Johanna Peetz, Ph.D., is an associate professor in the Department of Psychology at Carleton University (in Ottawa, Canada). Johanna completed her undergraduate studies in her native Berlin, Germany, and her graduate studies in Canada. Johanna’s research includes a range of topics connected to goal-directed decision making across domains of personal spending, time perception, and interpersonal relationships. Her research has been published in the Journal of Personality and Social Psychology, Journal of Consumer Behavior, Journal of Experimental Social Psychology and others. She is passionate about identifying ways to improve people’s life, to provide tools that help people pursue and achieve their personal goals.

Today we speak to Professor Johanna Peetz about how the errors people make about predicting their futures affect financial planning and relationships. Professor Peetz is an Associate Professor of Psychology at Carleton University and her three main research interests are time perception, personal spending, and close relationships. We kick the conversation off on the topic of biased spending estimates, the idea that people are bad at budgeting, and Professor Peetz gets into the main causes and implications of this issue. Our guest gives pointers for how to make less biased predictions for spending and makes a great point about how people with more aggressive saving goals often don’t spend less. We move onto the subject of long-term financial planning and motivation, and Professor Peetz weighs in on a few methods to get better at breaking down big goals into steps as a way of keeping motivation up. Another big discussion from today is how this idea of behaviour predictions fits into the context of healthy relationships. We talk about the connection between partner-satisfying decisions and happiness, and how partners should view each other's ability to keep promises. So for all this and more on how to get better at knowing your personality traits and the effects this can have on finances and relationships, tune in today.

Key Points From This Episode:

• Introducing Professor Johanna Peetz and her research on predictive errors. [0:00:48.2]

• If people are good at predicting how much money they're going to spend in the future. [0:03:05.2]

• The causes and implications of these biased spending estimates. [0:04:33.5]

• What people can do keep their spending in line with their goals. [0:06:53.5]

• The financial literacy gap between men and women. [0:13:37.5]

• Increasing motivation to reach long-term financial goals based on a future self. [0:17:05.7]

• Setting goals using intrinsic over extrinsic reasons. [0:21:40.5]

• How financial planners can help their clients find and reach their goals. [0:23:56.5]

• The relationship between pro-social behaviour and happiness. [0:24:51.5]

• How good people are at predicting relationship-enhancing behaviour. [0:28:27.0]

• Dealing with money-related relationship conflict amongst being bad at predicting behaviour and spending. [0:32:39.0]

• How unpacking expenses can help people make less biased spending predictions. [0:34:26.0]

• Different ways of responding to boredom in a relationship. [0:39:34.0]

• Taking the perspective of the other person to improve the forecast of relationship-enhancing behaviours. [0:43:10.0]

• What Professor Peetz is working on now that makes her most excited. [0:46:05.0]

• How knowing your personality traits can help you make better financial decisions. [0:48:20.0]

• Our guest’s definition of success. [0:49:09.0]

Read The Transcript:

Are people good at predicting how much money they're going to spend in the future?

Oh, they are terrible at it. So people tend to have very optimistic biases. And then we ask people to just predict monthly or weekly expenses. They tend to underestimate by about 50% and then overspend by about 50%. And even if you do this consecutive weeks, they'd be, "Well last week, I spent 150. Next week, it's just going to be 100." And then we ask them, "How much did you actually spend?" It's again 150. But the next week will be different. It'll be 100. So they keep making these optimistic biases and predictions.

How does that trend with salary changes? A lot of people say, "Well, if I get an increase, I'll spend more of that." What's the impact? Is there a relation back to salary increases, do you think?

We didn't actually ever track people across salary increases. I can tell you that income or overall salary doesn't make a difference. The biases of error, it's just at a higher level. So they're predicting to spend more, but then spent even more. I don't believe that they would learn and not make these biases after they've had a salary increase. We've never tested that, so it's possible.

We see this in financial planning, where if we ask somebody how much they spend, they'll give us a number. And in many cases, if we dig into the details, that number ends up being different. Can you talk a little bit about what some of the implications of these biased spending estimates could be?

It's never good to make errors about the future, right, because your behavior is based on these predictions. So if you're thinking that you'll have no money that you actually end up having because you overspend on a number of other expenses, then you might be committing to projects you can't actually afford in the end. And it's too late to back out. So I do think over time, it could really contribute to people constantly being surprised at how little money they have left. Then that might lead to some bad financial decisions.

What are the underlying causes of these biases? Where does this come from?

What we found in our research is that it's part of this fundamental psychological tendency of always wanting to expect the best of the world. It's kind of a general optimistic bias that extends beyond finances. So if you ask people, "How likely is your house to fall down in an earthquake as opposed to other people's houses?" People are like, "Well, my house is completely unlikely to fall down. Other people's, maybe. Mine, not."

