Speaker 1: Hey, Joel, Happy Friday, buddy, see signor it's not Friday
Speaker 1: for us because we are actually recording this one ahead
Speaker 1: of signed. This is the best episode because you and
Speaker 1: I plus our lovely wives, plus our families, we're hanging
Speaker 1: out at the beach right about now that's fair. Yeah,
Speaker 1: I'm gonna do this. Whole thing is thank This is
Speaker 1: the entire episode, Espaniel, wait to stick to your guns.
Speaker 1: Now this We are so excited to bring you this episode.
Speaker 1: This is a conversation we had with Katie Milkman, who
Speaker 1: is I mean, she's basically a genius, but she wrote
Speaker 1: this book. What was the title of the book, How
Speaker 1: to You Change? How? Well, it's right, she's totally ripping
Speaker 1: off us over here at how the money We were first, Katy,
Speaker 1: that's our territory, something about the science of change, and
Speaker 1: she just addresses all of the different aspects of how
Speaker 1: it is that we can stick with the changes that
Speaker 1: we're looking to make in our lives.
Speaker 2: One of the coolest parts of this conversation, Matt. So
Speaker 2: many people are thinking about this January first, or leading
Speaker 2: up to January, which is when we originally aired the
Speaker 2: episode exactly exactly, and one of the things she says
Speaker 2: in this interview, which you're gonna stick around for, of course,
Speaker 2: because you're listing already, is that you don't have to
Speaker 2: do it wait till like some epic moment the beginning
Speaker 2: of the year. There are all these other ways you
Speaker 2: can attach to a change in your life. And guess
Speaker 2: what a big change for a lot of people coming up, Matt.
Speaker 2: There are schedules going to change as kids go back
Speaker 2: to school, stuff like that. I know it.
Speaker 1: My schedule is going to change that fall semester. Yeah.
Speaker 2: So if there's some habit that you want to stick,
Speaker 2: whether it's financially related, health related, whatever, that be attaching
Speaker 2: to this moment instead of waiting until January rolls around
Speaker 2: and hoping that that's the moment for you to make
Speaker 2: some sort of big impact on your life. I think
Speaker 2: I love this. She's kind of encouraging people to find
Speaker 2: another time in the year and another way to attach
Speaker 2: to the change you want to see.
Speaker 1: But it's still a meaningful date, right, Like I remember,
Speaker 1: I feel like we're giving away all the goods. But
Speaker 1: she was talking about like even choosing your birthday, Like
Speaker 1: folks who choose a date that means something to them
Speaker 1: that you're going to be more successful in implementing whatever
Speaker 1: change you're looking to make. So yeah, let's not give
Speaker 1: any giveaway any more goods without further ado, Let's hear
Speaker 1: from Katie Milkman. Woy no, Welcome to How to Money.
Speaker 2: I'm Joel and I Matt and today we're talking making
Speaker 2: money changes that stick with Katie Milkman.
Speaker 1: That's right, man, we are going to talk about how
Speaker 1: we can make positive money changes in twenty twenty three.
Speaker 1: And who better to have this conversation with than Katie Milkman,
Speaker 1: who is the author of How to Change the Science
Speaker 1: of Getting from where You Are to where You Want
Speaker 1: to be. Katie is a professor at the Wharton School
Speaker 1: of the University of Pennsylvania, where she explores ways that
Speaker 1: insights from economics and psychology how they can be harnessed
Speaker 1: to change consequential behaviors for good like exercise and vaccinations,
Speaker 1: but also behaviors like saving more money, which is what
Speaker 1: we or we are all about. True here on the show,
Speaker 1: She's advised organizations ranging from the White House to twenty
Speaker 1: four Hour Fitness. She writes everywhere as well her op
Speaker 1: eds up here in The Times and the economist, and
Speaker 1: we're just lucky to have her here with us today
Speaker 1: to talk about how you can make some of these
Speaker 1: money changes that stick. Katie, thank you so much for
Speaker 1: joining us today.
Speaker 3: Joel and Matt, thank you so much for having me.
Speaker 2: We are pumped to talk to you today, Katie. So
Speaker 2: much to discuss, especially since the dawn of a new year. There's, yeah,
Speaker 2: a lot of changes that we want to make, and
Speaker 2: our listeners of course are tuning in because they want
Speaker 2: to make money changes. And we're here kind of with
Speaker 2: the money advice, but you're here with hopefully the here's
Speaker 2: how you can continue to do it over a longer
Speaker 2: period of time advice. But the first question we ask
Speaker 2: anybody who comes on the show is what they like
Speaker 2: to sploire John and give us a little window into
Speaker 2: their world. And Matt and I we splorede on craft
Speaker 2: beer while we're saving and investing for the future. But
Speaker 2: what's that for you? What do you like to splore?
Speaker 1: John?
Speaker 2: And some people might think you're a little crazy for
Speaker 2: spending a lot of money in that one area.
Speaker 3: I don't know if anyone will think I'm crazy, but
Speaker 3: I like the splurge on vacations for sure. That's my
Speaker 3: that's my big one.
Speaker 1: That's not crazy at all. But I like the I
Speaker 1: like it though.
Speaker 3: Yeah, there's actually a lot of research showing that when
Speaker 3: we spend on experiences rather than just buying stuff, we
Speaker 3: get more out of it. So I try to follow
Speaker 3: the data and I take really nice vacations, very nice.
Speaker 1: So are you like a are you a quantity of
Speaker 1: vacations type of girl? Or like a quality? So do
Speaker 1: you go on like one day? Really? Okay? So so
Speaker 1: you go on fewer really nice vacations as opposed to
Speaker 1: more of them throughout the year.
Speaker 3: Yeah, Well, I would say I try to have a
Speaker 3: healthy number, but I think the splurge part is the quality.
Speaker 2: Okay, Our best vacation you've had recently, Well, I.
Speaker 3: Have a six and a half year old, so that
Speaker 3: limits the exotic travel I do these days. I used
Speaker 3: to go all over the world, but we had a
Speaker 3: really wonderful vacation to Hawaii this summer that was truly spectacular.
Speaker 1: Looking forward to maybe finally making that trip happen maybe
Speaker 1: this year. Jold. But we've got young kids too, so
Speaker 1: it's limited.
Speaker 3: Up.
Speaker 2: We're like, we're our kids are getting a little bit older,
Speaker 2: it feels like we can finally expand some of our
Speaker 2: destinations and to.
Speaker 1: Re equate myself with the world. Yeah, yes, right, Okay,
Speaker 1: So before we talk about how to go about making change, like,
Speaker 1: can we just talk about how sometimes folks feel unable
Speaker 1: to change? Like, what is it that's that's holding most
Speaker 1: folks back from believing that they just have the ability
Speaker 1: to make progress in their lives at all.
Speaker 3: Yeah, that's a great question. Well, first of all, I
Speaker 3: should say there are lots of very real external barriers
Speaker 3: to change.
Speaker 1: Right.
Speaker 3: You might feel like your budget is just too tight
Speaker 3: to make the changes you want, or you don't have
Speaker 3: the family support that you need to make the changes,
Speaker 3: or job stability. So there are very real external barriers
Speaker 3: that can block people. I don't study those. I actually
Speaker 3: study the internal barriers to change, and I think they're
Speaker 3: particularly fascinating because even when everything is lined up, which
Speaker 3: it rarely is, but even when everything is lined up
Speaker 3: in your favor outside, sometimes we're our own worst enemies.
Speaker 3: And the fascinating thing about the internal barriers to change
Speaker 3: is there's no one barrier. There's a laundry list, and
Speaker 3: some of us have multiple things we're fighting against. Some
Speaker 3: of us are just struggling with one. Diagnosing is really
Speaker 3: important to using the right solution. So barriers that are
Speaker 3: common include procrastination, a lack of confidence forgetting, which I
Speaker 3: think we overlook often. But if it doesn't get to
Speaker 3: the top of your priority list, if it's not top
Speaker 3: of mind, we often don't take the actions that are important.
Speaker 3: Habits can get in the way. We tend to be
Speaker 3: creatures of habit. We tend to take the path of
Speaker 3: least resistance, which is following those habits, and that can
Speaker 3: be a real barrier to change. So there are many
Speaker 3: many challenges, and depending on which one a given person
Speaker 3: is facing when they're trying to make a change, the
Speaker 3: solution that will be most well suited to help them
Speaker 3: is different.
Speaker 1: Yeah.
Speaker 2: Well, I will say forgetting used to be like at
Speaker 2: the top of the list for reasons I didn't get
Speaker 2: things done. And I swear Google Calendar has been a
Speaker 2: game changer for me in that regard, Like I get
Speaker 2: a lot more stuff done just because I'm better at
Speaker 2: putting stuff on the calendar to get it done.
