Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. This is Master's in
Speaker 1: Business with Barry Ridholts on Bloomberg Radio. This week on
Speaker 1: the podcast, I have an extra special guest, returning champion,
Speaker 1: Professor Meyer Statman. We've talked a number of times about
Speaker 1: what investors really want all sorts of different aspects of
Speaker 1: behavioral finance. His new book is really comprehensive, A Wealth
Speaker 1: of well Being, A Holistic Approach to Behavioral Finance. I
Speaker 1: found this conversation to not only be informative, but to
Speaker 1: be rich with both data and anecdotes. He has spent
Speaker 1: the past forty four years studying this work. Lots of
Speaker 1: what forms his opinion is data driven, is based on
Speaker 1: research he's done, and he really flavors the book with
Speaker 1: a lot of specific anecdotes. I found it quite interesting
Speaker 1: and I think you will also. With no further ado.
Speaker 1: My conversation with Professor Meyer Stafmann.
Speaker 2: Well, I'm so delighted to be with you again.
Speaker 1: Very so before we get to the book, which I'm
Speaker 1: really enjoying, I have to go over your background, which
Speaker 1: is really fascinating. Right, So your academic background, you get
Speaker 1: a Bachelor of Arts and an MBA, from Hebrew University
Speaker 1: of Jerusalem. You come to the US where you get
Speaker 1: your PhD in economics from Columbia University. Was academia always
Speaker 1: the plan?
Speaker 2: No, it was not at all. I didn't really know
Speaker 2: exactly what I wanted. When I was in the army,
Speaker 2: I was destined to go to a kibbutz collective farm
Speaker 2: in Israel, and I took a course on agriculture and
Speaker 2: we had an economists who came and talked about exporting
Speaker 2: oranges and what it involved. And I was thinking, you know,
Speaker 2: this is stuff that I can understand that makes sense
Speaker 2: to me. I'll pick economics. My dad said, study accounting.
Speaker 2: You know, that's a practical thing. I thought that my
Speaker 2: second major is going to be literature because I did
Speaker 2: not know that I had sufficient background in mathematics. But
Speaker 2: I went to one of those psychotechnic tests and they
Speaker 2: say you can you can take it, and I did so.
Speaker 2: I studied economics and statistics and then finance for an MBA.
Speaker 1: So your curriculum, Vitail is kind of fascinating, mostly because,
Speaker 1: as far as I can tell, since nineteen eighty, you've
Speaker 1: had one job that's forty four years. Professor of finance
Speaker 1: at Santa Clara University. You're the Glenn Klimaic professor. That's amazing.
Speaker 1: Forty four years the same school. Is has it been
Speaker 1: the same subject the whole time?
Speaker 2: Well, you know, it is the same subject, but the
Speaker 2: subject itself is changing a lot rapidly. I'm lucky to
Speaker 2: be one of those people who is changing the subject.
Speaker 2: And so it turned out that it is just the
Speaker 2: right place for me. It is a place that values
Speaker 2: teaching and values scholarships. So teacher scholar is the way
Speaker 2: we describe our faculty, and that is what we strive
Speaker 2: to be. And it is open, perhaps because at the
Speaker 2: beginning it just was turning, moving from being just a
Speaker 2: teaching place to a teaching and scholarship place, and so
Speaker 2: they didn't really have the notion that it must be
Speaker 2: a paper in the Journal of Finesse or whatever it was.
Speaker 2: R just do stuff that has an audience, you know,
Speaker 2: And to this very day they are very flexible as
Speaker 2: to the audience they have in mind. It might be
Speaker 2: fellow academics, but also professionals and also the general public.
Speaker 2: And so they that delighted when I write something for
Speaker 2: the Wall Street Journal, for example.
Speaker 1: So you got the PhD from Columbia. How did you
Speaker 1: make your way to California. That's not the first place
Speaker 1: you would think of.
Speaker 2: Well, you know, when I was studying at Columbia, I
Speaker 2: was teaching at Rutgers College. And when I got to
Speaker 2: my PhD, I went to the chair of the department
Speaker 2: and asked whether there's a pay raise accompanying completioning of
Speaker 2: the PhD. And he said, well, the way you get
Speaker 2: a raise is you go to another university. You get
Speaker 2: an offer, and then we see if we can match it.
Speaker 2: And so I went to Binghamton University, which you know
Speaker 2: is and that was the end of follow It is
Speaker 2: highly regarded and cold, not a.
Speaker 1: Fun place in the winter, especially if you're from a
Speaker 1: much warmer climate like Israel.
Speaker 2: Yeah, and so I went to Santa Clara and it
Speaker 2: really felt like home from the beginning. Now, remember that
Speaker 2: this is a Jesuit, a Catholic Jesuit university, and I
Speaker 2: am Jewish, so so you know, I didn't really know
Speaker 2: much about Jesuits so Christianity more generally, but it just
Speaker 2: turned out to be just right. And I say, you
Speaker 2: know that kind of similar. Both begin with the letter J.
Speaker 1: So hey, they both started with the same book, right.
Speaker 2: You know, it is a wonderful place. Yeah.
Speaker 1: So you're teaching the same subject for forty plus years.
Speaker 1: But as we said earlier, behavioral finance and the entire
Speaker 1: field of economics has clearly evolved over that time. You've
Speaker 1: been part of that process, pushing behavioral finance through one, two,
Speaker 1: and now let's call it three generations. Tell us a
Speaker 1: little bit about that process.
Speaker 2: Well, so I studied standard finance, which we all studied
Speaker 2: at graduate school then, and some places still where people
Speaker 2: are rational, they are interested only in maximizing their wealth,
Speaker 2: maybe subjects to risk considerations, and that is it. And
Speaker 2: you say, so, what that they got to do with
Speaker 2: the wealth? And they say, well, that's not our field,
Speaker 2: you know, that's marketing. I never, I never felt that
Speaker 2: it is right, but I didn't really know how to
Speaker 2: put it together into something that would look like an
Speaker 2: academic paper. I came to New York to study at Columbia.
Speaker 2: That was in the summer of seventy three, and that
Speaker 2: was just before the Omekipour War and the energy crisis
Speaker 2: and so on, and con Edison felt compelled to suspend
Speaker 2: its dividend and they had a raucous annual meeting in
Speaker 2: April of seventy four, and people were really trying to
Speaker 2: physically harm the chairman of the body, mister Lewce. One
Speaker 2: woman said, I used to be a husband. Now con
Speaker 2: Edison is my husband. Whereas my dividend, you know, I
Speaker 2: live on the dividend. It occurred to me that contrary
Speaker 2: to what we studied about rational behavior, did not occur
Speaker 2: to them that they can sell a few shares and
Speaker 2: generate homemade So that stayed with me. And then when
Speaker 2: I came to Santa Clara, I heard my colleague her
Speaker 2: Chefrin speak about those issues of mental accounting and framing
Speaker 2: and self control, and it just clicked, you know, I said,
Speaker 2: here is the answer to the issue of dividends. Now.
Speaker 2: I did not know at that time the work of
Speaker 2: Kanman and Firsky. And the funny thing is that while
Speaker 2: I was at the Hebrew University, the economics building was
Speaker 2: right next to the psychology building, and Conman and Firsky
Speaker 2: themselves were doing their work there. But I had no
Speaker 2: idea who they were, their work, none of my professors.
Speaker 1: Late sixties early seventies, they had extablished and really become
Speaker 1: name Jet.
Speaker 2: That is exactly right. That is when they did their
Speaker 2: their pioneering work. In fact, I went over to do
Speaker 2: some of those experiments later on with them. It turns
Speaker 2: out that none of them were their experiments, but but
Speaker 2: at least, you know, it kind of gave me a sense,
Speaker 2: but I just did not know how to connect it.
Speaker 2: And then once I got to know their work, it
Speaker 2: really clicked together. And so the first paper that her
Speaker 2: Chefren and I did was about dividends. It is about
Speaker 2: why it is that people like dividends. We were exceedingly
Speaker 2: lucky to have Fisher Black as their reviewer as a
Speaker 2: referee for that paper. And he said, uh, and and
Speaker 2: you're going to see my blush now. He said, this
Speaker 2: paper is brilliant.
Speaker 1: Really, Oh that's great, that's.
Speaker 2: The editor wrote. After a lot of soul searching, I
Speaker 2: guess I agree.
Speaker 1: So so the interesting thing about dividends from my perspective,
Speaker 1: I always thought dividends were preferred by investors over stock buybacks. Yes, right,
Speaker 1: stock buybacks are arguably more tax efficient. But if you're
Speaker 1: like those people who are kind at investors, if they're
Speaker 1: living on the dividends. We used to call those widows
Speaker 1: and orphan stocks. The loss of a dividend is a
Speaker 1: real loss and income, and people really feel it. Yes,
Speaker 1: of course you can sell a few shares, but I'm
Speaker 1: going to bet those people who either bought that stock
Speaker 1: or were handed that stock by a parent or a spouse.