So the same kind of thing happens with financial predictions, that people are actually better at making financial predictions for others than for themselves, because they're less biased by their own wishes and beliefs and desires for the future. So we found that those people who had the strongest saving goals, so who were most motivated to save money, to reduce their spending, things like that, those people actually made the largest errors and predictions. Because they were so motivated to save money that they only considered the best case scenarios. And they had much lower predictions, so they predict to spend even less. But the actual spending didn't really differ from other people. So in the end, the gap was larger.

That's crazy. So people that make more aggressive saving goals don't actually spend less, but make more overconfident predictions about how much they're going to spend?

At least in our studies, yeah. I think that is because the behavior, or the actual spending, is much harder to change, right, than your goals. I mean, the goal is easy to set, but the behavior is hard to change. And it might not always be under your own influence. So there's a rent increase, or something else comes up. You can't influence those things.

So if you have very aggressive goals, it might help you save a little bit more. But the chances are the gap is just going to be so much larger to your actual spending.

Jeez. That has huge implications for financial planning, obviously. What can people do to try and keep their spending in line with their goals?

If that was an easy answer, then I'm sure the whole world would be happy hearing that. There is, of course, a whole line of self-control strategies people can use, right, to prevent themselves from things like impulse purchases or something, right? Don't go hungry to the grocery store. Those kind of elementary things. Check with advisors before you make larger investments, things like that.

For the personal spending, the week-to-week spending that we assess in our studies, the best way to set realistic goals would be to look to your past behavior. So if you know how much you usually spend, or what you usually... What the expenses are, then take that as the starting point for your estimate and compare it back. Really think about, "How can I justify a totally prediction than what I have experienced in the past?" Because the past behavior's always the best predictor of future behavior. So that's really what you should be basing your prediction on.

That's so interesting, because I can't tell you how many times, in a financial planning setting, people will say things like, "Well, this is what my expenses were last year. But they were really high because of this, this, and this."

That's exactly what we see in our studies. We see people justifying these optimistic predictions with, "Well, I think the bus will never break down. I will never have to take the car." They just set up these really optimistic best case scenarios in the head, right? And as opposed to setting up a best case, the worst case, and then taking the average. That would get them to a more realistic estimate.

No, the future's a very rosy place. People can imagine it as positively as they want to, right?

Yeah, it's so interesting to me that what we've kind of seen anecdotally, you found something similar in these studies. Yeah, that's fascinating.

So what sort of interventions can people use to get a better handle on their future spending, their future estimates? And also, what kind of hope can we give to people that have to save more?

It's not published yet, but we have currently a paper that's under review at Journal of Experimental Social Psychology that... We did studies where we're trying to really change people's behavior, as opposed to changing their goal setting to be more accurate. What we found there is that we gave them some strategies, like budgeting or other things that have them empirically tested. And we asked them to use those strategies for a month, and then also asked them to report their actual spending during this month.

And what we found, there was a most effective way to reduce people's spending, and we reduced it by around $300 when they were usually spending $2050 a month, and then it was reduced by 300. The most effective instructions that we could give them was to think about all the strategies they're already using in their own life, so all the financial self-control strategies. And that could be things like using budgeting apps, or when you're in the spending situation, you're thinking about how much you will regret it later if you give in and you make this purchase that you're not so sure about.

So thinking to all the strategies you're already using, writing them down, and then remembering that and using it more consistently during the month. That was actually a more effective intervention than telling them about established financial self-control strategies that have been tested in labs by psychologists and economists. It was not as effective to just learn about what other people do, or what researchers think you should be doing, than to think about, "What am I already doing? And how can I do more of that, and more consistently?"

Think to the past behaviors. Think to what you're already doing, and then just do more of that.

Wow. That's not what I would have guessed. Interesting.

Originally, we had predicted that the expert strategies that have proven to be effective, they're going to be effective to reduce it in the field, so over a month in these people's spending. It was not as effective as people's own strategies that they're just amplifying in the month.

Yeah, fascinating.

A lot of the spending prediction research that you've done that I read, it was in a lab, where people are prompted to make predictions about their spending. Do people actually make predictions in everyday life when they're not being told to forecast their expenses?

We only had one study where we're looking at this, where we ask people to track all their expenses over the course of one week, and keep a diary basically. They had it in their wallet, a little booklet, and they wrote down if they made a prediction or not for this expense, or so on. And we found that around 60% of the purchases were predicted. I would say half-half.

Now, this study was with students. So I'm sure if actual people whop have more experience with spending and are a bit older and have a lot more expenses, perhaps, if they have a totally different picture. But I can say students, at least, predict 60% of their expenses.

Was there any type of expense that the students in this sample were more likely to predict?

Yeah, the unusual expenses, right? When they're larger, they're more exceptional, people stop to think, "How much will that cost me?" More than if you're just buying the same toothbrush you bought a million times. You're not going to try stuff and try and predict those routine grocery purchases or something. But if it's something more unusual, like a small home renovation or something, then you would.