Speaker 1: But man, nothing.
Speaker 2: Worked for me before that, and so I was just
Speaker 2: like a forgetful mess and Nikoff's nearly as much as
Speaker 2: I wanted to see that.
Speaker 1: It's definitely one thing.
Speaker 2: You're right that we don't put a give enough credit
Speaker 2: just so we're forgetting things because we're not putting them
Speaker 2: in front of ourselves. But what are the difference differences, Katie,
Speaker 2: between resolutions that we make and then the potential for
Speaker 2: lasting change, Because I don't know, something like this is
Speaker 2: a staff that gets quoted all the time, but there's
Speaker 2: something like eighty percent of people who don't actually follow
Speaker 2: through on the resolutions they make after a month or two.
Speaker 2: So we're in this period right now, with this fresh
Speaker 2: start period that you talk about, where a lot of
Speaker 2: people are ready willing and they're trying to move in
Speaker 2: the right direction when it comes to making change. But yeah,
Speaker 2: how do we make sure that it sticks around and
Speaker 2: isn't just a failed attempt a few weeks from now.
Speaker 3: Yeah, it's a great question. And as you know, this
Speaker 3: is sort of a magic moment. I've done research on
Speaker 3: what's called the fresh start effect phenomenon where at the
Speaker 3: start of new chapters in our lives, moments that feel
Speaker 3: like new beginnings, So the start of a new year
Speaker 3: being the best known, but there are many others actually
Speaker 3: as well. We pursue goals with extra vigor. But the
Speaker 3: funny thing about fresh starts is they're short lived, right,
Speaker 3: So they give you that little boost of motivation to
Speaker 3: begin something new, but a couple weeks pass and that's gone,
Speaker 3: and now you need something to carry you forward. And
Speaker 3: that's where a lot of folks fall flat. And I
Speaker 3: actually think one of the biggest issues is that people
Speaker 3: aren't strategic about how am I going to achieve this goal.
Speaker 3: They just say, oh, you know, I'm going to go
Speaker 3: to the gym this year, and I'll go now because
Speaker 3: I feel motivated, and then three weeks later they don't
Speaker 3: feel motivated anymore and everything falls apart. But an alternative
Speaker 3: way you could pursue a goal, and what research shows
Speaker 3: is better, is actually by following a bunch of best practices.
Speaker 3: So ideally, when you want to pursue a goal, first
Speaker 3: of all, you define a plan. And the plan isn't
Speaker 3: just I'm going to go to the gym once, right.
Speaker 3: The plan is I'd like to do this regularly for
Speaker 3: some hopefully very long term period of time. If it's
Speaker 3: about getting in shape, if it's about cutting back, you're
Speaker 3: spending whatever that is. Maybe you want to learn a
Speaker 3: new language this year. You don't want to just say
Speaker 3: I'm going to learn Spanish. You actually want to sit
Speaker 3: down and say, okay, how am I going to do it? Well,
Speaker 3: maybe those details look like saying it's going to be
Speaker 3: four hours a week that I spend on dual Lingo,
Speaker 3: and it's going to be Tuesday, Wednesday, Thursday, Friday at
Speaker 3: five pm right after work when I spend an hour
Speaker 3: on the app practicing, and I'm going to do that
Speaker 3: every week consistently. Now you're actually starting to see the
Speaker 3: groundwork for the kind of plan that might carry forward.
Speaker 3: Now that might sound boring, but actually breaking down a big,
Speaker 3: vague goal into bite sized pieces, whether it has to
Speaker 3: do with savings, volunteering exercise is one of the most
Speaker 3: important things you can do. And then figuring out when
Speaker 3: will I do it, where will I do it, how
Speaker 3: will I get it done? There's more to the magic
Speaker 3: as well. You have to make sure you won't forget
Speaker 3: so you can put it on your Google calendar. Ideally,
Speaker 3: you're thinking about accountability, so can you create consequences so
Speaker 3: that if you fail to follow through, it isn't just
Speaker 3: a shoulder shrug. But you're really gonna feel crummy about that.
Speaker 3: The more the consequence, the more likely it is that
Speaker 3: you won't procrastinate or give up on yourself. So you
Speaker 3: can actually put money on the line, for instance, that
Speaker 3: you agree you'll forfeit if you don't achieve a given goal.
Speaker 3: You can choose referees. There are some websites like stick
Speaker 3: dot com and bminder dot com which I am, i
Speaker 3: should say, unaffiliated with, just an admirer of their product,
Speaker 3: that allow you to do things like that. And research
Speaker 3: shows that when you use these so called commitment devices,
Speaker 3: basically penalizing yourself for future failures to fall through on
Speaker 3: your you dramatically increase the likelihood of success. Because nobody's
Speaker 3: nobody likes a fine. So those are a bunch of
Speaker 3: strategies you can take, and there's more we could get into,
Speaker 3: depending on what other obstacles you foresee, like making sure
Speaker 3: you enjoy the way you're pursuing the goal and so on.
Speaker 3: But that's a pretty good groundwork.
Speaker 1: Yeah, absolutely, Like you kind of just you give just
Speaker 1: like a little sampler platter of a lot of different
Speaker 1: strategies that you talk about in your book. But essentially,
Speaker 1: I mean, all of these things can lead an individual
Speaker 1: to create processes that work for them, and which makes
Speaker 1: me think of like my favorite new quote, which is
Speaker 1: process saves us from the poverty of our intentions, which
Speaker 1: I heard recently, and I was just like, man, that
Speaker 1: is so stinking good. But that's what all of this does.
Speaker 1: It's about creating this plan.
Speaker 2: Because we've all got these idealized intentions at this point
Speaker 2: in the year where it's like, of course I'm going
Speaker 2: to do this, like everyone has goals. I just turned
Speaker 2: over a new leaf. But if you don't have the
Speaker 2: processes to back that up, then inevitably it's going to
Speaker 2: fall flat for most folks, right.
Speaker 3: That's exactly right, And unfortunately, too often we aren't focused
Speaker 3: on those processes. We're just focused on that short burst
Speaker 3: of motivation and we imagine and it will carry us
Speaker 3: forward and we'll have no problems. But once you start
Speaker 3: recognizing no, there are barriers to success and to maintenance,
Speaker 3: and starting to set yourself up so that you can
Speaker 3: overcome them, you start seeing better results.
Speaker 1: And of course everyone resolutions get made at the beginning
Speaker 1: of the year, and so I feel like that's when
Speaker 1: that's a little more natural for a lot of folks.
Speaker 1: But in your book you also talk about how there
Speaker 1: are different life events that can occur that folks can
Speaker 1: maybe take advantage of. Can you talk through maybe some
Speaker 1: different examples of maybe even disruptive life events that folks
Speaker 1: are able to use to their advantage to basically put
Speaker 1: them on this path towards a new fresh start for them. Yeah.
Speaker 3: Absolutely, Well. One of the really interesting things about the
Speaker 3: way we think about time and the way we think
Speaker 3: about our lives is that we don't perceive it linearly.
Speaker 3: We actually think about ourselves like we're characters in a book,
Speaker 3: and our life is divided into chapters, and there are
Speaker 3: big chapters, and there are short chapters. There's even you know,
Speaker 3: subsections of chapters. Every time something happens that feels like
Speaker 3: a book ends a chapter or a section of our life,
Speaker 3: we feel this sense of discontinuity. So think about, you know,
Speaker 3: moving to a new city, and you could think about,
Speaker 3: you know, the years you maybe were in college or
Speaker 3: working at a certain employer. Those are sort of chapters
Speaker 3: in your life. Or a year is also a major
Speaker 3: chapter marker for many people in their lives, which is
Speaker 3: part of why new year's feels like a fresh start.
Speaker 3: And whenever we cross one of those boundaries to close
Speaker 3: one chapter and open another, we have a sense that
Speaker 3: we are further apart from our past self. Whatever you know,
Speaker 3: I didn't get done last year. Last year, I meant
Speaker 3: to get in shape, or I meant to get my
Speaker 3: portfolio under control and diversify better. Whatever it was, I
Speaker 3: didn't do it yet. But that was the old me,
Speaker 3: and this is the new me, and the new me's
Speaker 3: going to be different. So that discontinuity can be really
Speaker 3: predictive for anything where you haven't already achieved the goal
Speaker 3: and maybe you were feeling a little sad about it,
Speaker 3: and now you can say, well, you know, that was
Speaker 3: the past and this is going to be different. It
Speaker 3: also tends to lead us a step back and think
Speaker 3: big picture about our lives. So we have shown that
Speaker 3: this happens not just with things that you might expect
Speaker 3: to be momentous, like a real physical change. You have
Speaker 3: a new job or a new house, or a new
Speaker 3: community or a new role of some kind. Right, there's
Speaker 3: actually really wonderful past research by Wendy Wood at the
Speaker 3: University of Southern California looking at these life disruptions and
Speaker 3: how they can break up our habits. But we've shown
Speaker 3: that even trivial events on the calendar that truly do
Speaker 3: not matter, and they create the same psychological and choice
Speaker 3: effects where we pursue goals with greater vigor. So the
Speaker 3: start of a new week is a minor fresh start.
