Morningstar's Sarah Newcomb on Helping Clients Break Bad Money Habits

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Each of us have past experiences that shape the stories we tell ourselves around money. And since your life experiences are different than your clients', you won't be able to understand how they think about and react to money until you understand the stories that inform their actions. Hi everyone, I'm business coach Steve Sandusky for Barron's Advisor, and welcome to Actionable Intelligence. My guest today is Sarah Newcomb. Sarah has a PhD. She's a behavioral economist for Morningstar and author of Loaded: Money, Psychology, and How to Get Ahead Without Leaving Your Values Behind. In today's conversation, we explore people's relationship to money, the stories we tell ourselves about money, and the psychology behind financial decision-making so we can improve our well-being. So let's get started with Sarah Newcomb. Sarah, I've heard you say that money management has almost nothing to do with the numbers. So what did you mean by that?

Yeah, what a great way to start. Yeah, money involves numbers, but the numbers are really only a part of it. What it really comes down to is the stories we tell ourselves because of those numbers. You know, the numbers are relative. What's $1 million? Well, it depends. If you only spend $40,000 a year, then $1 million might be financial independence. But if you spend $200,000 a year, $1 million is different. It's not the numbers themselves, it's what they mean. But what they mean to us isn't objective either. It's colored by so many parts of our perspective that we collect and bring with us through our, our lives. And I think that we often don't have any spaces or, or opportunities that really encourage us to examine how we think and feel about those stories, how those stories came to be. And so many of them are unexamined, and they lead us into choices that are somewhat autopilot. And I think, you know, I've sort of made it my mission to help people wake up a little bit about the stories they're telling themselves and how they might be able to nudge themselves into maybe a better financial path just through the way they think about money.

So let's say that I'm a financial advisor. What would you say is my role to try and better understand the stories that my client or prospective client has and how those stories might be coloring the way they're making their financial decisions?

When people share with you their financial lives and their hopes and dreams and fears, you immediately get into the deep and important stuff about who they are and who they want to be and how they can get there or what obstacles might be in their way. I think the role for advisors here is to be a coach, to be an educator, to be a guide. The goal of financial advice is to help people realize what life they want to be living and then mobilize their resources in support of those goals. And so, it's a great creative collaborative process, but you have to learn how to listen for some of the key factors in a person's mindset that might be contributing to either positive or negative financial behaviors. My work for years, I've been really fascinated by the simple factors, simple and changeable. I really think it's important to note simple and changeable factors of mindset that have been shown to correspond to positive or negative financial behaviors. Because if we can get our heads around some of the simple ways of thinking that we can change, that we can nudge, and that we can direct toward more positive ways of thinking and naturally motivate ourselves to be better financial managers, to be better with our own money. Advisors can play this role of helping coach people's mindsets toward healthier financial attitudes, which then will lead to more constructive financial habits and behaviors, which then naturally lead to that place in life where your resources can support your dreams.

Yeah, and I definitely want to go a little bit deeper here on mindset and what's changeable versus what's not changeable, but I want to continue going down this story idea here just a little bit more. So if you could give me some more context here in terms of how we develop these stores.