Speaker 1: We're told this is a great, reliable dividend payer, never sell.
Speaker 2: It, exactly. And people make the distinction between what is
Speaker 2: capital and what is income, and so the rule that
Speaker 2: we follow is move money from income to capital, such
Speaker 2: as four one K, but don't dip into capital when
Speaker 2: you spend dividend. Dividends count as income and so you
Speaker 2: can spend them freely, but selling shares it's dipping into capital,
Speaker 2: you know.
Speaker 1: And they've been admonished against that their.
Speaker 2: Whole lives exactly.
Speaker 1: That hivid and I have all these examples that I
Speaker 1: have to hide because I don't want people to recognize them.
Speaker 1: And we'll talk about them. But in my day job,
Speaker 1: one of the things that we notice all the time
Speaker 1: are people who have been workers and savers and investors
Speaker 1: hit a certain point where they slow down working. They
Speaker 1: have a ton of money in the bank and in
Speaker 1: their portfolio, and they have a real hard time making
Speaker 1: that adjustment to hey, you don't have to be an
Speaker 1: accumulator saver. You could start spending some down. Even if
Speaker 1: you live to one hundred, you're good. It's a very
Speaker 1: tough transition.
Speaker 2: It is indeed a very tough transition. Yeah. When my
Speaker 2: mother in law was old, she had a rickety old sofa.
Speaker 2: The kids said you must replace it, and she said, no,
Speaker 2: it is just fine. Finally they just bought the new
Speaker 2: Sofaine tossed the old one and she smiled and she said, well,
Speaker 2: y're dipping into.
Speaker 1: Your so I literally I had a conversation with a
Speaker 1: guest who was driving a twenty five year old car.
Speaker 1: I said, why don't you go get yourself a new car?
Speaker 1: And his answer was, I'm dipping into the money I
Speaker 1: would otherwise give to charity. I said, not for nothing.
Speaker 1: But you know, the latest cars they have the emergency
Speaker 1: stop and the seatbelt pretensioners, and the improved brakes, and
Speaker 1: the lean departure warnings and the automatic stop in case
Speaker 1: you're getting too close to the car in front of you.
Speaker 1: If you're not around to keep making all this money,
Speaker 1: you're gonna have that much less to give to charity.
Speaker 1: And about three months later, I got an email, all right,
Speaker 1: you guilted me and to getting a new Lexus. I
Speaker 1: go listen, the fifty grand you're spending on the Lexus
Speaker 1: that'll keep you alive. You'll be able to keep giving
Speaker 1: money to charity for that much longer.
Speaker 2: Exactly. In fact, I just days ago gave my thirty
Speaker 2: year old Toyota station wagon to my handyman, and my
Speaker 2: wife compelled me to buy a Subaru that has all
Speaker 2: of those good thing to say, that right that you mentioned,
Speaker 2: And it took me a while to make this switch.
Speaker 1: But the last time you hear we talked about compounding
Speaker 1: and how money grows over time. You just don't recognize
Speaker 1: how much all of these little incremental changes, whether it's
Speaker 1: automobile technology or your phone or whatever. You know, you
Speaker 1: don't notice it year to year, but twenty thirty years later,
Speaker 1: oh my god, it's a much better phone, it's a
Speaker 1: much better car, it's much better. Things improve over time,
Speaker 1: and why not have the latest, greatest if it's going
Speaker 1: to protect you and your family?
Speaker 2: It is. Yeah, I was reluctant to do it, and
Speaker 2: of course I'm happy now that I did that. I
Speaker 2: listened to my wife, what can you do this better
Speaker 2: than that.
Speaker 1: Happy wife, Happy life. Right, let's talk a little bit
Speaker 1: about the book, which I'm finding to be fascinating, and
Speaker 1: I want to start with a quote from you. Financial
Speaker 1: well being alone is not enough. True life wellbeing comes
Speaker 1: from living a satisfying life, full of meaning and purpose.
Speaker 1: That doesn't seem like the traditional Wall Street definition of
Speaker 1: financial success discuss.
Speaker 2: Well, it is not, but of course it is just
Speaker 2: common sense. That is, if you just think about your life,
Speaker 2: when I think about mine, and the listeners as well.
Speaker 2: In finance, we usually end with financial well being. That
Speaker 2: is what you should do to get financial well being,
Speaker 2: but what comes after that? So if you ask people
Speaker 2: what really matters in life, they are going to say
Speaker 2: things like family and friends and work and health and
Speaker 2: so on. All true, but often they forget the finance part.
Speaker 2: And so it is this kind of like like two worlds,
Speaker 2: one focused on finance entirely and one focused on things
Speaker 2: other than finance. But of course finance by itself enhances
Speaker 2: well being. That is, being a millionaire really makes you
Speaker 2: happier than just earning fifty thousand a year. And being
Speaker 2: a billionaire is not bad. You know, I'm a few
Speaker 2: million short of a billion. I don't really aspire to
Speaker 2: a billion. I'm doing just fine. But money matters period
Speaker 2: on its own, but it also matters because it underlies
Speaker 2: other things. If you want a sure divorce, make sure
Speaker 2: that you are unemployed and there's not enough money to
Speaker 2: support your spouse and children. So you need money for family,
Speaker 2: You need money for health, you need money for education.
Speaker 2: You even need money for religion because you know they
Speaker 2: expect you to support the church or synagogue or any
Speaker 2: other temple that you go to. And so money matters
Speaker 2: because it underlies everything else. You don't have to be
Speaker 2: wealthy to enjoy friendship and family and the rest, but
Speaker 2: you have to have some minimum that will get you there,
Speaker 2: and from that you can build on, of course, to
Speaker 2: get life, well being life. Where you are, you can
Speaker 2: describe yourself as as say, having a vocation, not just
Speaker 2: a job.
Speaker 1: So it sounds almost as if you're referencing Maslow's hierarchy
Speaker 1: of needs. You have to take care of your basic survival.
Speaker 1: You need a shelter, food, clothes, and then the next
Speaker 1: tier is you want a little bit of security and
Speaker 1: a little bit of reserve to deal with any sort
Speaker 1: of emergency and then beyond that, you want options to
Speaker 1: be able to spend your time how you want. Is
Speaker 1: that the wrong frame of reference or or is there
Speaker 1: other parallels?
Speaker 2: It is similar to it, except that that sequence is
Speaker 2: not a sequence that any that everyone goes through or
Speaker 2: aspires to. That is, there are lots of people for
Speaker 2: whom gathering more and more money gets to be the
Speaker 2: ultimate in what life is meant to be?
Speaker 1: The contest aspect.
Speaker 2: Yeah, the contest and so on. That is what they are.
Speaker 1: That's the polite way to describe it.
Speaker 2: Yes, So I think that that Maslow got it right,
Speaker 2: and I think that I can describe myself as someone
Speaker 2: who followed Maslow. That is, I have more than enough money,
Speaker 2: but I also have a vocation. I'm seventy seven now
Speaker 2: and I'm not even thinking about retirement. That is not
Speaker 2: because I need the money. It is because I am
Speaker 2: a professor. This is who I am. And emeritus professor.
Speaker 2: You know, you get the title that you are no
Speaker 2: longer connected.
Speaker 1: You're still teaching classes.
Speaker 2: I am still teaching classes. I'm still teaching classes, I'm
Speaker 2: still writing. Yeah, this is my life. I mean, of
Speaker 2: course I have lots of other things. I have lots
Speaker 2: of other thing.
Speaker 1: Right, So that's a perfect opportunity to ask about the
Speaker 1: four kinds of capital you explore in the book financial, social, cultural,
Speaker 1: and personal. Let's go over each of those what what
Speaker 1: makes them all so different?
Speaker 2: So, so financial capital is kind of straightforward. That is,
Speaker 2: you need you need money, and money, as I said,
Speaker 2: underlies everything else. But it is also important on its own.
Speaker 2: And contrary to a very famous article that experienced well being,
Speaker 2: emotional wellbeing stops growing after you have seventy five thousand
Speaker 2: dollars a year.
Speaker 1: And that's an old number, right, yeah, right.