Speaker 3: We already talked about New Year's that's the big one
Speaker 3: we're all familiar with, but the start of a new month,
Speaker 3: sometimes the celebration of spring, especially with drawn to your attention,
Speaker 3: the start of spring feels like a new beginning, the
Speaker 3: celebration of a birthday, and there are many minor holidays
Speaker 3: that feel like fresh starts to people, so think more
Speaker 3: Labor Day and less Valentine's Day. And different religions have
Speaker 3: different holidays that signal a fresh start for people who
Speaker 3: practice in that religion. So all these fresh start dates,
Speaker 3: when we sort of look at data, have this incredible
Speaker 3: ability to increase just naturally how much people are doing
Speaker 3: things like searching for the term diet on Google, or
Speaker 3: visiting the gym, or setting goals on popular goal setting
Speaker 3: websites about everything from their health to their finances to
Speaker 3: their education. And we have also done experiments where we
Speaker 3: show that by highlighting fresh start dates that people might
Speaker 3: not otherwise be attending to, we can get people to
Speaker 3: pursue their goals more aggressively. So my favorite experiment involved
Speaker 3: trying to get more people to sign up for a
Speaker 3: retirement savings account with their employer that was text beneficial.
Speaker 3: It was a four oh three B at a four
Speaker 3: oh one K, which is probably the most familiar, but
Speaker 3: this was with universe at that I do, so I
Speaker 3: thought I could throw out some of that that fun stuff.
Speaker 3: So we partnered with four universities that had four or
Speaker 3: three B plans and we sent out mailings to employees
Speaker 3: who were not yet saving at the sort of match threshold,
Speaker 3: so they weren't taking advantage of all of their employeer
Speaker 3: benefits or weren't saving at all. In fact, most weren't
Speaker 3: saving at all, and we invited them to start saving,
Speaker 3: either right away or in the future, because we know
Speaker 3: a lot of people would want to put off that
Speaker 3: decision to start saving from past research. And what we
Speaker 3: varied is whether or not the date in the future
Speaker 3: when we invited people to begin saving, we said, we'll
Speaker 3: take care of it. Just mail back this postcard if
Speaker 3: that date in the future aligned with a fresh start
Speaker 3: and was described in that way, or if it aligned
Speaker 3: with a fresh start but wasn't described so to be
Speaker 3: really specific, imagine your birthday's coming up in two months
Speaker 3: and you're in this experiment. We would flip a coin
Speaker 3: and the coin toss would determine whether you got a
Speaker 3: version of the mailing that invited you to start saving
Speaker 3: after your upcoming birthday or in two months. Now, they're
Speaker 3: literally identical, but in one case we are highlighting an
Speaker 3: upcoming fresh start as the opportunity. So we tried this
Speaker 3: with birthdays, we tried it with a start of spring,
Speaker 3: and what we see is that inviting people to begin
Speaker 3: saving after a fresh start date and like literally calling
Speaker 3: it out as such leads to twenty to thirty percent
Speaker 3: more savings and the following eight months than a literally
Speaker 3: identical invitation to save that doesn't name the fresh start date.
Speaker 1: That's a significant increase.
Speaker 3: Yeah, it's pretty exciting.
Speaker 2: Humans are odd beings, right that we respond differently that,
Speaker 2: But it's cool to see that that's the case, and
Speaker 2: then you can tailor your marketing accordingly to help people
Speaker 2: make better decisions. And I'm curious to you write about Katie,
Speaker 2: you performed a lot of research that shows that we
Speaker 2: underestimate the discipline needed to make change in our lives,
Speaker 2: but that there are ways that we can make it
Speaker 2: more fun. And so, yeah, can you talk about that,
Speaker 2: because sometimes there are If we can make it more fun,
Speaker 2: we're more likely to stick to it.
Speaker 3: Yeah, this is a huge insight and in I think
Speaker 3: the best research on this comes from islet Fishbucket the
Speaker 3: University of Chicago and Caitlin Woollie at Cornell, who showed
Speaker 3: most of us, when we're left to our own devices,
Speaker 3: think the best way to pursue our goals is just
Speaker 3: to look for the most direct path to success and
Speaker 3: follow it. So let's take the example of getting in shape.
Speaker 3: What's the maximumly efficient workout machine that will create the
Speaker 3: most pain and sort of benefits per minute. You're like,
Speaker 3: I'm going to get on that if I want to
Speaker 3: get in shape.
Speaker 1: Yeah, it means I'm going to start running right this minute. Yeah, exactly, Yes,
Speaker 1: regardless of the.
Speaker 3: Weather, failing your arms, carrying weights, you know, to all
Speaker 3: the things that are hard. A small minority of people, though,
Speaker 3: pursue their goals a different way, which is that they
Speaker 3: actually look for a fun way to achieve that goal
Speaker 3: of say, getting in shape, so that that person might
Speaker 3: go to zoomba classes with a friend instead of getting
Speaker 3: on the punishing staremaster. And what's really interesting is that
Speaker 3: the folks who into it they should find a fun
Speaker 3: way to pursue their goals, they're actually the ones that
Speaker 3: have it right. And randomize control trials where people are
Speaker 3: either encouraged to pursue their goals in ways that are
Speaker 3: fun or in ways that are maximumly efficient. The people
Speaker 3: encouraged to pursue goals in ways that are fun are
Speaker 3: the ones who actually end up sticking to them longer.
Speaker 3: And in most cases, it's not about how much progress
Speaker 3: you make per session, it's about sticking to it that
Speaker 3: leads to the to real success. So that persistence difference
Speaker 3: between pursuing goals in a way that's fun and ways
Speaker 3: that are you know, slightly more efficient, we miss, you know,
Speaker 3: we don't appreciate it, and we make a mistake there.
Speaker 3: So I've done some research on different ways you can
Speaker 3: make it fun to pursue your goals, because there are
Speaker 3: strategies that systematically make it more enjoyable. One is, whenever
Speaker 3: there's something that would feel like a chore otherwise, you
Speaker 3: can actually try to link it with a temptation. So
Speaker 3: only let yourself, say, binge, watch your favorite TV show
Speaker 3: when you are working out at the gym, or only
Speaker 3: let yourself pick up your favorite beverage from a coffee
Speaker 3: shop when you're heading to the library to hit the books.
Speaker 3: If you're a student, I talk to my students at
Speaker 3: Warton about that one a lot. Or you know, only
Speaker 3: let yourself listen your favorite podcast while you're doing household chores.
Speaker 3: And by combining those two things, something that's a temptation
Speaker 3: and source of pleasure with something that might otherwise not
Speaker 3: be super fun that you might put off and dread,
Speaker 3: you can transform the experience so that you'll get your
Speaker 3: chores done and keep at it. And there are other
Speaker 3: strategies too, right, selecting different types of activities as a
Speaker 3: way to pursue the same goal and also making it
Speaker 3: social can be really effective when you pursue goals with
Speaker 3: someone who you enjoy. That's another way to change the experience.
Speaker 3: But the key insight is when you're thinking about a goal,
Speaker 3: when you're making a plan. Something we already talked about
Speaker 3: a little bit earlier, how important it is to be strategic,
Speaker 3: think about pursuing that goal and planning to pursue that
Speaker 3: goal in a way you will enjoy, because ultimately that
Speaker 3: is a huge predictor of success. You've got to stick
Speaker 3: to it. And if you don't enjoy it, if it's
Speaker 3: no fun while you're pursuing the goal, you're going to quit.
Speaker 1: That's right. Yeah, that's where you can use that instant
Speaker 1: gratification which normally works against us, but then you're harnessing it.
Speaker 1: You're using that as like when at your back. But
Speaker 1: so you're talking about temptation bundling o case. Yes, yeah, yeah,
Speaker 1: I would love to hear, how like, how are maybe
Speaker 1: some specific ways that folks can apply temptation bundling to
Speaker 1: their financial habits to you know, whether it is for
Speaker 1: them to save more, whether it's them spending less at
Speaker 1: the grocery store. I'd be curious to hear if you
Speaker 1: have any suggestions for ways that folks can temptation bundle
Speaker 1: to get ahead with their money.