When I first got into this business, this was many years ago, but the Wealthy Barber came out. And one of the rules in that book that was so popular was to pay yourself first. So basically, fool yourself into saving more money. You want to save $6000 a year? Well, set up an automatic monthly deposit of $500 a month.

What do you think from your studies of that and how successful that would be expected to be?

Oh, I really like that strategy. And it has been studied in the lab, too. Not by me, but other people. And it is effective. Automizing your savings is definitely effective, because you no longer think you have that many available, right? So it almost doesn't feature in your plans. It's a bonus that you experience afterwards.

I would just say that yes, I do think it's an effective strategy. People should be using it for sure.

I want to switch gears a little bit. We have an online community built around our podcast. There's about 4000 people in there, actively discussing all sorts of different personal finance and investing topics. But we did a survey recently and found that about 99% of the people in these active discussions are male. Can you talk a little bit about what we know about the financial literacy gap between man and woman?

Yeah, so it's a pretty well established gap, so that men consistently score higher in terms of financial literacy and, more broadly, financial capabilities that includes financial literacy but also includes things like planning ahead, whether or not they set budgets regularly, whether or not they have a retirement fund, those kinds of things. And also aspects such as keeping informed, researching products before you make purchases. So they tend to score higher on all of those kinds of scales than women.

Now, one of our studies, my colleague Jennifer Robson, also at Carleton University, what we found is that part of the reason for this gender gap is our differences in personality. So women also tend to score higher on personality traits like agreeableness and neuroticism, which is... It's not perhaps the usual way you understand neuroticism. It's more the emotional instability, so having a lot of up and downs and emotions. And in psychology, we call that neuroticism. So they score higher on that, and both of those personality traits are linked negatively with financial capability.

So if you're controlling for these personality traits, then the gender gap is vastly reduced, almost nothing. So it seems to me that's the underlying explanation for why men might be exhibiting those different interests or different capabilities throughout.

Jeez. So if it's based on personality, is this a gap that we would expect to persist? Or is there something we can do about it?

Very nice question, but where does personality come from, right? Is it genetic, is it taught? And I do know that some of the personality traits, like agreeableness, do change over the lifetime, for example, right? At 80 years old, your personality profile's going to look quite different than it looks today. So people do change their personality.

There's some attempts to change them, say make people more conscientious and so on, and they have mixed success. But I'm not sure if there's a good way to reliably teach it in a short amount of time. It seems more like a change that happens over the years, right? But if there was a change in a group that was previously very low in a certain trait, then perhaps that would change the overall profile of how gender interacts with finance. It's possible.

Are there things you think we could do as a community to increase engagement from women?

If you find an answer, I would like to hear. That sounds like a very cool question. One thing that might be a good starting point is... On this financial capability scale that Jennifer Robson developed, there's one facet that women do tend to score a little higher relative to men, but also sometimes higher than men, and that's the facet of keeping track of money. So the checking and how much they spend, the more mundane aspect of financial budgeting, the day-to-day. Incidentally, the stuff that I was studying more. So the week-to-week budgeting, not so much the larger investments over 60, 100 years, but more the smaller, day-to-day budgeting.

So topics related to those kinds of aspects of financial behavior might be more interesting to women, just based on them scoring higher on this aspect of capabilities.

We had a podcast guest quite a while ago now, early when we started the podcast, who actually runs an online community largely populated by women. And her focus is a lot on budgeting, so that's an interesting comment.

Cameron and I in our professional capacity, we give people financial advice that's looking at 60-year planning horizons. Can you talk a little bit about the role that the perceived distance in time plays in the motivation to reaching a goal?

I think it's great that you guys are doing this, because I do think people need all the help they can get to plan that far in the future. Because for most people, these distant future selves are almost strangers. They don't really see the point in saving for this distant future stranger that doesn't even feel like that's them.

What we found is outside of financial behavior, we found this in academic goals and those kind of things. We found that the closer you are to academic goals, the more motivated you are to pursue them, right? So it's much easier to pursue goals that are close in time than it is to pursue goals that are 60 years in the future. The further away it is, the harder it is to get yourself motivated to do something towards it right now.

So obvious question. What can you do to feel closer to those goals?

One thing you can do, and one thing that's been studied in various psych labs, is to make these future selves more vivid. So to really think about what will you look like then. So there's studies by Hal Hershfield, right, to make people picture their future self. There's some recent work on writing letters to the future self. So they're writing letters to the self that is in retirement, realizing that it's themselves. They're talking in the first person and things like that. Anything that makes it more vivid, more real, that would also make it feel psychologically closer.

That makes it feel closer. Does the way that we perceive our future selves influence the goals that we set?