Speaker 2: But even even adjusted for inflation, that turns out not
Speaker 2: to be true. So really, more and more recent study
Speaker 2: by killing Worth found that it is not so. Now
Speaker 2: canman in Deton who did this original famous study, They
Speaker 2: asked people what emotions they had yesterday, but the emotions
Speaker 2: you remember from yesterday and not the emotions that you
Speaker 2: feel right now. The way he did it was working
Speaker 2: with an iPhone and asking people how do you feel
Speaker 2: right now? And people had to make choices now. And
Speaker 2: it turns out that in fact, emotional well being experienced
Speaker 2: while being grows without limit, but without limit but diminishing benefits.
Speaker 1: So it starts the plateau exactly what's that number where
Speaker 1: you really see because I remember seeing something I don't
Speaker 1: know if it was this study. There's around four hundred
Speaker 1: k it starts to.
Speaker 2: So if you go from from say twenty to sixty,
Speaker 2: that is three times the increment is the same as
Speaker 2: going from say one hundred to three hundred, right, which
Speaker 2: is three times the second one you by two hundred thousand.
Speaker 2: But it really accounts in terms of your well being
Speaker 2: as an increase in forty thousand when you begin with
Speaker 2: twenty thousand, I got you.
Speaker 1: Yeah, going from broke to or right, I have enough
Speaker 1: money to pay my rent and to pay the doctor
Speaker 1: and to get food. That's like a big threshold. But
Speaker 1: going from one hundred to three hundred or I would
Speaker 1: imagine ten million to thirty million. You know, there's a
Speaker 1: there's a joke. I love to tell two clients, what's
Speaker 1: the difference between one billion dollars and two billion dollars?
Speaker 1: And the answer is nothing, There's no difference, right, What
Speaker 1: how does that? How is your standard of living going
Speaker 1: to be affected between a billion or two billion? It's
Speaker 1: the same.
Speaker 2: Yeah, well it is the same. But of course, if
Speaker 2: you have a fellow Hatch fund manager who has a
Speaker 2: twenty five billion Boy, you feel like it's puny. You know.
Speaker 2: I read I read the book by a sociologists that
Speaker 2: interviewed very wealthy people being in Manhattan. Uh and a
Speaker 2: woman whose income annual income is in the millions and
Speaker 2: wealth is many multiples of that. She said, I guess
Speaker 2: I'm in the middle. You know that there are there
Speaker 2: are people who have chauffeurs that have private planes, and
Speaker 2: we don't have that.
Speaker 1: There's always going to be unless you're you know, Warren
Speaker 1: Buffett or Bill Gates or I guess now Elon Musk,
Speaker 1: there's always someone that's going to have more money than you.
Speaker 1: Is that really the way people should be measuring themselves?
Speaker 2: I hope not. You know this is this is guarantee
Speaker 2: of being wealthy and miserable. That is not life wellbeing.
Speaker 2: It is surely financial wellbeing. But this is extreme example
Speaker 2: of the difference between financial wellbeing and life wellbeing.
Speaker 1: So I just want to make sure I understand the
Speaker 1: does money by happiness question? So it starts to diminish,
Speaker 1: but in terms of proportions, when you're going from twenty
Speaker 1: five to seventy five or two fifty to seven fifty.
Speaker 1: The tripling is more or less parallel no matter where
Speaker 1: you start from.
Speaker 2: Exactly.
Speaker 1: So if you like drugs, you need a bigger and
Speaker 1: bigger hit to experience the same increase in satisfaction that
Speaker 1: you're going to get when you're in the millions or billions.
Speaker 2: That's right. And once your your income is seven hundred
Speaker 2: and fifty a year still you know that is that
Speaker 2: is there. I'm just describing it from my perspective. You
Speaker 2: know that is I ask myself how much do you need?
Speaker 2: And there comes a point, you know, such as when
Speaker 2: you know that your state is going to be subject
Speaker 2: to a state tax, we wou say, come on, mayor
Speaker 2: now it's a question of whether you're going to give
Speaker 2: it to the government or give it to charity. And
Speaker 2: so for me, I established with my wife, we established
Speaker 2: an endowment if at Santa Clara University to support the
Speaker 2: work of my colleagues, you know, several million dollars. And
Speaker 2: I'm thinking, think about it, Mayor, I mean, you have enough.
Speaker 1: I always laugh when people complain about the estate tax,
Speaker 1: which as of right now is married couple over twenty
Speaker 1: four million dollars. To me, it's like The only excuse
Speaker 1: for paying a state tax is you're hit by a
Speaker 1: boss on the way to the estate attorney. You fill
Speaker 1: out some forms, you sign a document, and you're donating
Speaker 1: that money to charity as opposed to you know, that's
Speaker 1: to say nothing about trust and estates and doing all
Speaker 1: these other things if you want to move money around.
Speaker 1: But it's not that hard to not pay a state tax.
Speaker 2: Yes, but the question really is again about life well being.
Speaker 2: So when I told my younger daughter that we have
Speaker 2: established this endowment, and I said, there's going to be
Speaker 2: enough left for you, and she said dead, I already received.
Speaker 1: My bequests lovely.
Speaker 2: And you know truth. I mean, she got quite a
Speaker 2: lot of help buying your house and so on. And
Speaker 2: I'm so happy that she is not one of those
Speaker 2: greedy people who know that they're going to get ten
Speaker 2: million and say, but I want twenty.
Speaker 1: So let's talk about that a little bit. Another quote
Speaker 1: of yours, life well being comes when we live satisfying lives,
Speaker 1: full of meaning and purpose. How can we measure meaning
Speaker 1: and purpose for ourselves? And how as an academic can
Speaker 1: you measure that in other people?
Speaker 2: Well? Measuring it is really quite easy. Now it is
Speaker 2: not as precise you might say as saying my income
Speaker 2: is one hundred thousand or two hundred thousand. But you
Speaker 2: ask people, you know, do you think that your life
Speaker 2: has purpose? And they say, ah, I have a job,
Speaker 2: I have a family. Okay, but I'm waiting to retire.
Speaker 2: You know this is and what will you do? I
Speaker 2: don't know. I'll play golf and so on. Lots of
Speaker 2: people I like that, and I count myself among the
Speaker 2: very fortunate. Who's a working career is also a vocation,
Speaker 2: you know, it is also who I am.
Speaker 1: And you're not a golfer, let me guess I am,
Speaker 1: And they're so great golf. I'm not a golfer either.
Speaker 1: I don't I can't imagine looking forward to doing nothing
Speaker 1: but golf. That doesn't hold any thrill to me. But
Speaker 1: some people love it.
Speaker 2: I mean, I have nothing against them. Yeah. In fact,
Speaker 2: when when I was about to say something along the
Speaker 2: lines you described about golf and making fun of it
Speaker 2: in my earlier book, the editor said, you know, there
Speaker 2: are many golf players who will want to buy a book.
Speaker 2: Do you want to annoy them?
Speaker 1: So let's let's go over one of the other things
Speaker 1: that I picked up early in the book the Three
Speaker 1: Generations of behavioral finance. So generation one of economics, well,
Speaker 1: the original homo economists as humans are rational profit maximizers.
Speaker 1: Behavioral finance comes along and says that's not true, people
Speaker 1: are irrational. Generation two comes along and says, well, people
Speaker 1: are people in that what you're calling irrational is just
Speaker 1: people being normal. You want to expand this in generation
Speaker 1: three to say, behavioral finance describes people as normal, but
Speaker 1: we have to broaden our lens and look at people holistically,
Speaker 1: see the whole person, see the entire life, and not
Speaker 1: just look at individual transactions or survey responses.
Speaker 2: So let me describe very briefly how it develops. So
Speaker 2: standard finance, as you said, is people are rationale. The
Speaker 2: first generation of behavioral finance, we found, for example, that
Speaker 2: people do stuff that is not maximizing their wealth. For example,
Speaker 2: they trade too much and doing that diminishes their capital,
Speaker 2: or they make distinction between what is capital and what
Speaker 2: is in come. Uh, and so we call them irrational.
Speaker 2: But irrational has this this sense that they're stupid, you know,
Speaker 2: and people are not stupid, or by that measure, I'm
Speaker 2: stupid and likely you are. I said, Look at things
Speaker 2: like like a watch. Okay, so so a watch has
Speaker 2: utilitarian benefits but also expressive and emotional. You know, all watches,
Speaker 2: even those that cost less than one hundred dollars, show
Speaker 2: you the precise time. But when you buy a Rolex,
Speaker 2: you get not just showing time, but you also get
Speaker 2: those expressive benefits. I am a man who can afford
Speaker 2: a Rolex, and you feel proud those emotional benefits.
Speaker 1: Profession Scott Galloway describes that as it's a way to
Speaker 1: signal your a suitability for mating to the opposite sex.
Speaker 2: That that is one thing that it does. Yeah, that,
Speaker 2: but then all the people in merit ones still still
Speaker 2: buy those fancy watch is good for them? You know?