Speaker 3: Yeah. I think that's a great question, and I do
Speaker 3: think there are ways that you can use temptation bundling
Speaker 3: when it comes to financial habits. You know, one is
Speaker 3: just thinking about budgeting, which is not a task that
Speaker 3: everybody relishes and looks forward to, and thinking about our
Speaker 3: There are there things you can bundle with budgeting that
Speaker 3: make it more pleasant, like maybe a favorite bottle of
Speaker 3: wine you only open once a month when you go
Speaker 3: through your budget, or a person you really enjoy spending
Speaker 3: time with and you both get together when it's sort
Speaker 3: of time to make budgets and you get to chit
Speaker 3: chat and laugh a little bit while you're going through it.
Speaker 3: I will admit that I was influenced very much on
Speaker 3: that one by my dad growing up, who used to
Speaker 3: do as taxes with an accountant who become came a
Speaker 3: very dear friend, and they made it a source of
Speaker 3: fun every year. It was basically a big party. They
Speaker 3: stayed up late, they drank a lot of great wine,
Speaker 3: they had a really good meal when it was tax time.
Speaker 3: And so there's lots of ways I think you can
Speaker 3: make some of the things that feel like chores but
Speaker 3: are really important to healthy financial decision making more pleasant.
Speaker 3: A lot of them are social, choosing an advisor who
Speaker 3: you enjoy spending time with, maybe going out for a
Speaker 3: special meal at a restaurant, you reserve for only spending
Speaker 3: time with them. So those are a few ideas, but
Speaker 3: creative listeners may come up with others, and I'm always
Speaker 3: on the market for other temptation bundles.
Speaker 1: Yeah, no, I like it.
Speaker 2: I literally had a coworker who she would go to
Speaker 2: the gym, get on the StairMaster, and she would watch
Speaker 2: her favorite shows. And it was I remember, like, I
Speaker 2: think she would have given up her gym commitment if
Speaker 2: it hadn't been for the fact that that she so
Speaker 2: deeply associated watching her favorite shows with working out that
Speaker 2: it became the thing like, well, I'm going to go
Speaker 2: watch my show, but inevitably she was getting exercise at
Speaker 2: the same time. So I think that's brilliant and it's
Speaker 2: one of those things that not many people think about. Well,
Speaker 2: we've got a few more questions we want to get
Speaker 2: to with you. We want to talk about overcoming procrastination
Speaker 2: and laziness. We'll get to some questions for Katie on
Speaker 2: those fronts right after this.
Speaker 1: All right, we are back from the break talking with
Speaker 1: Katie Milkman about these different money changes that you can make,
Speaker 1: and not only that you can make, but that you
Speaker 1: can stick with. Katie in your book you talk about
Speaker 1: how I mean basically everybody procrastinates, right, everybody from folks
Speaker 1: like us all the way down to your students who
Speaker 1: you teach. But there are constraints or commitment devices you
Speaker 1: mentioned this just before the break, that we can use.
Speaker 1: So can you explain how those work and maybe give
Speaker 1: some examples.
Speaker 3: Yeah. Absolutely, Commitment devices are fascinating because we're actually quite
Speaker 3: used to their sort of sister tool, which is being
Speaker 3: managed by other people. Right, if you have a boss
Speaker 3: or live in a country that has a functioning government,
Speaker 3: then you are familiar with the fact that sometimes you
Speaker 3: are incentivized to behave in ways that are good for
Speaker 3: your organization or your community. Right, So, think about speeding tickets.
Speaker 3: You are tempted to speed, but you get slapped with
Speaker 3: a fine. If you give into that temptation, or think
Speaker 3: about finishing a project at work, you probably are given
Speaker 3: a deadline by your boss. I know there will be
Speaker 3: something real common ssequence if you don't actually hit that deadline. Well,
Speaker 3: that's when someone else external to you imposes some cost
Speaker 3: for say procrastination or giving into temptation. But it turns
Speaker 3: out you can actually impose penalties on yourself in the
Speaker 3: same way, and that's when it's called a commitment device.
Speaker 3: And it sounds weird because the idea of imposing penalties
Speaker 3: on yourself for not achieving your goals is kind of counterintuitive,
Speaker 3: like why would I find myself or punish myself or
Speaker 3: set deadlines with consequences for myself?
Speaker 1: But it was a little masochistic, right does?
Speaker 3: It really does? But the evidence shows that when you
Speaker 3: create those kinds of deadlines and penalties for yourself, it
Speaker 3: can be incredibly effective. This is a podcast about finance,
Speaker 3: so uh or financial decision making, so it's a good
Speaker 3: place to talk about one of my favorite studies on
Speaker 3: the power of a commitment device, which actually was a
Speaker 3: savings study and it involved giving people access to a
Speaker 3: very unusual kind of savings account. The study was done
Speaker 3: in the Philippines, and it was done to give people
Speaker 3: access to an account where they actually wouldn't be able
Speaker 3: to take their money out unless they reached a predetermined
Speaker 3: date or a predetermined savings goal, and it had no
Speaker 3: interest rate benefits over a standard account that was fully liquid.
Speaker 3: It's sort of crazy to think people would actually put
Speaker 3: money into this view of sort of a strict economic.
Speaker 1: Perspective somebody whom or liberty, Yeah, like.
Speaker 3: Why would you ever do that unless there's like a
Speaker 3: higher interest rate, Why would you ever want to put
Speaker 3: your money into this account? That's it's just strictly worse.
Speaker 3: You can't access your cash. But interestingly, and a randomized
Speaker 3: controled trial, about thirty percent of those offered this kind
Speaker 3: of account chose to put money in it, some of
Speaker 3: their money at least into that account, So that's sort
Speaker 3: of shocking. And then the most astounding fact is that
Speaker 3: two groups randomly selected were compared to one another, one
Speaker 3: of which had access to this account. They were told, hey,
Speaker 3: you can put some money in it if you want,
Speaker 3: and remember thirty percent did, seventy percent didn't. So we
Speaker 3: compare that entire group, everybody who had access to it,
Speaker 3: whether they put money in or didn't, to a second group,
Speaker 3: which is the control group that wasn't given access to
Speaker 3: this account. And the question is which group saves more,
Speaker 3: the group that can put money in an illiquid account
Speaker 3: or the group that can't. And what's fascinating is that
Speaker 3: having access to these accounts where you don't get any
Speaker 3: interest rate benefit, but your money's locked up until you've
Speaker 3: reached a predetermined savings goal or hit a date that
Speaker 3: you selected. Having access to it leads to eighty percent
Speaker 3: more savings yr over year. Wow, and again, only thirty
Speaker 3: percent of people are even putting money in these accounts.
Speaker 3: So just think, you know, imagine if one hundred percent
Speaker 3: were how high the savings benefits would be for the whole.
Speaker 1: Eight hundred additional dollar that was the average for the
Speaker 1: entire group.
Speaker 3: That's right, exactly, So ok, eighty percent increase in savings
Speaker 3: for the entire population just offered the account even though
Speaker 3: only thirty percent took it up. It's an incredible result.
Speaker 3: So it highlights that when we take steps to constrain
Speaker 3: ourselves to prevent ourselves from giving into temptation, it's really beneficial.
Speaker 3: Another great studies showed that letting smokers put money into
Speaker 3: an account where they would have to forfeit all that cash.
Speaker 3: So this is a different way of imposing a commitment.
Speaker 3: Here we're finding people instead of constraining access, but smokers
Speaker 3: who have a way to put money on the line,
Speaker 3: the loft of forfeit if they don't quit smoking six
Speaker 3: months later, they quit at a thirty percent higher rate
Speaker 3: than otherwise. Identical smokers who just get standards smoking cessation tools.
Speaker 3: So if we can find ourselves or constrain ourselves, that's
Speaker 3: a way we can sort of bully ourselves into achieving
Speaker 3: goals at a higher rate. And again we're used to
Speaker 3: others doing this for us. Our manager who sets a
Speaker 3: deadline and says there's a penalty if you don't turn
Speaker 3: this in on time, or our government that says, you know,
Speaker 3: I'll find you for these behaviors that I don't want
Speaker 3: to see. But if you do it for yourself, you
Speaker 3: can reap all the benefits.
Speaker 1: And I just, uh, I think this has everything to
Speaker 1: do with why I've been so successful at going to
Speaker 1: the gym three times a week, Katie, is because I
Speaker 1: pay a lot of money at the beginning of the
Speaker 1: month it automatically gets deducted. Well.
Speaker 2: It was also a fresh start thing, Matt, because you
Speaker 2: and I started working out when we moved. I moved
Speaker 2: over this summer, Katie, and like we thought of it
Speaker 2: kind of and we didn't connect the terminology because we
Speaker 2: hadn't read your book at that point, but you were
Speaker 2: connecting it to this like ability start effect to start
Speaker 2: some fresh things. And so the move basically combined with
Speaker 2: that more money, I'm never going to stop.