Yeah, for sure. So first of all, let me just differentiate between— there's a couple different branches of psychology. Both of them relate to financial behaviors but in different ways. So there's cognitive psychology, which has to do with the sort of systematic ways that we think, and biases and heuristics are something that you hear about with cognitive psychology. There's a lot of literature around nudges and biases and things like that, lots of great stuff there. What we're going to be talking about here is more in the realm of social psychology. And social psychology also affects our financial behaviors. It has to do with how we relate to ourselves and to others, to our society and the world at large. And so one of the ways that I've found useful to help think about social psychology and financial behaviors is that we develop core beliefs and values about life, about many things in life. And the set of core beliefs and values that we adopt and take with us into our many decisions also affect our financial decisions. We develop core beliefs and values around money, around what it means to have money or not have money. What does that mean about who you are, about who you're not, about what you can and can't do in the world? Those are stories that we learn to tell ourselves, but they also have to do with how we're defining the world and our role in it and what role money plays in in those stories. So yes, it comes from our learned experiences. It comes from who we happen to be raised by, what circumstances we've been exposed to. Learned experience absolutely contributes to core values. It also has to do with the social and cultural norms that we've been around. There are some research, lines of research that look at different countries and savings rates having to do with cultural norms. But you can, even with the same cultural norms, 2 different people in the same environment can have very different values around money. Siblings are a great example. People who grew up in the same financial circumstances with the same, same people around them and yet may have wildly different attitudes toward money, one of them being a spender, the other one being a saver. And so the core beliefs that we each individually internalize and adopt become these sort of stories that we tell ourselves around money. And we tend to distill them down into shorthand or rules of thumb for ourselves. And you can start to think about your own. What are the stories that you're telling yourself about money? It doesn't have to actually be very complex or difficult to get them to the surface. Some of them might be some of the proverbs that you heard growing up or the little sayings that people around you or that you may have adopted from the people around you, things like money money doesn't grow on trees, or money can't buy happiness. You know, these little statements about life and the world that involve money, we can take some of them in deeply while the other ones roll off our backs. So taking stock of which ones you've adopted, which ones rang true for you and that you've taken with you, can be as simple as just finishing the sentence, money is blank. Some people would say money is power. Some people would say money is opportunity. Some people say money is security. But it's not hard to see how if you believe that money is security, you might respond differently or use your money differently than someone who believes money is freedom and opportunity. Someone who associates money with freedom and opportunity might be more tending to spend their money to create opportunities and experiences for themselves, while someone who associates money with security may be more likely to hold on to their money in order to meet that need for security. So just finishing that sentence, money is blank, can start to sort of help you recognize some of the beliefs that you might have about money. And there's another great exercise I love. You just ask yourself, if money were a character in the story of your life, there's going to be a movie about your life and money is one of the characters, is it a villain? Or a hero? Is it a friend or an enemy? Is it a frenemy? Has it changed? And that can help you understand some of the ways that you've come to relate to money, just recognizing that it's a perspective. You've adopted a certain perspective, and there's nothing wrong with that. We all adopt our unique perspectives. What we need to do is bring our critical thinking skills to our perspective so that we can ask ourselves whether they're serving us well or whether they need some adjustment.

So, we all have stories. We all have these experiences that have shaped our beliefs around money. And let's say I'm the financial advisor and I'm meeting with a prospective new client. I'm asking some questions about money. I'm kind of getting their money story. And to me, I'm thinking, "Man, that's really dysfunctional, the story that you're telling yourselves." But to them, it works. It's functional. How can I determine whether or not the story that they're telling themselves or the belief that they have around money is something that actually works for them or whether it's actually dysfunctional.

Yeah, so what you're really touching on is, I think, a really important thing, which is the question of how do we measure what financial health is? And so I think it really comes down to there's two dimensions to financial health. There is the dimension of economic stability, which is making the numbers work and making sure that there is both short long-term solvency, that there's the opportunity for resilience and regrowth if there were shocks, and that life expectancy isn't longer than, than the means. You know, those are the basic parts of economic stability, and we all know how to do that with the numbers. Then there's the aspect of emotional well-being, and this is where things get a little bit more difficult to measure. I've done some work in this space. And there are a number of different measures of financial well-being. The CFPB has one. The Financial Health Network has one. Both of those are nationally validated samples. I've done some, some research with those. I also created my own metric of financial well-being where I asked people, over the last 6 months, how often have you felt the following emotions with respect to your money?. And those emotions were joy, peace, satisfaction, and pride, 4 positive emotions. And then I also asked about anger, sadness, helplessness, and anxiety or fear, and really wanted to understand how often people were experiencing both positive and negative emotions with their money. Then if you think about financial health as having both an economic dimension and an emotional dimension, then what you'd be looking for when you're trying to say what is financially healthy. Well, someone who is experiencing positive emotions with respect to their money, they're feeling more peace, more satisfaction, they're feeling joy and pride and peace when they think about their money far more often than they're feeling anxiety or stress or fear or helplessness. And so, yes, having money is important, but also feeling peace of mind is also important. And if you have one but not the other, then you wouldn't qualify as financially healthy. So, So with this two-dimensional model of financial health, you have basically four kind of quadrants that people fall into. You can be low on both. You can have low economic stability and be miserable and stressed financially. That would be what I would call a vulnerable mindset. You can be the worried wealthy. You can have plenty of economic security and yet still be stressed or anxious or helpless, feeling helpless with your money. And so that would be the person that is living well below their means but still doesn't sleep well at night because of their finances. Then you've got the carefree person who feels great, but they've got no security. Well, that's not healthy either, is it? And so then really what we've got is, is a definition of financial health that says to be financially healthy, you need to be both economically stable and experiencing the emotional well-being that the economic stability is meant to provide in your life. These are mindsets. They're not like personality traits. I'm not saying that there are certain personalities that are healthy and others that are not. The research I've done in this space has really mapped these four quadrants of financial mindset to simple changeable factors of how you think about a couple of simple things, which we can talk about, uh, a little deeper, but The point here is that financial health is both the economic and emotional well-being. And if you don't have both, it's not really financial health. So as an advisor, you're listening, you're looking at their numbers, but you're also listening for the anxiety. You're listening for stories of stress, anxiety, fear, what-ifing, or denial. The people who are carefree, who are spending far more than they should, but they're really, they've got their head in the sand. About it. You know, either one of those extremes is unhealthy. And then we can talk about the specific drivers of what drives us to save more and what drives us to feel better financially. Once you see that someone has either that protective worried wealthy mindset, what do you do in order to coach that mindset into something that's more masterful? Well, there's specific things I can teach you that can help. What do you do with a, with a person who's overspending and carefree about it? Well, there's some specific things that you can do to help coach their mindset to get to that one that's, that's more masterful.