Yes. That's a very complex relationship. There is a lot of work showing future selves can be very positive. They're roadmaps for your current self of where you want to be. They also can be very detrimental unexpectedly. So sometimes, if you're fantasizing about this really positive future that you want to reach, say retire on the beach and it's beautiful, you never have any worries anymore, that can actually make you less motivated to pursue this goal now. Because you're already basking in this future glory, and you already have reaped all the benefits of feeling so positively about it, that you almost don't feel the urge to pursue it, right?

So there's actually a very famous study that was done over 30 years ago, and it was done in Germany, where they asked university graduates to fantasize about the job they would get after graduation. And those people were less likely to have a job six months later than people who didn't fantasize, right? But they also found in the study, the important that you have to do if you do want to fantasize about your future retired self is you have to simultaneously think about a plan of how to get there, right?

So if you have the fantasy combined with the plan, you're good. Again, they did that in the study with the university graduates. So if they were fantasizing about the great job they would be having, as well as writing down a concrete step-by-step of how many applications they would be sending out, where they would be looking, and all this mundane stuff, those people were actually more likely to have a job than the control group who didn't do either.

So instead of fantasizing about a job, what if your motivation is to get that job? Does that motivation affect the likelihood that you're going to attain it, as opposed to just imagining it?

Yes, absolutely. Because if you're motivated to get it, that is usually complemented by steps that you're taking to get it, which should lead to you getting it.

Wow. So how does that link then to, say, retirement planning? We can all dream about Freedom 55, being on the dock with your Labrador retriever and your nice boat. But that's dreaming. But how do you translate that into motivation to be able to get to the dock?

You'd want to increase the motivation that you want to pursue this goal. Not the motivation to be there, but the motivation to get there. And that, you probably could do by pointing out all the steps that are involved. You have to automize savings, for example. Or you need this many savings for this goal to be achievable, and here are the things you can do to achieve this goal. And then people will have a better sense of what they actually have to do, and their motivation will be driving their behavior.

So is it more about the journey as opposed to the destination?

Yeah, that makes you more successful, exactly. But, I mean, you still need the destination. You still need to know where you want to be at a certain time. Otherwise, you can't guide your behavior, right? But that is not enough by itself. You need both. Where do I want to be? What's my goal and the steps of how I get there? One by itself isn't going to drive behavior.

Interesting.

Does the reason why you're pursuing a goal, and I think the language that is used in this research is want to versus have to as the motivation, does that affect the likelihood that the goal's going to be attained?

Again, that's been studied mostly outside the financial domain. But we found that it's also true in the financial domain. That comes from the terminologies from the self determination theory by Deci and Ryan. And it's the idea that there's some goals we're pursuing for intrinsic reasons, because they're really about who we feel we are as a person. You're a person who wants to have a stable life, who wants to be responsible with their money or something. That's a sense of who I am.

Or we might be pursuing goals for extrinsic reasons, the have to reasons, because we feel other people tell us that we have to save money. Other people tell us that we have to have a good retirement. And those have to goals that we just do because we have to do them, because society or other people or our mom tells us we have to do these things, people are not as motivated to pursue them. They're finding goal pursuit much harder, much more effortful. They're finding it harder to resist temptations from these goals, right?

So the autonomous, or want to motivations, those are just going to make goal pursuit that much easier. If it's something that you want to do out of intrinsic reasons, then goal pursuit is going to be easier than if it's something you feel you have to do.

So how can people apply goal motivation to their own financial decision making?

You would look at that mostly from a goal setting perspective, right? You want to set goals that are personally meaningful to you, so that you're not setting goals that you feel you just have to because somebody's telling you to. But it's things that you actually care about. And if you feel like there is a goal that you really want to feel intrinsically motivated about, but you can't just muster it, then maybe just think about all the reasons why this aligns with your inner values and personality and choices in life, as opposed to just feeling like, "Oh well, society tells me I have to save money, so I'll just be saving money."

So really think about those intrinsic reasons for the goal. Because there will always be some, right? You just have to spend the mental effort to really develop those into the more autonomous goals.

Exactly. Is there any that you think people in our capacity, having financial planning conversations with people, or many of our listeners are viewed as within their circle of friends... They'll often be the financial person because they are educating themselves by doing stuff like listening to this podcast. People that are in type of position, what do you think they can be doing? What do you think we can be doing as financial planners to help people find those goals, figure out those meaningful goals?

I think it's all in the conversation you're having. If you're already starting this conversation, you're probably at the first step already towards it. Because it makes people reflect on what their goals actually are, as opposed to just taking their cues from outside. So having those conversations in the first place, I think, is already the important part.

And then thinking more in terms of, "How does this align with my overall life plan and with the kind of person I am?" Just asking those questions, I think, would help to develop more intrinsic goals.

Stemming from that, financial planning decisions, setting goals, the stuff we're talking about often involves making decisions. Not just about yourself, but also about a partner, a spouse. Can you talk about how important it is to make partner satisfying decisions?