Speaker 1: Working, right because I got I got the double way.
Speaker 1: I mean, yeah, that's great.
Speaker 3: And it is funny that by reducing the marginal cost
Speaker 3: of a gym is it to zero, you're essentially pre committing.
Speaker 3: There's also a bit of fun psychology. You know, it
Speaker 3: is a sunk cost, right Once you've spent it, you
Speaker 3: can't recover it. So in a sense, you started sort
Speaker 3: of be making a decision that ignores that about whether
Speaker 3: you're going to go to the gym this afternoon or not.
Speaker 3: But that's not the way our mind works. We tend
Speaker 3: to feel guilty about expenses even if there's sunk costs,
Speaker 3: if we're not sort of taking full advantage of them.
Speaker 3: So there's there's a behavioral bias you're leveraging to get
Speaker 3: yourself to the gym there too.
Speaker 1: Yeah.
Speaker 2: Yeah, well, so for so many elements of our financial lives,
Speaker 2: we're not just trying to incentivize something positive. We're trying
Speaker 2: to discourage something that's negative, right, like reckless spending. Yeah,
Speaker 2: is one of those things. And so yeah, some studies
Speaker 2: have shown that using cash is more painful for people,
Speaker 2: which helps us it helps people spend less overall, And
Speaker 2: although I've heard anecdotal evidence from younger folks that that's
Speaker 2: not the case, that they actually think of cash as
Speaker 2: of it's burning a hole in their pocket literally, and
Speaker 2: they don't feel the pain associated with it. And so
Speaker 2: maybe some of these older studies need to be updated.
Speaker 2: I'd be curious to see if that still holds. But
Speaker 2: how else can we create pain points to help us
Speaker 2: curb some of those negative habits, some of those ways
Speaker 2: maybe in the realm of money that we're using it
Speaker 2: kind of like in ways that we don't don't want
Speaker 2: to be using it anymore, ways that are really working
Speaker 2: where we're working against ourselves.
Speaker 3: Yeah, well, accountability to other people can be an important
Speaker 3: way of sort of punishing yourself if you want to
Speaker 3: avoid a bad behavior. So we talked a little bit
Speaker 3: about accounts that are a liquid so you can you know,
Speaker 3: you're literally not able to touch it. That's one way
Speaker 3: of penaltalizing yourself. You can literally find yourself. But that's
Speaker 3: sort of counterproductive. You're trying to save more money and
Speaker 3: then you find yourself for not saving enough, right, you
Speaker 3: could see how that becomes a vicious cycle. But Another
Speaker 3: tool is just giving visibility to someone so that you'll
Speaker 3: be ashamed if they find out that you don't achieve
Speaker 3: a goal. That's another kind of penalty. And so having
Speaker 3: accountability to someone else, giving them visibility into a financial
Speaker 3: goal and whether or not you're achieving it, that could
Speaker 3: be a you know, still somewhat painful, but less painful
Speaker 3: way that you could achieve success.
Speaker 2: Kind of like announcing on social media, Hey, I'm going
Speaker 2: to run a marathon at the in November or something
Speaker 2: that like, if you don't actually make it happen, you've
Speaker 2: kind of like set yourself up. All your peer group
Speaker 2: is expecting you to accomplish this, and there is some
Speaker 2: sort of a level of public failure if you don't
Speaker 2: hit that goal. So yeah, I could see that being
Speaker 2: working in your favor too, even as like a negative
Speaker 2: kind of motivation.
Speaker 3: Yeah. Absolutely, Although I would say one important thing about
Speaker 3: any sort of public accountability is generally it's more effective
Speaker 3: to define small sub goals that you want to achieve
Speaker 3: and give some visibility into that rather than a big
Speaker 3: end goal. So you talked about, oh, I'm going to
Speaker 3: run a marathon next year, you know, in the fall,
Speaker 3: that's a really big end goal. The ideal would be
Speaker 3: to say, you know, I'm going to run a marathon
Speaker 3: next fall, and I'm starting with a five k next month,
Speaker 3: and then you know, the month after that, I'll do
Speaker 3: a half marathon and so and so. You sort of
Speaker 3: work your way up and there's visibility at each point
Speaker 3: along the way. When it's a big goal that's distal,
Speaker 3: then even with that penalty and shame, you may not
Speaker 3: take the steps in between. You may sort of put
Speaker 3: it off and put it off, and then it's too
Speaker 3: late to actually train for the marria by the time
Speaker 3: you realize how embarrassed you'll be. So smaller, bite sized
Speaker 3: goals with visibility to others and accountability are a better approach.
Speaker 1: Yeah, you mean you talk about putting that plan together
Speaker 1: and how that's probably one of the most most important
Speaker 1: things you can do, because literally, like once you start
Speaker 1: planning things out, you start tackling the problem. It's not
Speaker 1: like it's just this device that sits on the shelf
Speaker 1: until it's needed. Like literally the process of planning starts.
Speaker 1: You start to implement the very next steps that you
Speaker 1: need to take. It kind of like gets you started
Speaker 1: on that you're setting things in motion at that point. Exactly, yeah, exactly,
Speaker 1: you got it. Okay, Automation when it comes to fighting laziness,
Speaker 1: I think that that's a device that can be used.
Speaker 1: How important do you think automation is when it comes
Speaker 1: to creating lasting change and specifically fighting against laziness.
Speaker 3: Automation is such an amazing tool for changing for good,
Speaker 3: particularly in the domain of financial decision making. If we
Speaker 3: could have automation in every part of our lives, I
Speaker 3: think we would have far fewer problems. If only I
Speaker 3: could just automate rejecting dessert for the next month. Can
Speaker 3: you imagine? Or I can automate today. I'm just gonna
Speaker 3: put it on autopilot that I will show up at
Speaker 3: the gym every day at five pm. The amazing thing
Speaker 3: about automation and your finances is that you really can,
Speaker 3: sort of, in the words of no belaure Richard Taylor,
Speaker 3: set it and forget it. You can say, I'm gonna
Speaker 3: take this amount of money. I'm going to auto deduct
Speaker 3: it from my paid check every month when it arrives
Speaker 3: and send it straight to a retirement savings account, or
Speaker 3: straight to an emergency savings account, or whatever it is.
Speaker 3: I need to save for you do it. Once it
Speaker 3: happens automatically, you literally don't have to think about it again,
Speaker 3: and then that money isn't sitting there for you to spend.
Speaker 3: It's a really incredible tool and there have been a
Speaker 3: lot of studies showing just how useful these kinds of
Speaker 3: auto deduct settings are for increasing savings. Frankly, I do
Speaker 3: a lot of work. I do work on savings. I
Speaker 3: also do work on health and education, and it is
Speaker 3: frustrating that we cannot automate, you know, study habits, healthy
Speaker 3: eating and so on everyday behavior.
Speaker 1: Yeah, we're still takes some sort of willpower.
Speaker 3: That's right, And of course you can't automate resisting the
Speaker 3: temptation every day to splurge spend, but it sure is
Speaker 3: helpful that some of that money has disappeared in your
Speaker 3: account balance is limited in terms of the splurge spending
Speaker 3: because you automated those deductions and sending money to savings.
Speaker 1: Yeah.
Speaker 2: I mean, when you look at the results of automatic
Speaker 2: opt ins when it comes to like four to one
Speaker 2: K contributions, the amount of people that contribute to their
Speaker 2: four to one K when the default position is that
Speaker 2: they are like it's so much higher, incredible when it's
Speaker 2: left up to the individual choice.
Speaker 3: Right. Yeah, So this this is a classic study that
Speaker 3: was done in I guess two thousand and three by
Speaker 3: Bridget Madrian, and what she and her collaborator showed is
Speaker 3: that when this single employer switched from having new employees
Speaker 3: fill out paperwork where they had to check a box
Speaker 3: to opt in to be a part of the employers
Speaker 3: for a one K to having new employees check a
Speaker 3: box to opt out, they saw about a thirty percentage
Speaker 3: point increase overnight in how many people were saving for retirement.
Speaker 3: It's just extraordinary, and this has now been replicated many times.
Speaker 3: The effects aren't always necessarily thirty percentage point increases, but
Speaker 3: they're large increases and it's really powerful, and lots of
Speaker 3: companies now have smart defaults. And in fact, I think
Speaker 3: the two thousand and six US Pension Protection Act legislated
Speaker 3: that it's tax advantaged for your employer to automatically enroll
Speaker 3: you in their savings plan.