You mentioned the word coach here several times, and I think that's really critical because I'm a big believer of this idea of advisor as coach. And I think that's a role that more and more advisors are going to play, is more of a coaching relationship with their clients. And so what's your thought on advisor as coach, and also how proactive should the advisor be in trying to uncover some of these stories and then use that information to do a better job guiding, advising, and coaching the client to better financial health?

Yeah. So, let's talk about the kinds of things to listen for and how you can sort of nudge mindsets toward financial health. Two big themes to listen for. And the first one is actually very simple, and I think it's so simple we don't notice it most of the time, and that's someone's mental time horizon. How far ahead do they look when they look into the future? A person who looks 20 years into the future is going to make very, very different decisions than someone who's thinking a week or two into the future. But we tend to look at financial planning from the long-term horizon and assume that just showing someone a chart or a graph with a long-term viewpoint is enough. But if someone is accustomed to thinking in terms of weeks, not years, it's going to be very, very difficult for them to follow any advice that's got its payoff 40 years down the line. As you listen to the stories that people are telling, Listen for how long, listen for the time horizon. There's a really interesting study that was done with people who were drug addicted versus people who were not. And they were asked to write stories, fictional stories about someone. And when those stories were analyzed, the people who were drug addicted, those stories tended to have only about a few days to a week timeline. While the other, the stories and the people who had healthier minds were much longer. They would take months, sometimes years in their stories. And this link between short-term thinking and impulsive behaviors is very strong in the psychological literature. And many of us, including myself, are naturally short-term thinkers. There's nothing wrong with being a short-term thinker, but if you want to make a long-term financial plan, you have to first train your brain to think in the long term. So, listen for the length of stories. You can even ask people, just ask them, how long do you tend to think and plan? And if they're only thinking weeks or a year ahead, then don't start with a 30-year plan. Maybe get them just to elongate their mental time horizon just a little bit, and you coach that mental timeframe out further and further until they've got practice thinking that way. Then the internal motivation to save kicks in, but it started with the way that they think. Behavior comes out of how we think. So you want to listen for the themes and how they're thinking. Are they thinking according to short or long-term timelines? That's huge. Coach a long-term mindset. Another one you'd want to listen for is, it's called locus of control, and it really just means where do you believe the center of control of power is in your life? Do you believe, for example, that fate or God or chance or other people play a larger role in dictating your future than your individual choice? Well, that's called an external locus of control because the center of power in your life, you believe it is external to you and your choices. Other people believe in an internal locus of control. They would say, I create my financial destiny through the decisions I make. And I've been able to see in my own studies and looking at studies other people have done, this locus of control control, people who have an internal locus of control are far more likely to save and to feel positive about their own financial situation, even when they're making a lot less money. If they're tapped into that feeling of control in their financial life, well-being is stronger. So you can be making lots of money, but if you feel out of control, if you feel as if the you know, all the what-ifs in the world could come crashing in on you, then it doesn't matter how much you make, it doesn't matter how much you have, you still feel out of control. There's not a sense of power or peace in your relationship with money. And so, listen for whether someone is the hero or the victim in their financial stories, and that'll tell you whether they feel like they're in control or external forces are in control. And you can coach that internal mindset by helping people focus less on things they can't control, like the stock market, and more on the things that they can control, like their spending and how much they're contributing towards saving for their goals.