Yeah, there's often situations in life, if you're in a relationship, right, where you have a different goal than your partner, or where your intentions are in conflict. In those situations, if you can't find a compromise, you have to either make a decision that satisfies your own goal or that satisfies your partner's goal, right?

And what we found, at least, is that making the decision to make your partner happy in that situation and choose the action that is more likely to satisfy the partner made people actually happier in the moment. So that aligns with a whole bunch of research on pro-social behavior, showing that volunteering makes you happy, giving money to other people makes you happy. Pro-social behavior is surprisingly rewarding for the person action pro-socially. And the same thing seems to be true within relationships. If you're doing things, even if they're detrimental for yourself in the moment, people in our study actually felt better after doing this, even though it was not what they wanted.

So those are really small conflicts. "I want to get pizza, my partner wants to get steak. We ended up getting steak." So those kind of very minor daily decisions in relationships made the person who originally wanted pizza still be happy, because they felt their partner was happy getting the steak. It wasn't actually that bad. Now they're actually feeling they've done something good.

Are there situations where you forcing your interest to get pizza should trump your partner getting steak? Are there reasons why you'd want your own interest ahead of your partner's?

And I'm saying all that made people happy, right? Those are small mean differences. It's not a guarantee for happiness in every single situation. There's still a lot of reasons why it's not a good thing to make partner satisfying decisions, right?

For example, caretaker burnout. If there's imbalance in the relationship over a long time, you feel you're always sacrificing for the partner, they never sacrifice, if there's an imbalance like that, it's probably going to be bad for the relationship and bad for you. If there's situations where you care a lot more about the pizza than your partner cares about the steak, right, it's probably better to make the self-satisfying choice. And then you could argue, "Well, my partner's going to be happier now because they had to sacrifice. So really, I'm making them happy."

Is there any way to know, any heuristic or anything to know when you should be self-serving and when you should be partner satisfying?

There's one study by Emily Impett at the University of Toronto. And she showed that, again, it goes back to the types of motivations. If people self-sacrifice for autonomous reasons, so if the give into their partner because they really want to do it in that moment, they want to make the partner happy, then it had a positive consequence for them. If they felt they gave in sot hey stop nagging you about that steak, then it didn't have very positive consequences.

So if you're forcing yourself to do it in a situation just because you feel you have to do it, it's not going to have as positive consequences as if you do it because you generally feel like you want to make your partner happy. You're like, "I'm just going to do this for you."

Okay Johanna, I've got a question that maybe the answer might be the biggest benefit for me. So earlier, you talked about biased spending predictions. Are people any better at predicting their relationship enhancing behaviors?

Yeah. I love that question, because it's one of my papers that I wrote with Lara Kammarth a long time ago, where we actually looked at this in terms of promises. So we looked in terms of what kind of promises do people make to their partner about things they want to change in their relationship. Because promises are like predictions, right? They're things that I predict I will be able in our relationship. So things like "I will always do the dishes from now on," or "I will call you everyday when I'm on vacation."

And we found that just as with spending, people were terrible at making these promises, so they kept falling short of the promises. They didn't call as often as they had promised, they didn't do the dishes as often as promised, things like that. And just like with financial predictions, the motivation... So people who reported loving their partner more, being more motivated to make them happy, that actually increased the bias, because they made such huge promises, right? They were so optimistic about what they could be doing, because they really wanted to make their partner happy. They love them so much, right?

So they actually fell short of their promises more than people who said they love their partner less, so people who reported lower motivation to make the partner happy. So it really seemed like counterintuitively, the ones who broke their promises more often were the ones who reported being more in love with their partner. Because they had these much stronger goals to make them happy, which made them overpromise. The partner often didn't realize that, right? They just saw the broken promise, and they concluded not, "Oh, their promise was too high." They concluded their behavior was not strong enough, they didn't care enough. And we had to tell them, "No, the opposite was true, right? They care too much, and that's why they make such big promises." And their behavior was basically the same.

And if you're asking, because you should be asking, right? I like that part, too. What actually influenced behavior in those situations were things like personality traits. So we found conscientiousness was the main driver of behavior, but love for the partner was the main driver of promises, right? So the conscientious people did all the things they were saying they were doing. But when you see your partner falling short on a promise, you're not thinking, "Oh, they're not very conscientious, are they?" You think, "Oh, they don't love me enough." But that's the wrong conclusion to draw. You should be concluding, "They're just not a very conscientious person, perhaps."

So it's the opposite of the knee jerk reaction.

Exactly, yeah. And, I mean, arguably, there's many people who do understand that about their partner, right? Especially the longer the relationship. You probably realize this may not be about you. It might be about them and what kind of person they are, as opposed to what they feel for you.

Do people realize it? If someone keeps making promises that they can't keep, do they get hip to it and stop?