Speaker 1: That's when good process design or I don't know what
Speaker 1: they call it. All the software engineers who designed the
Speaker 1: different software that when you're onboarding employees, but just some
Speaker 1: of the right tweaks to the system can make a
Speaker 1: significant impact on the ability for folks to save for
Speaker 1: futures different But Bi, Katie, We've got a few more
Speaker 1: questions for you that we're going to get to here
Speaker 1: after the break, including we want to talk about the
Speaker 1: impact of the people we hang out with. We're going
Speaker 1: to talk about peer pressure and more right after this.
Speaker 2: How we're back from break, still talking with Katie Milkman.
Speaker 2: We want to make money changes in twenty twenty three,
Speaker 2: most of us at least unless you're just already crushing it,
Speaker 2: but most of us want to make money changes this year.
Speaker 2: We want to get better with our finances. But we
Speaker 2: don't want to just make empty gestures in this new
Speaker 2: year and then find out that we fall flat on
Speaker 2: our face weeks from now. And so Katie, we're glad
Speaker 2: to have you here talking about how to make money
Speaker 2: changes that are going to stick around stand the test
Speaker 2: of time. At creating, initiating and incorporating some of these
Speaker 2: tactics to do that. You give an example in your
Speaker 2: book about a way that high school students were able
Speaker 2: to boost their performance. Can you share that story? I
Speaker 2: think I found that one fascinating.
Speaker 3: Yeah, absolutely so. One of the most interesting studies I've
Speaker 3: gotten to be involved in was a study led by
Speaker 3: Lauren Es Chris Winkler at the Kellegg School at Northwestern
Speaker 3: University showing that when students are invited to advise their
Speaker 3: peers on how to study more effectively, the invitation to
Speaker 3: give that advice to others and the act of doing
Speaker 3: so improves advisor's own grades. So let me just say
Speaker 3: that again, it's not the students getting advice who are
Speaker 3: getting better grades. It's the students giving advice who are
Speaker 3: getting better grades, which I think is just absolutely fascinating.
Speaker 3: And the psychology there is that when you're invited to
Speaker 3: coach someone else on how to achieve a goal that
Speaker 3: you also are trying to pursue, like boosting your grades
Speaker 3: in school, one, it improves your confidence. If somebody's asking
Speaker 3: me for advice, I must not be such a dofist.
Speaker 3: There must be something I could say that's useful here, right, Like, Okay,
Speaker 3: I guess I'm not going to be a straight SA
Speaker 3: student forever. I've got something to offer.
Speaker 1: Say, somehow you've figured out out of money.
Speaker 3: You guys are making such such great decisions now that
Speaker 3: you're giving.
Speaker 2: Advice, I know you have a window in our soul
Speaker 2: now no.
Speaker 3: So that there's magic there. And then the second ingredient
Speaker 3: is you have to introspect now deeply about what might
Speaker 3: work for someone else. You're going to think about things
Speaker 3: that would work for you too, of course, because that's
Speaker 3: what you have access to. So you're going to think
Speaker 3: deeply because now I have to tell somebody something, so
Speaker 3: I've got to come up with some answers, and then
Speaker 3: then you're going to say it out loud to another human.
Speaker 3: And when you do that, there's something called the saying
Speaker 3: is believing effect, where you know, I wouldn't be giving
Speaker 3: this advice if I didn't think it was good advice,
Speaker 3: and it'd be totally a bit critical if I didn't
Speaker 3: take it. So all those things combined are a really
Speaker 3: powerful force to help people achieve better results when they
Speaker 3: give advice to someone about a goal they too hope
Speaker 3: to succeed on.
Speaker 1: Absolutely, I mean truly, this is something that has had
Speaker 1: a positive impact on both Sure and Joel's finances. The
Speaker 1: ability to there's there's a degree of responsibility. Not only
Speaker 1: are we just posting it on social media that we've
Speaker 1: got these goals. It's like, we've got a podcast, you know,
Speaker 1: that is also documenting all these different strategies and tips.
Speaker 2: And we were talking about donor of ice funds in
Speaker 2: November and I was like, Man, I know about these
Speaker 2: things and I believe that they're good, but now I'm
Speaker 2: gonna open my own them.
Speaker 1: Yeah, exactly. And when it comes to our listeners as well,
Speaker 1: I think, like, what's so great about this is we
Speaker 1: often are encouraging our listeners just to start talking about money.
Speaker 1: That's the biggest reason why we started the show five
Speaker 1: years ago. We just wanted it to be something that
Speaker 1: did not feel like was unspeakable. And even with our listeners,
Speaker 1: as you start hearing about what you should be doing
Speaker 1: with your money, but just taking this first steps and
Speaker 1: talking about it with somebody else gets the conversation started
Speaker 1: pretty soon. Yes, they might ask you a question and
Speaker 1: all of a sudden, it sort of feels like you're
Speaker 1: a teacher and you always hear the saying that there's
Speaker 1: no faster way to learn something than to actually teach it,
Speaker 1: And just like you said, the saying is believing effect,
Speaker 1: I think the same thing applies to that's. I mean,
Speaker 1: we'd love seeing that that happen with our listeners as well.
Speaker 2: Yeah, and I want to know too, Katie, because like
Speaker 2: some of us are inevitably going to fail at some
Speaker 2: of the goals we set, right, none of us is
Speaker 2: ever perfect. We just accomplish everything we set out to
Speaker 2: do in record time. So how do we recover from failure.
Speaker 2: Let's say someone set their goal to max out there
Speaker 2: roth Ira last year, but they fell short, Like, how
Speaker 2: should they approach that goal moving forward now in twenty
Speaker 2: twenty three.
Speaker 3: Yeah, it's a great question. There's a couple of things
Speaker 3: that research has to say about that. One thing that
Speaker 3: I think is really important is an insight about the
Speaker 3: way we code failure and it comes from work by
Speaker 3: Carol Dweck at Stanford University. She's studied something called growth
Speaker 3: mindset and she compares it to a fixed mindset, and
Speaker 3: they're basically two extreme ways of thinking about failure and success.
Speaker 3: In a growth mindset, the way you perceive the world,
Speaker 3: or the way you perceive your skill at anything, whether
Speaker 3: it's investing or your intelligence, is that it's not a
Speaker 3: fixed set of abilities you're born with that you can
Speaker 3: learn and grow and develop over time. But if you
Speaker 3: have a fixed mindset, you think about things just the
Speaker 3: opposite that you're sort of born with some innate abilities
Speaker 3: and whatever they are, they are. And so these two
Speaker 3: perspectives that people can take on the world lead to
Speaker 3: really different ways of interpreting failure. If you have a
Speaker 3: fixed mindset and something goes badly for you, you fall down
Speaker 3: on a goal, you're going to interpret that as diagnostic
Speaker 3: of your capabilities, and it's going to be really discouraging.
Speaker 3: But if you have a growth mindset and you recognize
Speaker 3: the truth, which is that in almost everything in life,
Speaker 3: maybe with the exception of your height, you have the
Speaker 3: ability to improve over time and with learning, then you're
Speaker 3: going to interpret that failure as input and an opportunity
Speaker 3: to learn and grow and do better next time. And
Speaker 3: it turns out these which mindset you use, it's it's malleable.
Speaker 3: There's research showing that we can teach people to have
Speaker 3: a growth mindset by pointing out that basically everything in
Speaker 3: the world you can get better with practice and effort
Speaker 3: and learning, and to the extent that you can be
Speaker 3: deliberate about adopting a growth mindset than when you fall
Speaker 3: short of your goals, which inevitably that's what goal. If
Speaker 3: you're setting goals correctly by the way, you should be
Speaker 3: falling short of some of your goals. You want to
Speaker 3: always stretch yourself with your goals. That is what the
Speaker 3: research shows. If you're setting wimpy goals and you always succeed,
Speaker 3: you are not pushing yourself enough and you're you're not
Speaker 3: getting enough out of yourself. So when you stumble though,
Speaker 3: think about it with a growth mindset and say, what
Speaker 3: did I learn from this? Not like, oh no, this
Speaker 3: means I could never do it, but rather, you know,
Speaker 3: what could I do differently next time? What was the
Speaker 3: obstacle that tripped me up? How could I adopt a
Speaker 3: new strategy so that in the future when that same
Speaker 3: obstacle gets in my way, I'll have a better outcome.
Speaker 3: So I'd take growth mindset approach to all goals is
Speaker 3: really important. And then the other thing is based on
Speaker 3: research by my colleague Mursa Sharif at the Wharton School,
Speaker 3: who's shown that when we set stretch goals for ourselves,
Speaker 3: which is the ideal, Right, you know, I want to
Speaker 3: go to the gym seven days a week is better
Speaker 3: than I want to go to the gym two days
Speaker 3: a week. It's more motivating, you're more likely to push yourself.