So let's say a potential new client is coming to me and they're going to be retiring from their company in, let's say, 6 months from now, and they've got to decide what to do with their 401(k) money. Would it be your suggestion that as you're having the initial conversation with this potential client, that, that initial discovery meeting focuses on the types of things that we're talking about here. It's about understanding the stories, it's listening to see how financially healthy they are.

Yeah, I mean, it's— so if you're just meeting someone and they're wanting to retire in 6 months, it's important that you understand as quickly as possible their mindset about money. And if this is— if this person is a short-term thinker, then you've got a potential overspender on your hands. And so you'd want to know if they can can handle a long-term, slow and steady withdrawal rate. Can they do that? So short-term thinkers tend to be more impulsive, so they may be happier taking on more risk, but also they're going to want returns faster because those of us that are short-term thinkers are impatient and we have a stronger present bias. So we're much more interested in what happens right here, right now. And usually, usually short-term thinkers have a steeper discount rate. So, you'd have to pay me more to wait for something than somebody else who's a long-term thinker and who is more patient. So, yes, being able to understand if this person is a short-term thinker, if they feel like they've got control of their life and their finances, or if they're going to be really affected by the winds of volatility. Does volatility freak them out? Their sense of control, if they're going to be worried about a stock market crash, you want to know that before you put them in a portfolio. Portfolio. And so just being able to kind of get some guardrails around what sort of mindset are we looking at here? Is it a long-term, I'm in control mindset, or is it a short-term, life happens to me mindset? And the short-term external locus of control mindset is somebody who is going to need a lot more coaching in order to be able to take a buy-and-hold strategy or deal with a fixed income strategy. Because it's a mindset that is a lot more about the immediate, in the moment, and feeling very tossed by the winds of change.

One of the things that I really appreciate about your work is just how you really delve into the idea of mindsets, of stories, and how that impacts and influences the financial decisions that people make. And one of the articles that you wrote quote, you talked about how each specific financial move a person decides to make is a strategy or an attempt to meet their goals, and that strategy is based on an underlying story. And then you went on to say that as an advisor, it's important to differentiate between the strategy and the underlying story that informed that strategy. That's because to persuade a person to change their strategy, you need to start with the story that they already believe. And just as an example, if the market is crashing and the client calls and says, you know, we got to move some money to cash, oftentimes I think, you know, an immediate reaction is, okay, let's kind of look at the historical past performance and let's look at previous market crashes and how long it took for the market to recover, you know, so on and so forth. And we know, yeah, sometimes that works. But I think what you're saying here is let's not jump to that immediately. Let's kind of look at the story that's driving the strategy that they want to take there. Anything else, any other light that you can shed on that idea?