Speaker 2: That is people signal their status, and the status is
Speaker 2: about expressive and emotional benefits. And so that was kind
Speaker 2: of the second generation that said people who buy Rolicxes
Speaker 2: are not irrational. They are normal people. They just care
Speaker 2: about some other things other than show me the right time.
Speaker 2: And then I was saying, wait a minute. People want
Speaker 2: more than those expressive and emotional benefits. People want well being,
Speaker 2: people want life well being. Have you touched on family?
Speaker 2: Have you spoken about education, about work? About religion, about society.
Speaker 2: Just think about how whoever wins the election, they are
Speaker 2: going to be half the country happy and half the
Speaker 2: country miserable. And so it truly affects life wellbeing as well.
Speaker 2: And so we have to look at that whole. And
Speaker 2: as I said before, you need money underlying it all,
Speaker 2: but money is not enough.
Speaker 1: Huh. That's really interesting. What led to the recognition that
Speaker 1: we're going through these different generations of behavioral finance and
Speaker 1: that it's evolving over time.
Speaker 2: Well, you know, I cannot say that it is a
Speaker 2: general feeling that is in my senses, that finance generally
Speaker 2: is still dwelling on the irrational stage. I think I
Speaker 2: moved forward to describe people as normal. And when I
Speaker 2: say utilitarian, expressive and emotional benefits to people in marketing,
Speaker 2: they say, tell me something new. I mean, we know
Speaker 2: that people in finance are still kind of reluctant to
Speaker 2: do that, and life well being is really beyond their
Speaker 2: sense of what finance is. And yet when I speak
Speaker 2: about it to my students, they know exactly what it
Speaker 2: is that I'm talking about, and they tell me stories,
Speaker 2: their own stories. The graduates said, fifteen years ago, I
Speaker 2: would have said that what is most important for me
Speaker 2: is to have money to spend it on myself. But
Speaker 2: now I have a son and he's the center of
Speaker 2: my life.
Speaker 1: Your priority has changed.
Speaker 2: I get it exactly. There is more than having money
Speaker 2: to make you happy.
Speaker 1: So I see this book as the logical next step
Speaker 1: to what investors really want, where you describe, Hey, it's
Speaker 1: not just about I want to generate the most return
Speaker 1: on my invested capital. There are all these expressive and
Speaker 1: value based and even status signaling aspects of people's investments
Speaker 1: and portfolios, their personal values, what they believe in. At
Speaker 1: the time that seemed a little radical to a lot
Speaker 1: of people. I think it's now become a accepted in
Speaker 1: the canon of behavioral finance. How much of a leaping
Speaker 1: off point was what investors really want into a wealth
Speaker 1: of well being?
Speaker 2: It is a natural progression. And so one of the
Speaker 2: things that I worked on even in the eighties in
Speaker 2: the late eighties was socially responsible investing, which known now
Speaker 2: as ESG. And I said, look, there are people who
Speaker 2: are willing to give up wealth to be true to
Speaker 2: their values by divesting from fossil fuel companies or whatever
Speaker 2: it is that offends them. These are not irrational people.
Speaker 2: These are normal people. Now it is a matter of
Speaker 2: kind of going further and saying what else affects your
Speaker 2: life well being beyond say, investing in line with your values,
Speaker 2: And then you get into those issues of education. For example,
Speaker 2: you know, education is about getting a better job, yes,
Speaker 2: but education is about so much more than that. You know,
Speaker 2: an educated person is likely to be a reader, is
Speaker 2: likely to be a thinker, is likely to have a
Speaker 2: different set of friends and all of that. It is
Speaker 2: not just about having a better job. It is about
Speaker 2: life well being beyond financial well being.
Speaker 1: Really interesting, you know, I'm going to stay with one
Speaker 1: investers really want. We use a custom index piece of
Speaker 1: software called Canvas. It's now won by Franklin Templeton. It's
Speaker 1: got a lot of different uses because it's a powerful
Speaker 1: piece of software. So with a custom index, you can
Speaker 1: own the Vanguard total market like eight hundred different stocks.
Speaker 1: And you have the ability to say I don't want
Speaker 1: guns or tobacco, which is a very common request. I
Speaker 1: was speaking to Jim O'Shaughnessy about it. The New York
Speaker 1: Catholic bishops say we don't want any drug companies that
Speaker 1: produce drugs that cause abortion, or insurance or hospital chains
Speaker 1: that provide those services. We just we don't believe that's
Speaker 1: consistent with our beliefs, and if we underperform a few percent,
Speaker 1: we don't care. How significant are people's personal values to
Speaker 1: their portfolios? How important is this?
Speaker 2: Well it really varies by person. In fact, I'm one
Speaker 2: of them who invests in general index funds and then
Speaker 2: makes donations consistent with my values. But for other people,
Speaker 2: you know, I have this standard analogy. I say, imagine
Speaker 2: that you face a potential client. Here's an Orthodox Jew.
Speaker 2: Imagine saying, listen, pork tastes pretty good. It costs less
Speaker 2: than kosher beef. Why don't you eat pork and donate
Speaker 2: the savings to your synagogue. Well, everyone understands that it
Speaker 2: is absurd, So I say, look, if having fossil fuel
Speaker 2: or tobacco stocks in your portfolio feels like pork in
Speaker 2: the mouth of an Orthodox Jew, take them out of
Speaker 2: your portfolio. But if not, then it is perfectly okay
Speaker 2: to separate the two. And I like the term that
Speaker 2: you use. That's the one I use, values based investing.
Speaker 2: In fact, there is an ETF for conservatives and an
Speaker 2: ETF for liberals. And then there is the other Maria
Speaker 2: mutual fun where they exclude everything that offends at the
Speaker 2: Catholic church.
Speaker 1: That's really interesting.
Speaker 2: You know.
Speaker 1: I remember a couple of years ago there was an
Speaker 1: ETF called Vice and it was alcohol, tobacco, gambling, but
Speaker 1: it was all the vice docks. Yeah, because some people
Speaker 1: had been shunning them. They had become cheap enough that
Speaker 1: the IRA call for a while that portfolio was doing
Speaker 1: really well.
Speaker 2: It did, and perhaps still does, but most of it
Speaker 2: really is directed that people who want to poke the
Speaker 2: eyes or the socially responsible investors.
Speaker 1: In finance, I've learned it's all marketing anyway, right, everybody's.
Speaker 2: You know, you cannot take marketing out of finance, yet
Speaker 2: how hard you try.
Speaker 1: Let's talk a little bit about another quote of yours.
Speaker 1: Often overlooked, the financial domain underpins all other domains of
Speaker 1: life and well being, including health, relationships, and work. Financial
Speaker 1: stability enables pursuing other aspects of a fulfilling life. So
Speaker 1: you were discussing justice a little while ago. Isn't that obvious?
Speaker 1: Do we really overlook that you need money to do
Speaker 1: these other things? How do we find ourselves in this
Speaker 1: state of affairs.
Speaker 2: When you speak with ordinary people and you ask them,
Speaker 2: is money all that matters in life? They would say no,
Speaker 2: you know, family matters, and friends matter, and religion matters
Speaker 2: and so on. It is just that when it comes
Speaker 2: to both academics and finance, and also practitioners financial advisors.
Speaker 2: Still to this very day, many financial advisors have the
Speaker 2: attitude of I'm here to make you money. What you
Speaker 2: do with it, that's none of my business. And so
Speaker 2: you think about that and you say, this makes no
Speaker 2: sense in many ways. That is, if a client says,
Speaker 2: you know, my oldest son really annoyed me. I think
Speaker 2: I'm going to write him out of my will. If
Speaker 2: you're a financial advisor, are going to say, well, here's
Speaker 2: the revision as signed the dotted line. I hope that
Speaker 2: you're going to say, are you sure? You know? Yes,
Speaker 2: you're going to be gone when they open the will.
Speaker 2: Does it occur to you that now brother and sisters
Speaker 2: are not going to speak to one another? You know,
Speaker 2: you're going to try to reason with a person and say,
Speaker 2: there is more than this financial decision. You have to
Speaker 2: think about what kind of life well being it is
Speaker 2: going to bring.
Speaker 1: So I'm glad you brought up the concept of financial advisors.
Speaker 1: My experience has been the best financial advisors are very
Speaker 1: empathetic to people's whole life. But I want to again
Speaker 1: go back to what you wrote. Good financial advisors must
Speaker 1: evolve into well being advisors. They must form emotional connections
Speaker 1: with clients and provide personalized guidance beyond just investment management.