Speaker 3: But when we do that, anticipating that we're going to
Speaker 3: need to have the ability to give ourselves some get
Speaker 3: out of jail free cards she calls them, emergency reserves
Speaker 3: can be really useful. So when you set tough goals,
Speaker 3: that is ideal, but it's also ideal to make sure
Speaker 3: that you let yourself off the hook not a lot.
Speaker 3: Because if you say, like, oh, you know, I'm gonna
Speaker 3: go to the gym seven days a week and I
Speaker 3: have six emergencies that I can take, then well, that's
Speaker 3: not going to get you very far. But it's better
Speaker 3: to say I'm going to aim for seven days a
Speaker 3: week of this this behavior and I give myself a
Speaker 3: little wigger room too to get out of jail free
Speaker 3: than to say I'm going to try to go five
Speaker 3: days a week. And the reason is you're not going
Speaker 3: to want to take those get out of jail free
Speaker 3: cards if you can avoid it. So you're likely to
Speaker 3: push yourself really hard. But if you do have a miss,
Speaker 3: you won't give up, and you'll still keep pushing to
Speaker 3: do quite well.
Speaker 1: Nonetheless, won't scrap it all together. Yeah, from throwing everything
Speaker 1: out the window to having those those doovers or those mulligans, like.
Speaker 2: You're sick for a few days, and like it gives
Speaker 2: you the grace to say, Okay, that's cool, Like that's
Speaker 2: a reason to miss the jim. It's a decent reason
Speaker 2: to not be able.
Speaker 1: To make it. And I mean, I don't think we're
Speaker 1: going to have time to touch on it. But you
Speaker 1: talk about elastic habits and how not being overly rigid,
Speaker 1: how important that is to keep us on track. I
Speaker 1: think the same thing applies with sort of these doovers
Speaker 1: as well. But Katie, Yeah, what about using peer pressure?
Speaker 1: Peer pressure social relationships? I think that there are different
Speaker 1: ways that we can use those to our advantage as well,
Speaker 1: because it's not just middle schoolers that feel that kind
Speaker 1: of pressure, you know, like we're all social animals, and
Speaker 1: so how can we harness that reality to propel us
Speaker 1: forward with our financial goals?
Speaker 3: Yeah? I love this topic. It's so important. So we
Speaker 3: are incredibly influenced by the people who surround us. They
Speaker 3: show us what's possible, They shape our beliefs about how
Speaker 3: we should be behaving. One of my favorite studies showing
Speaker 3: this is just looking at the college roommate you're randomly
Speaker 3: assigned as a freshman, and shows that if you end
Speaker 3: up with a roommate who was basically a better student historically,
Speaker 3: you get better grades than if you end up with
Speaker 3: a roommate who had sort of less uh less studiousness historically. So,
Speaker 3: you know, think about the logic of it. Your your
Speaker 3: roommate goes out and parties every Thursday and Friday. You think, well,
Speaker 3: that's the thing to do in college. I should be
Speaker 3: partying all the time, versus your roommate every Thursday and
Speaker 3: Friday stays in with a book, makes you know, flash cards.
Speaker 3: You're thinking, gosh, I guess to succeed in college, I
Speaker 3: should be staying in Thursdays and Fridays and making flash cards.
Speaker 1: So we're havy really like, man, my roommate is a
Speaker 1: nerd and I got to get a new.
Speaker 3: Any extreme that also happens, But on average, you're right,
Speaker 3: it's yes, there there can be. There could be situations
Speaker 3: where you're like, God, you're so crazy that you don't
Speaker 3: aren't influenced by people, But on average, I'm sure you
Speaker 3: If there is too much of a disparity, it turns
Speaker 3: folks off that way, yeah, I mean in that way
Speaker 3: it can kind of backfire.
Speaker 1: And so it's it's so important to surround yourself with likes,
Speaker 1: you know, individuals who have something in common with you,
Speaker 1: but who who aren't like at the very top of
Speaker 1: their game, because when there is that golf, it can
Speaker 1: like if I'm working out with the route, it can
Speaker 1: prevents you.
Speaker 2: If it's going to it's going to be disappearing, right,
Speaker 2: it's going to make me.
Speaker 3: So you want someone who stretches you a little bit
Speaker 3: because they're a little bit ahead of you. But it's
Speaker 3: not hopeless. It's not a hopeless golf. And that's also
Speaker 3: what this research on college roommates showed was you want
Speaker 3: somebody who is was a stronger student than you ideally
Speaker 3: as your roommate. But you don't want, you know, the
Speaker 3: valedictorian if you were a straight student, because now there's
Speaker 3: there's such a golf that you can't even relate. And
Speaker 3: like you said, you say, hey, this person's a nerd.
Speaker 3: I'm going out every night. I got to get away
Speaker 3: from them. So that but it is important to cultivate
Speaker 3: if you if you have big goals in any part
Speaker 3: of your life, trying to cultivate social relationships with people
Speaker 3: who share those goals and who are frankly a little
Speaker 3: bit ahead of you and from whom you can learn
Speaker 3: is incredibly valuable. They can be a support group. You
Speaker 3: can also offer them advice, which we already talked about
Speaker 3: the power of advice giving rate. You could talk about
Speaker 3: those shared goals and you'll find you actually do have
Speaker 3: something to offer. But you can do what my collaborator
Speaker 3: Angela Duckworth, and also Katie Mare and I I'll call
Speaker 3: copy and paste, which is actually we show that when
Speaker 3: you deliberately coach people to go out and look for
Speaker 3: friends who are using clever tactics to achieve a goal
Speaker 3: they too want to achieve, and say go find what
Speaker 3: they're doing and try to emulate it, there's benefits to
Speaker 3: that people somehow, even though they naturally soak up some
Speaker 3: of what's around them, there's still something left on the
Speaker 3: table because just that nudge to copy and paste leads
Speaker 3: people to go looking for mimicable behaviors. And that is
Speaker 3: really important and valuable because other people have approached and
Speaker 3: tried to pursue most of the goals that you want
Speaker 3: to achieve, and some of them have found a degree
Speaker 3: of success, and particularly people in your social network, they
Speaker 3: have more in common with you. Their lifestyle might resemble
Speaker 3: yours in many ways, so they probably the things that
Speaker 3: they're trying may be quite effective for someone like you too,
Speaker 3: So ask and try to figure out. What can you
Speaker 3: learn from others who've succeeded.
Speaker 2: No need to reinvent the wheels star from scratch, not
Speaker 2: rocket science.
Speaker 3: But we often forget it right, like we forget, hey,
Speaker 3: somebody else already did this, and I should go collect
Speaker 3: that data like we're used to, you know, trying to
Speaker 3: learn from experts in so much of life. You know,
Speaker 3: I teach it a business school. People go look at
Speaker 3: an accounting textbook when they have to figure out accounting.
Speaker 3: But sometimes with goal setting, we forget that there are
Speaker 3: other people who've come before us, and that there's expertise
Speaker 3: there too.
Speaker 2: For sure, and you don't have to just figure it
Speaker 2: out all on your own, and other people are a
Speaker 2: great resource. Katie, thank you so much for joining us today.
Speaker 2: Not only do you have your book, How to Change,
Speaker 2: which you've also got a podcast, You've got a newsletter
Speaker 2: in addition to all your work being a professor, So
Speaker 2: where can folks learn more about you and what you're
Speaker 2: up to.
Speaker 3: Yeah, thanks for asking and thanks for having me. The
Speaker 3: best place to find more about me is at Katiemilkman
Speaker 3: dot com. It's Katie with a while like Katie Perry,
Speaker 3: and you can subscribe for Milkman delivers if you so
Speaker 3: choose to get monthly tidbits or yeah, listen to my podcast,
Speaker 3: check out my book, or read the nerdy research papers
Speaker 3: if that's your thing, that's.
Speaker 1: Definitely my thing. I love it all. Katie, thank you
Speaker 1: so much for joining us today. We really appreciate it.
Speaker 3: Thanks for having me. It was a blast.
Speaker 1: Well all right, man, I only wish we just had
Speaker 1: more time to actually talk with Katie. Yeah.
Speaker 2: Well, maybe our new goal in twenty twenty three is
Speaker 2: that our interviews are more Joe Rogan lending line.
Speaker 1: From even going one hour, I think sometimes as long,
Speaker 1: but yeah, maybe we should take it to like two
Speaker 1: four four hours long. Now, this really was an awesome
Speaker 1: conversation though, that we had with Katie. What was your
Speaker 1: big takeaway from this conversation?
Speaker 2: And she's smart, she's got a depth of knowledge that's fascinating,
Speaker 2: but she also researched all the different examples and stories
Speaker 2: as you and I were talking about before we started
Speaker 2: chat with Katie. She not only has the head knowledge,
Speaker 2: but she's done all this practical work with companies that
Speaker 2: gives you the ability to connect it to everyday human actions,
Speaker 2: which I think is super helpful what you.