Yeah, I mean, so in that case, right, you've got a story. The story in their head is, oh my God, I'm going to lose everything and be out on the street and no one will love me anymore. I mean, there's, there is a catastrophic story taking place in their minds that they're trying to avoid. And the strategy is, I, this is a strategy for avoiding this terrible thing that this story that I do not want to have happen. Another example might be the, the family that over-leverages their property or borrows against their retirement in order to fund a child's education because they believe a story that tells them that a good parent pays for college and that their children's needs must come first. These are stories that can be deeply ingrained, and you have to work with the story. You can't just tell someone who believes that a good parent pays for college well, sorry, you can't afford your kid's college. They'll do anything to avoid being a bad parent. You have to work with that story and help, help say, actually, a good parent that can't afford to pay for college doesn't pay for college and is still a good parent. You know, good parents help prepare their children for the realities of the world that they're going out into. Good parents help launch their children into society. There are many ways to do that. One way is paying for their college, but there's debate around whether that's even the best way. So the strategies— I think what we've got to do is there's— when it comes down to the things from psychology that I think are the most useful for financial advisors in the day-to-day practice with just dealing with people and their emotional financial lives are: number one, listen for core belief. Because those core beliefs inform the stories that then drive our behavior. So listen for core beliefs. Then what we've really got to get to is this idea of there's strategies and there's needs. Our strategies are ways we're trying to meet our needs, but our needs are universal human needs. So think about Maslow's hierarchy of needs. Needs, right? There is a school of thought in financial management that says you have to know the difference between a want and a need. And I really dislike this framework because what it basically says is if you don't need it to survive, then it doesn't qualify as a need, it's a want. And the reality is it's not Maslow's hierarchy of wants, it's Maslow's hierarchy of needs. And yes, there's a certain hierarchy. If you're struggling for survival, you may not care as much about your needs for social connection or fun. But I mean, read the accounts of people in concentration camps, read anything about the human condition. And the reality is that yes, we can survive without meaning and friendship and beauty and joy, but we don't want to. You know, these are the things that give our life its texture, and our goals in life are to be self-actualized, not just to have a lot of money. So, why am I saying this? Because the strategies that we come up with of what we do with our money, every financial strategy is an attempt to meet a fundamental human need. And we can work with the strategies, but you look underneath the strategy to find the need. And it's generally strategy, stories, and needs. It can get a little complex, but let me think of an example. I once spoke with someone who was having some difficulty with his wife because he had a hobby of being out on his sailboat, and it was something that he really, really loved in his life, but it was causing tension with his wife because she really wanted to be saving that money and felt like it was a waste of money. And so it was an area of contention and it needed some resolution. So I asked him just to explore the idea a little bit. I asked him first, when he's sailing, what needs, what fundamental human needs was he meeting by being out on his sailboat? And he started talking about the sun in his face and the wind in his hair and the the smell of the ocean, and he lit up in a way that you could just tell there's no way you can take this man's boat away from him. His quality of life would plummet. He's meeting some deep needs by being out on the boat. Then when I asked him to consider the needs that his wife might be meeting with the strategy of saving that money rather than spending it on the boat, security and feeling a sense of peace and long-term. So, then I asked him, okay, so now her need for security and his need for self-actualization are sort of coming up, bumping up against one another because they can't both spend and save these dollars. So, I asked him if there was a way he could think of to get the same needs met that he gets met when he's on his sailboat, a different strategy for meeting those same needs that wouldn't cost as much money. And so he thought about it for a few minutes, and it really didn't take very long, and he said, well, okay, so first I thought about getting a small, you know, smaller boat, but that doesn't seem all that great to me. And then he realized he had a thought. He said, you know, I've been sailing for many years. I love giving back to my community. And he realized that if he started to give sailing lessons to some of the teenagers at his yacht club, that the cost of those sailing lessons would help to offset the cost of his boat. And so rather than needing to get a smaller boat, or not boat at all, he was able to supplement his income by giving sailing lessons. And he got really excited about this because not only did it help offset the cost, the idea of it was even starting to meet a different level of need of giving back to his community. So he got even more excited because he'd be able to have the sun on his face and the wind in his hair and be giving back to his community and not be spending as much money on his boat. But if we hadn't gotten to that level of the needs and what, what are the needs that you're meeting when you're out on your sailboat, and can we acknowledge that those needs are real, like quality of life things, then you can start to play with the strategies. The strategies are flexible, and especially when you've got a couple, because then you've got two people's strategies or two people's needs, a set of two people's needs, and you've got to come up with strategies that can get everybody's needs met at the same time without breaking the bank. It's not easy.

It's creative problem solving is what it Yeah, and this is such a great point that you just went over here, this idea of wants versus needs, and then the strategies that we can use to meet the needs. And I think this is another area where financial advisors can really add tremendous value because they can help facilitate this conversation. And as you're mentioning that, it just reminded me of an example with my wife and I that is very on point with what you're talking about here. My wife and I, in some respects, have different beliefs and different stories around money, and we have different ways of expressing how we use our money and what we want to do with our money. And over the years, my wife would buy things for the house, and I'd be thinking to myself, and sometimes I'd say it out loud, I'd say, "Well, do we really need that?" And it caused a little bit of stress and tension over the years. And eventually, we ended up taking a behavioral type assessment. And what we discovered from that was that it wasn't that my wife was materialistic and that she just wanted to buy a bunch of stuff for the house. It's that she had a real deep-felt need for aesthetics and beauty, and her background is in art. And so she wanted to be surrounded by these beautiful things And what she tried to say to me over the years was, I'm not buying really expensive things. I'm buying things that, that add beauty to the home. And I'm being very cost effective. And when I purchase those things, and it wasn't until I really made that connection of the need to be surrounded by beauty and the feeling of home that that brought to her as to why, you know, she might buy these things when I would be saying to myself, well, we don't really need that.