Speaker 2: Exactly so from a business side, the skills that financial
Speaker 2: advisors have traditionally prized, that is, they know investments, they
Speaker 2: know stocks, they know hedge funds. Robo advisors do that
Speaker 2: work for a fraction of the fee. You want to
Speaker 2: realize losses, they'll do it automatically for you. You want
Speaker 2: to rebalance your portfolio, they'll do that. What it is
Speaker 2: that you bring is, of course knowledge. You know, you
Speaker 2: have to be teer of knowledge or finance, and I
Speaker 2: like in financial advisors good financial advisors to financial physicians.
Speaker 2: You know in the same way that, of course you
Speaker 2: want a physician who knows medicine, but you also want
Speaker 2: someone who is listening to you, who is asking you
Speaker 2: a question, who listens between the lines, that you can
Speaker 2: disclose to even embarrassing things about your health. And they're
Speaker 2: embarrassing things about about our lives that you are not
Speaker 2: disclosing to acquaintances, because a good physician is one when
Speaker 2: you leave the office you have a sense that even
Speaker 2: if the news, the medical news, is bad, at least
Speaker 2: you can see what is coming. You get that sense
Speaker 2: of empathy, that emotional contact is really what is going
Speaker 2: to keep that physician as your physician. The same applies
Speaker 2: to advisors. You know you cannot promise them I'll get
Speaker 2: you a HIGHERY transit than the advisor down the street
Speaker 2: because you cannot deliver that. You can say I care
Speaker 2: about you and your family. You can disclose things to me,
Speaker 2: and I'm going to guide you to of course take
Speaker 2: care of your financial wellbeing, but also of your life wellbeing.
Speaker 1: Huh. Really interesting, So you brought up a doctor. That's
Speaker 1: a perfect segue to our next question. If any one
Speaker 1: part of your well being isn't healthy, if your health
Speaker 1: is suffering, if you have some sort of physical or
Speaker 1: emotional setback, everything else seems to suffer. It seems that
Speaker 1: all of these different parts that you've been describing our
Speaker 1: financial health, our social health, our actual physical health, they
Speaker 1: all seem to be inter related. How do we maintain
Speaker 1: a healthy balance amongst all the different parts of our lives.
Speaker 2: That really is an issue that I've encountered that others.
Speaker 2: Our older daughter, for example, is living with with bipolar
Speaker 2: illness and mental.
Speaker 1: Discress it in the frankly before there was.
Speaker 2: A diagnosis, when we just had kind of an inklings,
Speaker 2: something is not going right, the therapist said that it
Speaker 2: is our fault, you know that that we are perfectionists
Speaker 2: or whatever. And it was just a matter of whether
Speaker 2: Nava is to blame or or I Amava being my wife.
Speaker 2: And so the family, the children part was damaged, and
Speaker 2: then the marriage itself was was damaged.
Speaker 1: You know.
Speaker 2: We we let we let our anguish kind of seep
Speaker 2: into our relationship. Uh. And and suddenly, you know, even
Speaker 2: though I could see that I'll get to any or
Speaker 2: that's not a problem, it just weighed on me. Uh.
Speaker 2: And what I've learned over time is to separate things.
Speaker 2: That is, I think now of life well being kind
Speaker 2: of like a portfolio. It has stocks or the equivalent
Speaker 2: of at domains, marriage, children, friendship, education, and so on. Now,
Speaker 2: some stocks will do very well in your portfolio, some
Speaker 2: will do very poorly. But you look at the portfolio
Speaker 2: as a whole, and so we have to look at
Speaker 2: the portfolio as a whole, and we can kind of
Speaker 2: transfer returns in some ways, transfer well being from say
Speaker 2: the work part to the I have a disabled child,
Speaker 2: and you know the fact that my wealth is high
Speaker 2: means that I can support that ill daughter without constraining
Speaker 2: myself in terms of consumption. So that is a very
Speaker 2: good thing. And so I think I think one is
Speaker 2: really to learn to move life well being from one
Speaker 2: domain where it is extra to one that is missing.
Speaker 2: There's another one that is really important, and that is disclosure.
Speaker 2: And I'm very happy that I disclose my own pain
Speaker 2: because when you disclose your pain to people, the typical
Speaker 2: response is they tell you about theirs and you might
Speaker 2: have nothing to do with kids. Whatever it is.
Speaker 1: They open up, they.
Speaker 2: Open up, and suddenly you move from being an acquaintance
Speaker 2: or a colleague to becoming a friend in an odd
Speaker 2: way kind of like for free. You enhance the well
Speaker 2: being of that new friend, and he or she enhances yours.
Speaker 2: It didn't cost you anything. You know, you go home
Speaker 2: and you say, I feel better just knowing that life
Speaker 2: is like that. You know that I'm not the one
Speaker 2: that God has chosen to inflict a handicap on that
Speaker 2: is life, and people manage. And if you can help people,
Speaker 2: of course, if you can help them in more direct ways,
Speaker 2: that is wonderful. Nava. My wife has been a volunteer
Speaker 2: at the National Alliance and Mental Illness NAMI for many years.
Speaker 2: She has helped so many people and families, and I'm
Speaker 2: so exceedingly proud of her for doing that, and so
Speaker 2: it enhances her well being, it enhances my well being.
Speaker 2: We know it gives meaning to life to know that
Speaker 2: we are doing good.
Speaker 1: Since you brought up your wife, let's talk about what
Speaker 1: you write about marriage. I don't think i've ever heard
Speaker 1: it described as the largest financial decision we make.
Speaker 2: Explain that, well, if you can think about it, you
Speaker 2: know that is of course, of course it is right.
Speaker 2: It is not buying this stock or that of putting
Speaker 2: money in your four oh one K. Marriage costs money.
Speaker 2: It brings money, and it costs money.
Speaker 1: It's also the partnership that you're going to face all
Speaker 1: these financial challenges through your whole.
Speaker 2: Lifetime, exactly. And so I tell my young students, they say,
Speaker 2: you know I married. I was twenty two when I
Speaker 2: got married and Nava was twenty one. Look around you
Speaker 2: here on campus, you see men and women who worthy
Speaker 2: of you.
Speaker 1: You know, who do you want to spend the next
Speaker 1: fifty years with?
Speaker 2: Yeah? Who do you think? And if you think that
Speaker 2: there is this giant marketplace online where there are people
Speaker 2: someplace who I just your soulmate, forget that. You know
Speaker 2: that is you build your life together. It is a
Speaker 2: joint enterprise. Deciding to come to the United States from
Speaker 2: Israel to study for the PhD. I can imaginally see
Speaker 2: a wife who says, no, I don't want to separate
Speaker 2: from my family and so on. But what would I
Speaker 2: have done. I'm lucky that my wife went along, and
Speaker 2: so yes, yes, yes, Speaking as somebody who has been
Speaker 2: married for some fifty four years, I can tell you
Speaker 2: that a good marriage is a wonderful thing.
Speaker 1: So now let's ask the opposite question, what does your
Speaker 1: research say about divorce and subsequent well being? Not just
Speaker 1: financial but total well being.
Speaker 2: I think that lots of people are not fortunate enough
Speaker 2: to find someone who is really a partner. I'm not
Speaker 2: even talking about a bad abuse. I'm just saying that
Speaker 2: people really go different in different directions, and it creates
Speaker 2: strife now. Interestingly enough, when a couple says that they're divorcing,
Speaker 2: say to their children. In many cases, the children are
Speaker 2: relieved because they've lived with that strife for a long
Speaker 2: long time and they're kind of anticipating that, and they
Speaker 2: can see that actually going from father to mother is
Speaker 2: not the worst thing. It is actually better than watching
Speaker 2: them bicker.
Speaker 1: It's a relief.
Speaker 2: It is a relief exactly so when it comes as
Speaker 2: a shock when you totally did not expect it as
Speaker 2: a child, that is painful and it takes a while,
Speaker 2: if ever, to heal. But when may gets to be
Speaker 2: so bad that it really seeps into everything where you
Speaker 2: think about it, at work, where it affects your health
Speaker 2: and so on, there comes a time to like a
Speaker 2: company that abandons a project without throwing good money off
Speaker 2: the bad.
Speaker 1: You know, well, some cost fallacy is a big deal,
Speaker 1: right Yeah. At a certain point you got to take
Speaker 1: the right down and move on.
Speaker 2: And very often people will say, you know, I should
Speaker 2: have made this decision five years ago.
Speaker 1: Let's talk a little bit about education and a college degree.
Speaker 1: Some people have argued that no one really needs a
Speaker 1: college degree. Economists like Nobel laureate Angus Deaton has written
Speaker 1: it's the single most important dividing line in terms of
Speaker 1: lifetime wealth, happiness, well being, health even. What are your
Speaker 1: thoughts on education and getting a college degree.