We only did snapshots, so I can't... Empirical data, you only ask them to do promises once, right? With the spending, we did it over consecutive weeks. But there, we brought them in the lab, and we said, "Make a promise." We measured the extent of the promise. But we never followed up and asked them to do that again. So I don't know if they learned from that. It's a good question.

What can people do to improve their behavior predictions?

Like with money, think about your past behavior, right? And think about what made you not do the dishes before, not call before. The same factors, the same situational factors are probably going to be present again, so you can control that. Think about your own personality. Not thinking about why you want to make these promises, but think more about, "Well, what is realistic? What can I realistically promise? And what have I done in the past?" As opposed to "What do I want to do?" If you want to be accurate, you really think more about these predictors of behavior, not the predictors of your ideal behavior.

We basically have an intersection of predicting relationships, not great, and predicting spending, not great. And Ben and I know from our day-to-day jobs that a lot of conflict in relationships happens around money. Do you have tips for people? How do you square this mess? Any advice for the listeners?

There is research showing that even though relationship conflicts about the money are not the most frequent, they're the most persistent. So if you do argue about money if your relationship, that's likely to be a persistent topic in your relationship throughout a long time, as opposed to just be solved very quickly. So it is a very important question.

Also, it can be particularly negative, because money means very different things to people, right? So it could mean safety for one person. Saving money, I feel like it's a need for safety. Or it might mean freedom to another person to make a lot of choices, go out to restaurants, and experience life to the fullest. And you can see how this need for safety and need for freedom really collapse. And those people, they are basically talking different languages about what money means to them, right? And that creates a conflict. You can't really change that about a person, what money means to them, because it's such an ingrained thing that gets taught over childhood.

What can you do to solve financial problems? I would go back to the staple of communication, right? Talk about why you're having these different approaches to money. And can you come up with a specific plan and boundaries of where money gets spent and where it doesn't get spent, like that? But again, I don't know any specific one-fits-all solution here. It's probably unique to each couple.

You reminded me when we were talking about how to improve behavior predictions of a question that I wanted to come back to on predicting spending. When we're talking about how to overcome the biased spending estimates, one of the papers... We talked about using your past spending as a benchmark for future spending. One of you papers that I looked at also talked about unpacking expenses as being useful. Can you talk a little bit about that?

Yeah, that's the idea that any expense is composed of a lot of smaller expenses, right? So if you're going on a trip, there will be the travel cost and the hotel cost and the food cost and the entertainment cost. And if you're unpacking the expense of making individual predictions for each of these and then adding them up, you're bound to be more accurate than if you're just making the overall prediction.

I mean, if you're talking really long time frames, like 60 years, there's no way you could unpack your spending for the next 60 years to all the unique little units that you'd need to. But if it's about concrete spending events, where you feel you could be breaking it down, it will probably help your accuracy if you do break it down.

Does unpacking increase accuracy, or does it open up potential other biases?

Well, what we found is that it tended to make your predictions larger. Now, where there was a bias to start with, that really helped. But for those people who didn't have a bias to start with... Because again, it's always mean. So some people will be accurate even without it. Then unpacking actually made them over-predict. Basically, unpacking just made the predictions higher in our study. So at least it didn't really always make them more accurate. It only made them more accurate when they were too low to start with.

I feel pretty confident that most people are too low. So I think it would help most people to unpack their expenses. But of course, there'll always be some who might then over-predict. But I think the problems accompanying over-predictions is not as dire as the under-prediction. So if you end up with more money than you had expected, that's not as much of a problem than if you end up with less money.

We do a lot of work with people preparing for retirement. They have a hard time trying to figure out what is that monthly amount of net cash they'll need for the rest of their lives. But you raise this idea of unpacking, which is so interesting. Would you suggest that people try to perhaps unpack stages of retirement? The first 10 years, I'm going to have my place in Mexico or whatever. The next 10 years, I'm going to be traveling to see my kids in Victoria. And try to make it more granular? Would that help?

That's a very cool idea. Yes, I totally think that would help. And I think it would help not only with making it more realistic, but also with making it more vivid, right? Really think through what are you actually going to do in retirement that's going to make the retirement self feel a lot more closer, and you feel like that's actually you. You're going to do that. You are going to visit your daughter in California, did you say, right?

Yeah, I think that would definitely help. I think that's a great strategy.

Anything to make it more real and more granular, you think, is a good idea?

Yeah.

That's neat. Because that's a big struggle for us, right? You might say it's going to be, pick a number, $5000 a month. But you don't know in 15 years what you're going to be doing.

Yeah. And then you don't know what inflation's going to look like, right? Once, somebody showed me a mock-up grocery list of 2050, right? And they're like, "Oh, head of lettuce will be $20." I don't know where they came up with these predictions. This is where past behavior or past is perhaps not a great predictor of the future. Because if you think, "Well, I'm not going to change my shopping, so my shopping costs will be the same in 40 years," that is just not true. Because it will be more expensive, even you buy the exact same things, right? That's hard to wrap your head around without very concrete examples.

