving through life. I guess, you know, I would hate to look back and say, I missed a lot of that because I was focused on something else. And so I think to be successful means being able to be present there. I think it's also that type of thing that you can always improve on, or at least I can.

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