Speaker 2: I definitely agree. You know, people say that the value
Speaker 2: of college education has declined. I say to the contrary.
Speaker 2: I remember in my first days at Columbia, I was
Speaker 2: reading something, perhaps a newsweek, quoting an assembly line worker
Speaker 2: at an automobile company saying, you know, I earned as
Speaker 2: much as an assistant professor. And he was right. You know,
Speaker 2: my first job at the City University of New York
Speaker 2: in seventy five, I earned thirteen thousand, five hundred for
Speaker 2: the year. But of course now I earned multiples of
Speaker 2: what a blue collar person is earning. And on top
Speaker 2: of that, my life well being is higher. That is,
Speaker 2: I really enjoy reading books. I enjoy making sense of
Speaker 2: the world. I enjoy teaching. There's nothing wrong about being
Speaker 2: a handyman. I have the most wonderful handyman, both in
Speaker 2: terms of skills and a person. But you know, he
Speaker 2: does not have that college education. His range of interests
Speaker 2: is different, not necessarily worse, it's different. I can see
Speaker 2: that it would not have worked for me, and so
Speaker 2: both in terms of financial wellbeing and in terms of
Speaker 2: life wellbeing, you're really doing better as a college graduate.
Speaker 2: And so if you are qualified, if it is for you,
Speaker 2: do that, And if you are not sure, begin with
Speaker 2: community college. Figure it out, work at it. You know,
Speaker 2: it's not easy, that is, there are days when you
Speaker 2: would want to quit. But give it a chance, because
Speaker 2: without it, you're going to be at a disadvantage. Even
Speaker 2: if you own three houses, even if you own a
Speaker 2: business and you make a ton of money, there is
Speaker 2: a sense that something is missing.
Speaker 1: You devote an entire chapter to striking the right balance
Speaker 1: between saving and spending. Why is it so difficult for
Speaker 1: us to reach that sort of comfortable balance, especially when
Speaker 1: you're younger, when you want to go out and have
Speaker 1: a good time and buy things. But really, the sooner
Speaker 1: you start saving, the longer it can compound.
Speaker 2: For that is right. It is hard to save, especially
Speaker 2: when you're young, because there are many needs, and there
Speaker 2: are many temptations. If your friends are going to go
Speaker 2: to this bar and it costs a good chunk of money,
Speaker 2: saying you know, I cannot afford that. I think I'm
Speaker 2: going to say goodbye now that is very, very painful,
Speaker 2: and so we use techniques. Mental techniques are to help us.
Speaker 2: I talked before about this framing and mental accounting and
Speaker 2: self control. That is, if you contribute money from your
Speaker 2: paycheck to the four O one K, you don't see
Speaker 2: that money and so you don't spend that money. If
Speaker 2: you follow the rule of don't dip into capital, it
Speaker 2: means that the moment you say I think I'm going
Speaker 2: to dip into my four oh one K, there's going
Speaker 2: to be a voice you that says, no, I don't
Speaker 2: think that that is the right thing to do. And
Speaker 2: so young people figure out a way to use those
Speaker 2: mental tools to get them to save and spend, but
Speaker 2: spend sensibly. The problem arises when those young people get
Speaker 2: older and now they find themselves as being as I am,
Speaker 2: accidental wealthy people. And now it is a matter of hey,
Speaker 2: but they relax, Okay, you don't have to buy stuff
Speaker 2: on sale, you don't have to go for early dinner
Speaker 2: at a discount. You can fly if it is a
Speaker 2: long flight, you can fly business class, even if the
Speaker 2: price is outrageous. For many people, saving and being frugal
Speaker 2: turns into miserly and they find it really hard to
Speaker 2: break that habit, and so it is really hard. And
Speaker 2: I hope that they're kids or their friends are going
Speaker 2: to say, hey, wely. In fact, I have a friend
Speaker 2: who says, listen, if you fly economy, your son in
Speaker 2: low will fly first class.
Speaker 1: That'll that'll teach you.
Speaker 2: You know.
Speaker 1: I have a colleague, Nick Majulie, young guy in his thirties.
Speaker 1: He's our quant and he has this mental device he
Speaker 1: does if he wants to go out and buy something,
Speaker 1: Let's say it's a piece of clothing or something, it's
Speaker 1: five hundred dollars. However much that item is, he has
Speaker 1: to match it with a contribution to his four oh
Speaker 1: one K. So he'll say, if I'm going to spend
Speaker 1: five hundred dollars on some piece of junk, I also
Speaker 1: have to put five hundred dollars as an investment. And
Speaker 1: it forces him to spend very responsibly.
Speaker 2: That is a very good technique. Whatever works for you
Speaker 2: For us, you know now that that we fly business
Speaker 2: class when when we go to Israel, for example, we've
Speaker 2: also increased our charitable contributions by at least that amount
Speaker 2: and more so.
Speaker 1: You're matching the expensive plane ticket with a charitable donation.
Speaker 2: So I say, you know, I treat myself well, but
Speaker 2: I'm treating those who have less well as well.
Speaker 1: That's great. So I've seen some data that shows a
Speaker 1: correlation between the time people spend with friends and families
Speaker 1: versus the time they spend working with coworkers and the
Speaker 1: impact on overall happiness and life satisfaction. Tell us a
Speaker 1: little bit about social capital and how people use that well.
Speaker 2: Social capital has to deal with your circle of friends,
Speaker 2: close friends, and acquaintances that you can rely on it.
Speaker 2: And so some of them are really close. Some of
Speaker 2: them are close enough such that you can say, I'm
Speaker 2: short off money to pay the rent, can you lend
Speaker 2: me two thousand dollars? In some cases they're going to say, sure,
Speaker 2: they can do that, and they and they will do.
Speaker 2: But then there are also acquaintances. For example, if you've
Speaker 2: lost your job, you know that there are other professors
Speaker 2: who you know, and you can call and you say, hey, Joe,
Speaker 2: do you know of any openings, Or if your son
Speaker 2: is going to apply for college as a professor, you
Speaker 2: can call and say, give me some pointers as to
Speaker 2: how to write an essay that is going to be
Speaker 2: compelling to the admissions people, and so there's kind of
Speaker 2: a range of people who are friends. And one of
Speaker 2: the things is really for higher socio economic people, that is,
Speaker 2: people with higher education and higher income, they have many
Speaker 2: more of those casual friends that they can call for
Speaker 2: bigger net preferences, exactly a network, whereas for the people
Speaker 2: lower ones, there is a tighter, smaller but tight er,
Speaker 2: closer a circle of friends where you can say, you know,
Speaker 2: can you give me a ride to the doctor because
Speaker 2: my car broke down or something of that kind.
Speaker 1: So that's social capital. Tell us a little bit about
Speaker 1: cultural capital.
Speaker 2: Well, cultural capital is about knowing what is the right thing,
Speaker 2: what is acceptable, and sometimes it can be confusing. That
Speaker 2: is here we are at the time when you're not
Speaker 2: really sure if you should appear with a tie or without,
Speaker 2: if you're going to go on television. You're concerned that
Speaker 2: if you have a tie on, you're going to be
Speaker 2: the only one with a tie on or the only
Speaker 2: one without a tie on. And so you need to
Speaker 2: know what are the things that are acceptable, What kind
Speaker 2: of clothing, what kind of books, what kind of movies?
Speaker 2: Are the kinds that you can talk about with your friends,
Speaker 2: whether people in your circle. But when when I came
Speaker 2: from Israel, I did not really know. You know, Americans
Speaker 2: were were like like a tribe in the Amazon, that
Speaker 2: is what is it that makes them a tick from
Speaker 2: for small things to large.
Speaker 1: Very different country than Europe and elsewhere.
Speaker 2: Yeah, I grew up in Israel. You know, people say,
Speaker 2: aren't Americans very materialistic? And you say, well, you have
Speaker 2: to go to Israel and or at least a dead
Speaker 2: age because a dead age getting a car was a
Speaker 2: big deal. Not in the United.
Speaker 1: States, you know, especially today.
Speaker 2: Well, yeah, we had this kind of joke, half joke,
Speaker 2: how serious uh do you have for micai idio kitchen?
Speaker 2: You know, because it was you buy an apartment, but
Speaker 2: can you afford? Also, at that time it was fashionable
Speaker 2: to have cabinets kind of dominated with formica.
Speaker 1: Now it's the granite countertops with the nice wood cabinet.
Speaker 2: Exactly. You have to know those things. Even if you
Speaker 2: are going to go against that grain, at least you
Speaker 2: know that you're against the grain. You know. My mom
Speaker 2: would say, listen, suppose that you're going to be the
Speaker 2: Israeli ambassador to Moscow and they call you to the
Speaker 2: Torah and you don't know what to say. Think about it. Yeah,
Speaker 2: that is knowing what to say when you are called
Speaker 2: to the Torah is part of cultural capital that you need,
Speaker 2: not necessarily just as an Israelian Jew, but really as
Speaker 2: one who strives for a particular position.