The process visualization idea for people retiring, I think, is just fascinating. Process visualization, and then unpacking the hypothetical scenario.

And unpacking, too, all the expenses you have, right? Because you're probably forgetting some. You're probably not accounting for either some kind of expense you're not currently having, like transportation to hospitals if you're currently healthy, right? But you do need it perhaps when you're older.

Itemizing what you think you'll need will probably pull up some of these unexpected costs and make you think of those. For some reason it makes people go through a day in the life of an older person, right? So really think through, from the morning to the evening, what are you going to be doing? And maybe you uncover some kind of thing, some item of expense that you hadn't even thought about.

For us, with the unpacking, it was often... People said things like, "Oh, I want to buy a present." They forgot to account for the money to spend on the wrapping paper. Those kind of things, right? You just have a focus point, and you're predicting only the focus. But you're forgetting about the stuff around it. So you're like, "I'm taking a trip." So you're thinking of the airfare, but you're not thinking of the travel insurance, things that have been temporarily removed from the trip, right? So really think of all those hidden costs, as well.

When we're trying to help people unpack... Because like I mentioned earlier, we see this issue in practice where we'll say, "How much do you spend?" And someone says, "$5000 a month." So we have checklists that try and... It's like a budget worksheet that tries to capture those real expenses that you're talking about. And when people go through that, they're like, "Oh yeah, this thing."

Yep. Oh, that's great that you're already doing that, yeah.

Relationship breakdowns can be very expensive. Obviously emotionally, too, financially expensive. And you've done some really interesting work on relational boredom, which can increase the chances of a relationship breakdown if it's left unaddressed. How do you think people should respond to boredom in a relationship?

Boredom usually occurs not just in relationships in general. It occurs when the self-expansion is breaking down. So the idea that people like to self-expand, develop themselves as a person, learn new things. And if that doesn't happen to a sufficient degree, then they can feel boredom.

So one way to respond to boredom in relationships is to engage in self-expanding activities with your partner. So doing some novel things you haven't done together. Doesn't have to be something like, oh, learn to dance tango or something. It doesn't have to be that extreme, but it can just be taking a walk somewhere you've never been before or something. That would be something novel for people. And it just has to be novel for one of them, because that probably is going to drive the self-expanding for both of them.

Now, I think important for that is that you don't put the onus on just one partner to arrange those self-expanding activities. So you can't have one partner be responsible to make the relationship exciting, right? That has to be a trade-off between the two partners. You have to take turns planning dates or which podcasts to watch today.

So people should engage in self-expanding activities with their partner to avoid relational boredom?

Or I should say if they feel boredom, that would be a potential way to address it, right? I mean, we also found that... This is all work done with Cheryl Sinchek , also at Carleton University. And we also found that if people experience conflict and a lot of fights in their relationships, novel activities were not a very good solution there, right? There, you might want to do familiar activities. So you might want to watch a movie you've seen before and just get closer to each other without the stress of novel activity.

So it's not a cure-all for all relationships. It just depends more what is your relationship suffering from. If it is boredom, then self-expanding activities might be good. If it's something else, it might not be good.

How would someone diagnose that? If someone's feeling unhappy in their relationship, how do they decide, "I'm bored," or "I'm not self-expanding."

In our studies, we just ask them, right? People are usually pretty good at identifying that if you just ask, "Do you feel bored with your relationship? Disagree to agree?" That's how we determined it, and I think people can tell. I couldn't tell looking at people, but they can probably tell you if they're bored.

Okay, so you talked about how people should respond. In the study, I think you also looked at how people are likely to respond. Can you talk a little bit about that?

Yeah, people actually did know quite well how to respond. They knew it even better for other people. So for your friend, you probably know what to do even more so than for yourself. Because again, all these biases that come in for yourself make you make sub-optimal decisions for yourself and make better decisions for other people. But people by and large really did know how to counter relational boredom.

Cheryl gave them a date planning activity, where they had to plan a date. They were actually planning more exciting dates. Not parachuting or something, but something slightly more exciting than what they usually do, if they were temporarily bored.

You mentioned something that made me think of another one of the things that I read. And for the predicting relationship enhancing behaviors, I think, if I remember correctly, one of the papers that I read of yours talked about taking the perspective of the other person to improve the forecast of relationship enhancing behaviors. Can you talk a little bit about that?

That is a really well-established effect in psychology in general. Perspective taking is great. There's some people who are just naturally better at perspective taking. But there's also lots of evidence that if you just prompt people to think to take the perspective... Just like I was earlier mentioning, perspective of yourself at 65 years old, right? You can do it if you try. But some people might be more likely to do it.