Speaker 1: Get from consulting, Like, for sure, you have to make
Speaker 1: that connection. Otherwise you're not really a consultant, right, You're
Speaker 1: just a professor.
Speaker 2: You're just a research exactly. They're like, I would have
Speaker 2: taken your class if that's what I wanted. I want
Speaker 2: the practical applications of this. But I think my biggest
Speaker 2: takeaway was when she talked about making it fun and
Speaker 2: that you know, even if progress takes longer, you're going
Speaker 2: to be more likely to stick to it. And I think, yeah,
Speaker 2: when we're talking about budgeting, she said, do it over
Speaker 2: a class of wine or something like. That's the kind
Speaker 2: of advice we've given over the years, like, incorporate something
Speaker 2: fun into that money management. Set little rewards for yourself
Speaker 2: as you do make gains, as you do accomplish those
Speaker 2: smaller goals that you've set out for yourself. It doesn't
Speaker 2: need to be all drudgery and Ultimately the goal is
Speaker 2: that you're you know, hitting on all cylinders. Your your
Speaker 2: budget reflects the biggest goals that you have for your life,
Speaker 2: and so that when you achieve those things, it's like
Speaker 2: it's fun and it's energizing. But the more that we
Speaker 2: can make what seems boring to be fine. Like when
Speaker 2: I thought about working out, Matt, you decided for CrossFit,
Speaker 2: I said, you know what sounds fun to me?
Speaker 1: A water rowing massure that's actually splashy.
Speaker 3: Yeah.
Speaker 2: I wanted to sound fun while I was working out,
Speaker 2: and I was like, this is going to be like
Speaker 2: kind of a whole body thing, but it's also there's
Speaker 2: something enjoy I find enjoyable about it, or riding my
Speaker 2: bike on the path and then up our local mountains
Speaker 2: like that kind of thing.
Speaker 1: I was curious, though, did you Did you make it
Speaker 1: fun though, in the way that you were able to
Speaker 1: temptation bundle like I assume I have. Well, actually I do.
Speaker 2: I listened to a podcasts or music typically when I'm
Speaker 2: working all but like I just tried to set out
Speaker 2: instead of signing up for the most hardcore workout I could,
Speaker 2: I found something. I was like, I know this is
Speaker 2: going to be less intense, right, and I'm not going
Speaker 2: to see results as quickly, but it's going to be
Speaker 2: the thing that I find enjoyable. I feel like I
Speaker 2: can stick to it seem more appealing to you. Yeah,
Speaker 2: and I think that's really important. I think if it
Speaker 2: allows you, it's like playing a game of basketball versus
Speaker 2: going for a run. I'll sign up for a game
Speaker 2: of basketball any day of the week, but I'm not
Speaker 2: going to go on a five mile run, Like just
Speaker 2: not going to happen. I hate it, and so find
Speaker 2: the thing that you can stick to. Know yourself a
Speaker 2: little bit.
Speaker 1: That's so true, man, This is like one of the
Speaker 1: ways where you are so different because for me, like
Speaker 1: hearing a five my like up the mountain or something,
Speaker 1: I'm like, oh yeah, that sounds awesome. Basketball not so
Speaker 1: much jammed, way too many fingers playing basketball. So my
Speaker 1: big takeaway, I'm going to do something completely new, which
Speaker 1: we've never done with an interview before. But I want
Speaker 1: to say something like literally entirely new. This is something
Speaker 1: we didn't get to but in her book as well.
Speaker 1: I just want to be able to present more information
Speaker 1: because Katie has so many great ideas, but she talks
Speaker 1: about how these different strategies, these different tactics, they're not
Speaker 1: something that you can oftentimes just do once and then
Speaker 1: completely forget about it and have your problem solved. And
Speaker 1: oftentimes some of these strategies they may not work as
Speaker 1: well as they used to maybe when you first started.
Speaker 1: And so she had talked about when you do see
Speaker 1: some growth stalling out, just consider new ways to reach
Speaker 1: your goals. Because a chore for one person, like running
Speaker 1: five miles, that might be fun for somebody else like me.
Speaker 1: And so I don't know that that really stuck with
Speaker 1: me as well, because she was encouraging folks to think
Speaker 1: about these different problems we're faced with more as a
Speaker 1: doz rather than a rash. So, for instance, like doctors
Speaker 1: wouldn't give insulin to a diabetic for a one month
Speaker 1: and then be like, all right, you're set your heel. Now,
Speaker 1: that's not how it works. It's something ongoing that you
Speaker 1: have to revisit. And so in the same way, that
Speaker 1: is how you would treat a rash, you know, something
Speaker 1: that is more temporary. But oftentimes with some of these
Speaker 1: larger goals, especially the financial goals that we have in
Speaker 1: our lives, think about it like a disease. It's this
Speaker 1: thing that is going to be with you for a
Speaker 1: really long time, and it is up to you, like
Speaker 1: you said, Joel, to know yourself and to adapt and
Speaker 1: figure out how it is that you're going to accomplish
Speaker 1: that goal because oftentimes there isn't somebody outside of you.
Speaker 1: There isn't that external pressure who is encouraging you to
Speaker 1: reach that goal. Oftentimes, like I mean, this is what
Speaker 1: Katy talk, you.
Speaker 2: Should try to think that happen because that's a helpful
Speaker 2: way to see it is helpful, but oftentimes, like these
Speaker 2: are internal things that we.
Speaker 1: Have to figure out ourselves, and so I just found
Speaker 1: that really helpful.
Speaker 2: Disease of money management will be with you forever, but
Speaker 2: we want you to be able to implement some of
Speaker 2: the things that Katie talked about on this episode so
Speaker 2: that you can stick to the goals that you have
Speaker 2: just created. Like now is a brilliant time. It's that
Speaker 2: the fresh start effect that Katie talked about. Now is
Speaker 2: the best time. And one of the things that I've
Speaker 2: heard Katie say before too. She didn't say today, but
Speaker 2: like so many New Year's resolutions fail, but there's a
Speaker 2: huge percentage something like twenty percent to stick to it.
Speaker 2: We should take the positive side of that and say,
Speaker 2: you know what, there's no better time of year that
Speaker 2: more people make lasting change than right now. And so
Speaker 2: hopefully you can incorporate some of the things Katie talked
Speaker 2: about and make some lasting change moving forward when it
Speaker 2: comes to your personal finances, and yeah, focus focus.
Speaker 1: On the brighter side of things for sure.
Speaker 2: Well, let's mention the beer that we had speaking of
Speaker 2: the brighter side of things that we enjoyed on this episode.
Speaker 2: This one was called helf of Ee's Guy by Mutation Brewing.
Speaker 2: It's a heff of iison And yeah, Matt, what were
Speaker 2: your thoughts on this beer?
Speaker 1: It was great? Yeah, this was another delightful beer by
Speaker 1: the guys by Jack and friends over there at Mutation.
Speaker 1: But yeah, light, pillowy wheat beer. It had a little
Speaker 1: bit of sweetness. I feel like maybe maybe for a
Speaker 1: hef of Ason, it was a touch sweeter than some
Speaker 1: of the ones out there, Like we've had some that
Speaker 1: are quite dry, But this is the kind of beer
Speaker 1: I would one hundred percent drink with a pizza in particular,
Speaker 1: one that's got maybe some some spicier sausage on it.
Speaker 1: And you're looking for something to cool you down. Yeah,
Speaker 1: this is really if.
Speaker 2: You're normally in the pilsner crowd, Like if you're like Budweiser,
Speaker 2: bud Light, that's what I drink occasionally.
Speaker 1: Blue Moon. This is like the better version of.
Speaker 2: Blue Moon kind of thing, right, And like if you want,
Speaker 2: if you want a helf of Isson, move into that
Speaker 2: craft beer realm and you haven't really gotten there. Find
Speaker 2: a good helf of Isson from a local brewery. That's
Speaker 2: a good thing to start off with. I still remember
Speaker 2: one of my first Kraft beers was Winmer Brothers in Portland, Oregon.
Speaker 1: Half of Ison.
Speaker 2: They make one of the better ones out there. This
Speaker 2: one wasn't shock Top, No, it was not. This one
Speaker 2: rivaled it though, I think I really like this beer.
Speaker 2: Even though helf of issons are not my go to style,
Speaker 2: this was a good version of it. So exactly, that's
Speaker 2: going to do it for this episode. For show notes
Speaker 2: links to some of the resources that we mentioned that
Speaker 2: Katie mentioned on this episode, you can find those up
Speaker 2: on our website at howtomoney dot com.
Speaker 1: That's right, man, So that's going to be it until
Speaker 1: next time. Friends Out, Best Friends Out,