Speaker 1: So I want to ask you a question because it's
Speaker 1: an election year and the chapter you wrote on societal capital,
Speaker 1: you write liberals tend to define fairness in terms of equality.
Speaker 1: Conservatives tend to define fairness in terms of equity or opportunity.
Speaker 1: What are these two tribes doing so differently and is
Speaker 1: there any chance of common ground between them?
Speaker 2: Conservatives generally say, you're going to be paid as much
Speaker 2: as you put in, so if you put in a
Speaker 2: larger portion of the pie, you will get to eat
Speaker 2: a larger portion of the pie. Liberals say, you know
Speaker 2: there are some people who say disabled, or some people
Speaker 2: who for some reason or another not because of laziness,
Speaker 2: are not going to contribute as much. Well, you know
Speaker 2: they might not get as large a piece, but surely
Speaker 2: you don't want to condemn them to starvation. How much
Speaker 2: responsibility do you have for others? And so you have
Speaker 2: the difference in points of view, and it really varies
Speaker 2: in Europe, for example, people are more content to pay
Speaker 2: higher taxes that pay not just for their services but
Speaker 2: also for the services of people who are less fortunate.
Speaker 2: In the United States, there is less of a willingness
Speaker 2: to do that socialized medicine. I mean, what can be
Speaker 2: worse than socialized medicine.
Speaker 1: Dealing with an insurance company is.
Speaker 2: Dealing with an insurance company precisely.
Speaker 1: Well, although there's a series of trade offs that when
Speaker 1: you have private medicine, you have options and you could
Speaker 1: do different things. People in Canada, I know, complain about
Speaker 1: long wait for very simple services exactly.
Speaker 2: And there are drawbacks to socialized medicine, and there are
Speaker 2: drawbacks to capitalistic or private enterprise medicine. And some people
Speaker 2: are going to say, well, everyone has to wait if
Speaker 2: it is not urgent surgery, and others say, hey, you know,
Speaker 2: I can get the surgery in the United States the
Speaker 2: following day.
Speaker 1: So before we go to our favorite questions that we
Speaker 1: ask all of our guests, I just have to ask,
Speaker 1: I know you've been speaking to people about the book.
Speaker 1: How's it going. What's the reception been like so far?
Speaker 2: It is a very very good reception, you know, in
Speaker 2: some way, what I say, is not new, and in
Speaker 2: other ways it is very new.
Speaker 1: The way you've structured it, in the way you tell
Speaker 1: the tale and organize this feels very new, even though
Speaker 1: I recognize a lot of the concepts from your earlier books.
Speaker 2: That is right. So there is a lot of literature
Speaker 2: about life well being, say, done by psychologists, done by economists,
Speaker 2: done by sociologists. People in finites don't know this literature.
Speaker 2: And of course, like all academic literature, it tends to
Speaker 2: be kind of general that in general divorce does not
Speaker 2: necessarily harm well being. But tell me a story, illustrate
Speaker 2: it so that it kind of brings it to life.
Speaker 2: And so my task was to learn and bring the
Speaker 2: academic literature the general literature, and then marry it with
Speaker 2: stories from everywhere.
Speaker 1: So it's data plus anecdotes. Someone I know has a
Speaker 1: child that's going to go to grad school next year.
Speaker 1: This person has ten million dollars worth of stock, cash,
Speaker 1: real estate in the bank. All he does is complain
Speaker 1: about this kid's going to cost me one hundred and
Speaker 1: fifty thousand dollars a year. And my argument with them
Speaker 1: has been, aren't you saying this backwards? Shouldn't be saying boy,
Speaker 1: I'm fortunate that I could spend one hundred and fifty
Speaker 1: grand on my's youngest son and it's not even going
Speaker 1: to move the needle in my bank account. Are people
Speaker 1: so obsessed with money that they forget what a privilege
Speaker 1: it is, what a joy it should be to say
Speaker 1: you want to go to grad school? Done?
Speaker 2: Absolutely? Yeah. I saw an article just recently about someone
Speaker 2: who says, how is it that people who are very
Speaker 2: wealthy in three generations? It's kind of from shirt sleeves,
Speaker 2: shirts sleeves, and so he says, maybe you should have
Speaker 2: fewer kids, And I say, WHOA, You really got it backwards.
Speaker 2: You know, the wealth is for people. People are not
Speaker 2: for building wealth. And if you're lucky enough, talented enough,
Speaker 2: hard working enough to accumulate that wealth, be grateful and
Speaker 2: have your kids live a bit better now, Help them
Speaker 2: find the vocation. Okay, of course you care about them
Speaker 2: not growing up to be spoiled brands. Help them as
Speaker 2: you can. You know, the last thing you want is
Speaker 2: to hold on to that wealth. You die at ninety five,
Speaker 2: the kid is sixty five. Now he gets that money, Well,
Speaker 2: thank you very much. You know it's still good to
Speaker 2: get ten million dollars even when you're sixty five. But
Speaker 2: it is their twenties and early thirties is when they
Speaker 2: need that money. This is the time to give it
Speaker 2: to them.
Speaker 1: So let's talk a little bit about that struggle. Warren
Speaker 1: Buffett very famously has said, you know, his kids are
Speaker 1: going to get a couple of million dollars, but they're
Speaker 1: not going to be wealthy, and he's giving away most
Speaker 1: of his money to charity. At what point do you
Speaker 1: run into the risk of spoiling the kids.
Speaker 2: I think that that that these are not two things.
Speaker 2: They really come together. That is, you have to help
Speaker 2: your kid if you can buy a house or pay
Speaker 2: for education. At the same time, you want to say
Speaker 2: to the kid, I'm paying for college or for most
Speaker 2: of college. Here's your responsibility. Your responsibility is study hard. Okay,
Speaker 2: this is not a time just for play. It is
Speaker 2: the time for you to study so that you can
Speaker 2: develop as a person and as a professional, so that
Speaker 2: you have a vocation. Those things go together. Kids kind
Speaker 2: of get the message, this is not free money. My
Speaker 2: parents are trying to guide me towards financial well being
Speaker 2: and also life wellbeing, and what I have to do
Speaker 2: my share?
Speaker 1: What do you think about the parents who say, all right,
Speaker 1: we're going to pay for your room and board and
Speaker 1: tuition and books. But you're half the bargain, as you
Speaker 1: have to maintain a B plus, so I know you're
Speaker 1: not just out having too good a time, you're actually working.
Speaker 2: I think that that is reasonable. I think that it
Speaker 2: is reasonable to set expectations where you do it with
Speaker 2: a great point average or other ways. It is really
Speaker 2: important for people to help their kids. I'll tell you
Speaker 2: a quick story. I was listening to a session that
Speaker 2: had to do with very wealthy people speaking to other
Speaker 2: wealthy people, and one of them had a daughter who
Speaker 2: was not interested at all in academic studies, but she
Speaker 2: was really very interested in art. And in an earlier
Speaker 2: session that they somebody came to speak about arts and investment,
Speaker 2: and that gave him an idea, and he said, what
Speaker 2: if I open a gallery for her? It will really
Speaker 2: be the right thing for her. Will it make money
Speaker 2: or not, I don't care. I have plenty of that,
Speaker 2: but it's going to be a vocation for her. He
Speaker 2: had tears in his eyes. He was so relieved that
Speaker 2: part of his well being that was so low is
Speaker 2: now going to be high. And I was thinking, that
Speaker 2: is wonderful. You know, this is why I repeat this
Speaker 2: story because it really touches me deeply.
Speaker 1: A clever solution. All right, so we only have about
Speaker 1: ten minutes left. Let me jump to our favorite questions
Speaker 1: that we ask all of our guests, starting with what's
Speaker 1: been keeping you entertained these days? What are you watching
Speaker 1: or listening to?
Speaker 2: The podcast that I'm interested in are ones that have
Speaker 2: to deal with society, so Ezra Kline, for example, Sure
Speaker 2: who has podcasts about society and how society operates and
Speaker 2: how government? This really resonates with me because this is
Speaker 2: something that I would like to know. I'm less interested
Speaker 2: in the usual fiction series and so on, which is
Speaker 2: not a very good idea because that's part of cultural capital.
Speaker 2: And so people make references to shows I've never seen,
Speaker 2: and it kind of puts me in a defensive position.