Anyways, so in relationships, people who tend to take the perspective of the partner do tend to have better relationships. They reported being more satisfied in their relationships. There's research showing that in the lab, if you ask people to take the perspective of the partner and then argue about something... So they said, "Argue about a topic you usually argue about." They were acting much more civil during this argument if they had been taking the perspective of people than if they didn't take the perspective.

So for money, for example, then, I would argue that if you're taking the perspective of your partner and asking yourself, "Why do they spend so much money on this expense that I can just totally not get behind? Why are they buying 20 pairs of shoes here," or something, right? "I don't see the value in 20 pairs of shoes." But if you're taking the perspective, you're thinking, "Oh, maybe this is because they have this identity as a fashionable person, and money means freedom and fashion to them," right? So taking this perspective of this totally alien idea of money will probably help you approach the argument about finances a lot more civilly and constructively.

That sounds so obvious when you say it, but I wouldn't have thought of it.

All over in all areas of psychology, you have it with reducing stereotyping and all kinds of things. So really stepping back and putting yourself in the shoes of the person you're about to interact with, it's never going to go wrong. It's always going to make you a better person, I think, and make your interactions smoother.

I understand the perspective taking. But in the context of predicting your relationship enhancing behaviors, what would that mean to take your partner's perspective?

For the behavior, you would probably do it more. You would probably do more of the relationship enhancing behaviors because you can really think about happy it'll make them feel. And that benefit translates into greater motivation to do them in the first place.

But for predictions, what will make you a better predictor of relationship enhancing behaviors, there I would say it's probably more that your greater perspective taking probably plays out, and you can take the perspective of your own future self. "How will I feel in this situation? How will I act in this situation?" If you're great at perspective taking of other people, you're probably better at perspective taking of yourself in the future situations, as well. And that might make you more accurate there. But I don't think I've ever tested that directly.

Very interesting. Your three primary areas of research are all very much relevant to the field of financial planning, and just thinking about the future, I guess. What are you working on right now that you're most excited about?

I would say that's this work on self-control strategies, and teaching people how to control their spending better. And I really want to say, though, that it's not... Sometimes I argue with my patients about it, and she's like, "Reducing spending is not always positive," right? I mean, we all want to save money, we all want to have money. But if you go to the grocery store, and you come home and you have spent zero dollars, you failed at grocery shopping, right?

So reducing spending is not always the answer. It's more about bringing the spending in line with your goals. So really spending as much as you want to and plan to do, as opposed to... But you can underspend as well as overspend, right? So there's a fine balance.

And I'm sure you guys do this. It's important to always ask about people's goals, and not assume that it's always to reduce spending as much as possible, right? For each person, there's probably an ideal amount of spending. And if you go too low, it's also not good. If you go too high, it's not good. But aligning the behavior with the goals is the main thing that we're trying to do currently with these, teaching them about various strategies and seeing which ones are the most effective.

Fascinating. I think what you said earlier was that the most effective strategy was to tell people to think more about the stuff they're already doing.

One of the reasons that we found was the fit of the strategy with the person and the situations they usually encounter. Again, going back to things like personality, some people are just naturally conscientious. And for them, setting up a detailed budget and following this is very easy and natural and works really well. But if someone is not conscientious at all, then things like automized savings and leaving the credit card at home when you go shopping, those things might actually be more effective.

Each person might have a slightly different approach to it. And if you're just disregarding all those differences, and you're just saying, "Here's the best strategy," right, then that's not going to work as well as if you're relying on their own experience of what has worked for them in the past, and can you just do more of that.

To help them make better financial decisions, should they take some kind of personality tests to know what their personality traits are?

Yeah, I think that would help. So conscientiousness, I think, would be a very good thing to know about yourself, how conscientious you are. Another thing that's linked to finances, as I said before, is this neuroticism, right? So feeling very emotional has been linked to spending, because people use shopping as a way to soothe themselves. Shopping therapy, I think it's colloquially called.

So if you know that about yourself, right, that you're very emotional, then maybe that helps you to set up some control mechanisms about, "If I feel down, I will act in these ways as opposed to go on Amazon. I will set up my plans for the future of, 'How will I deal with emotions if they come?'"

I'm sure Ben and I could ask you questions for hours. But our final question, Johanna, which we love to ask. How do you define success in your life?

I personally think it's all about meaning. So finding something that is meaningful to you, then pursuing it. I think a classical theory of what constitutes happiness in life is always positing the hedonic pleasure with a eudemonic meaning. So the idea that, for example, children, right, you can have children, and you don't sleep, and you're not particularly happy in the sense of feeling good hedonically. It's not physically pleasurable. It's not like lying on the beach having a cocktail. That is physically pleasurable. But it is providing you with a lot of meaning in your life. So having unpleasant jobs, having unpleasant things you have to do in your life, as long as they provide you with meaning, I think that will lead me, at least, to look back on my life and feel like, "Yes, I've lived a good life, experienced meaning in my life."

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