Speaker 1: You don't strike me as like a Bridgerton sort of guy,
Speaker 1: like you're not streaming that sort of stuff on that? No,
Speaker 1: I don't, you know, and it's cotton candy. Some of
Speaker 1: it's delightful, I'm sure, and really kind of like golf,
Speaker 1: It's not my thing, But I don't resent people for
Speaker 1: whom it is their thing. So let's talk about mentors
Speaker 1: who helped to shape your career.
Speaker 2: Well, I can think of Eli L. Harris, who was
Speaker 2: my teacher in high school, and he came from the
Speaker 2: United States. He graduated from Harvard, and he is a Zionist.
Speaker 2: Before he came, my teachers of English, and both elementary
Speaker 2: school and early in high school taught it through grammar.
Speaker 2: I cannot take grammar, not even in Hebrew.
Speaker 1: But by the way, I just finished a word with
Speaker 1: a preposition. In the back of my head, I see
Speaker 1: that little x that you're not supposed to end a
Speaker 1: word with a sentence with the word too, And at
Speaker 1: sometimes it just happened.
Speaker 2: Who cares? And so the first assignment he had was
Speaker 2: to write an essay, and suddenly I moved from the
Speaker 2: bottom of the class to pretty much the top of
Speaker 2: the class. And students came to him and said, why
Speaker 2: did I get a C minus? I had no spelling mistakes,
Speaker 2: and he said, that's not what mattered. An essay has
Speaker 2: to be interesting. On one of my essays, he wrote
Speaker 2: very good, indeed, and I didn't know what indeed meant.
Speaker 1: That's great. Let's talk about some books. What are you
Speaker 1: reading now and what are some of your favorites.
Speaker 2: So I'm reading now or read recently, Streets of Gold.
Speaker 2: It's about immigration into the United States, the waves of immigration,
Speaker 2: immigration laws, and it begins it with the story of
Speaker 2: someone at the turn of the century, the twentieth century,
Speaker 2: and he said, they told me that in America streets
Speaker 2: are paved at Gold. Well, I found three things. One,
Speaker 2: the streets are not paved in Gold. Second, the streets
Speaker 2: are not paved at all through they expect us to
Speaker 2: pave them.
Speaker 1: That's very funny.
Speaker 2: And so you kind of learn that the immigrants themselves
Speaker 2: did not really move from rags to riches, but their
Speaker 2: kids have done better than American kids.
Speaker 1: Of why is that. I've watched that firsthand, and I'm
Speaker 1: always I just always assumed the parents said, hey, this
Speaker 1: is an opportunity we can't have back home, take advantage
Speaker 1: of it.
Speaker 2: That I think is a big part of it. Really,
Speaker 2: there are those expectations that you place in your kid,
Speaker 2: or it may be the kids themselves kind of get
Speaker 2: without being told. You know that the uber driver who
Speaker 2: took me yesterday from the airport, he said, you know,
Speaker 2: he works as an Uber driver. He does not earn
Speaker 2: a ton of money. Uh, And he said, it's for
Speaker 2: my kids. And indeed they're going to get better education
Speaker 2: and have better chances than they would have had in
Speaker 2: his home country. And so if you look at immigrants today,
Speaker 2: it's the same story. That is, people are afraid of
Speaker 2: immigrants and and so on, but immigrants, you know. And
Speaker 2: of course I'm an immigrant, so I'm biased, but I
Speaker 2: think that immigrants add a whole lot more than they
Speaker 2: take away, especially if you count their second generation and
Speaker 2: the generations that fall.
Speaker 1: So Streets of Gold is one book, give us one
Speaker 1: of them.
Speaker 2: I'm also rereading a book that is called The War
Speaker 2: of Return. It is about Israel Palestine, and it's about
Speaker 2: the demand of Palestinians to go back.
Speaker 1: This is before the current, long before conflict, this is decades.
Speaker 2: There are something very anomalous about this notion of refugees.
Speaker 2: That is, my parents were refugees when they escaped from
Speaker 2: the Nazis from Poland. They were refugees in the displaced
Speaker 2: persons camp in Germany, where I was born. But they
Speaker 2: ceased being refugees when they came to Israel. And of
Speaker 2: course my children and their children are not refugees somehow
Speaker 2: a nations, it has come that Palestinians are refugees, even
Speaker 2: if they were not among those who were made refugees
Speaker 2: in nineteen forty eight. So it's their children and grandchildren,
Speaker 2: and they still have this notion that they're going to
Speaker 2: go back to Ashkelon and Jaffa and Haifa and so on,
Speaker 2: and you know, the censes really that unless we kind
Speaker 2: of get away from that and we get to know
Speaker 2: that people make their lives where they are, they will
Speaker 2: never be peace.
Speaker 1: That's a big challenge. All right. Our final two questions,
Speaker 1: what sort of advice would you give to a recent
Speaker 1: college graduate interested in a career in either investment, advisory,
Speaker 1: finance or academics.
Speaker 2: Well, what I would say to people really is what
Speaker 2: I'm saying to interns when I send them into internships.
Speaker 2: I say, think about serendipity, think about zigs and zags.
Speaker 2: That is the most important thing when you get out
Speaker 2: of college is get a job. Any job. You're going
Speaker 2: to learn from it. And if you hate this job,
Speaker 2: that's a very good lesson because you've learned something not
Speaker 2: to go there. And so life is going to take
Speaker 2: you in many directions. Keep your eyes open. Learn not
Speaker 2: just about the world, learn about your now. Academics turned
Speaker 2: out to be the right way for me. I'm a professor.
Speaker 2: This is my vocation, but it is not for everyone.
Speaker 2: You know, if you are a financial analyst and that
Speaker 2: is what you do, you may aspire to be the
Speaker 2: chief financial officer, maybe the CFO of a company. Good
Speaker 2: for you. There are going to be many surprises that
Speaker 2: you're going to encounter. Do that, and so don't try
Speaker 2: to trut your life in career too far ahead. Just
Speaker 2: just let things develop where you figure out the world,
Speaker 2: then you figure out yourself.
Speaker 1: And our final question, what do you know about the
Speaker 1: world of behavioral finance today? You wish you knew forty
Speaker 1: four years ago or so when you were first starting out.
Speaker 2: Well, you know, in a way, I would like to
Speaker 2: have known everything I know now a way, I'm really
Speaker 2: happy I did not that That is, in a way
Speaker 2: I'm happy that that I let things develop, that I
Speaker 2: discovered them as I did. It's kind of like like
Speaker 2: like opening gifts one at a time, one one every
Speaker 2: year and be surprised and be delighted by them. Uh,
Speaker 2: and and that that is what happened. You know, if
Speaker 2: if you think about those generations of behavioral finance and
Speaker 2: and the subjects that that that you have, the new ideas,
Speaker 2: you know, things I could not understand that night when
Speaker 2: I'm tired and ready to sleep. I wake up in
Speaker 2: the morning and I get that that so so I
Speaker 2: actually I just thought recently about this idea of well
Speaker 2: being as a portfolio.
Speaker 1: Uh.
Speaker 2: And I was just corresponding with an editor of a
Speaker 2: journal and she said, I really like this idea. Yeah
Speaker 2: you can. Can you write? Can you write a paper
Speaker 2: about that? And and and tell advisors how they can
Speaker 2: use that in a the station. I'm up to this challenge,
Speaker 2: you know, say is yeah, this is the kind of thing.
Speaker 2: So so for me, one of the pleasures of life
Speaker 2: is really discovering new things, making connections that other people don't.
Speaker 2: This is my comparative advantage.
Speaker 1: Well, that's just delightful. Thank you, Professor Statman for being
Speaker 1: so generous with your time. We have been speaking with
Speaker 1: Professor Meyer Statman, author of a new book, A Wealth
Speaker 1: of well Being, A Holistic Approach to behavioral Finance. If
Speaker 1: you enjoyed this conversation, check out any of the five
Speaker 1: hundred previous discussions we've had over the past ten years.
Speaker 1: You can find those at iTunes, Spotify, YouTube, wherever you
Speaker 1: find your favorite podcast. Check out my new podcast At
Speaker 1: the Money, short ten minute questions with experts about topics
Speaker 1: related to your money, earning it, spending it, and most
Speaker 1: importantly investing it. At the Money, in the Masters and
Speaker 1: Business feed, or wherever you find your favorite podcasts. I
Speaker 1: would be remiss if I did not thank the Crack
Speaker 1: staff that helps put these conversations together each week. John
Speaker 1: Wasserman is my engineer. A tick of Albroun is my
Speaker 1: project manager. Anna Luke is my producer. Sean Russo is
Speaker 1: my researcher. Sage Bauman is head of Podcasts at Bloomberg.
Speaker 1: I'm Barry Ridolts. You've been listening to Masters in Business
Speaker 1: on Bloomberg Radio