Right. Because there's, there's an emotional value that she gets from it. And emotion— I think we discount emotional trade-offs more than we should because our lives are emotional. And in every purchase, there is a financial cost and benefit, but there's also an emotional cost and benefit. And utility, this, this concept that economists talk about, utility, it's— people get very technical about it, but all utility is, is the overall value that you get from something, including the emotional value. So the utility that someone gets from beauty, if if you're someone who's sensitive to beauty, if it touches your sense of identity, her purchasing of these things is that she's meeting her need for personal expression. For, you know, I know I'm very sensitive to my aesthetic environment. It affects my mood. It affects my wellbeing. It is very much cost-effective for me to spend the money to have beauty in my surroundings because it affects my wellbeing day in and day out. For someone else who's not as sensitive to those things, and it may not be worth it, but it all comes down to which sets of needs you're trying to meet. And when it comes to a couple, being able to discuss the needs underneath the strategies is really important because we can get so focused on the strategy. Well, why did you do that? Why do you spend? Why do you save? I think, why do you hoard? Why do you waste? From Dante's Inferno. That it's an endless battle if we only talk about the strategies, but if we can go one level deeper and say, well, you know, my spending money on this is an attempt, I'm trying to meet my need for beauty or for relaxation, for fun, whatever the need is in the moment, we all have the same needs. And so it helps us to reduce conflict because you can understand her need need for peace of mind, for quality of life, for feeling like her home reflects who she is. You can understand that because we all feel that to some extent or other. And so, the problem comes when we don't have enough to meet all the needs at once because we can use financial strategies to meet all sorts of needs. And sometimes we don't have enough resources to use financial strategies for everything. So, a lot of what it comes down to is it's creative strategy strategies for meeting all of our needs using both financial and non-financial strategies. But the goal is not to compromise on whose needs get met. Both people's needs need to get met. It's how do we meet all the needs within the constraints of the budget.

Yeah, and I think it also supports this idea that there can be a difference between the optimal financial decision in the practical or the emotional-based best decision. So, we might say, "Well, financially, the best decision is to do this particular strategy," but that may not optimize the well-being or the emotional well-being of one or both of the people in the couple. So, sometimes we have to make a less than financially optimal decision, and that's actually the best decision for the couple.

It's true, and it can also be true for an individual. We get very caught up on the right decision being the one that puts the most dollars in the bank, but again, utility is not dollars. Utility is the total payoff, total value that you get from a trade-off. And so there is financial utility, there's the utility you get from the dollars in the bank, and then there's the emotional utility. And some things have an emotional cost. Emotional cost to them. Some financial behaviors have an emotional cost and some have an emotional benefit. You have to sort of add up both the financial and the non-financial costs and benefits. And we're looking for what's on the balance, what's the best, what optimizes or maximizes overall well-being, not just what maximizes dollars in the bank. If it was only about maximizing dollars, we would never give We would never give gifts. We would never— there were so many things that we wouldn't do because we would only ever hoard dollars. But the goal is not dollars in the bank. The goal is living the life you want to be living. And the dollars in the bank, they can be used to support that living your best life. But the first goal is figure out what that life is that you want to be living. Then you mobilize your resources to support living that life.

Yeah, it's just right in line with one of my companies called ROL Advisor, which stands for Return on Life. It's about living the best life possible with the money you have and making those best decisions, taking into consideration your needs and the best strategies to utilize to meet those needs. I want to circle back here for a second. Earlier in the conversation, you talked about simple and changeable factors of mindset. So, could you talk a little bit about about what is changeable and what is not changeable when it comes to either mindset or personality?

Yeah, so I think this is a really important distinction because personality— people, I think it's, it's tempting to say, well, what's my financial personality? But personality traits, especially as we measure them with like the Big Five personality traits, personality tends to be fairly stable and difficult to change. And I, I would argue that it's not even fair or good to ask someone to change their personality. And so when it comes to understanding how our mindset affects or how our psyche affects our financial decisions, I don't personally find it helpful to look through the lens of personality. Because what if you were to learn that your personality corresponds to great financial management or to very poor financial management? What have you gained? Gained from that knowledge. There's nothing actionable that you can do. It almost gives people a sense of, well, I'm just bad with money. That's just my personality. I'm just bad with money. I'm wired that way. And that's like saying that being good with money is a heritable trait. And I just can't reconcile with that. On the other hand, there are factors of mindset that are changeable that have also been linked to positive and negative financial behaviors. And so, to me, it's about saying, Let's explain this problem to ourselves in terms that we have some control over. So, if I learn, for example, that my short-term mindset is probably leading me to a lot of suboptimal financial decisions, well, okay, a short-term mindset isn't as hard to change as my personality. I can train myself to think further into the future. I've done it. It's not easy, but you can do it. And when you think about the behaviors, financial behaviors as being linked to different factors of mindset, to me, it just is a no-brainer. We want to link it to things we can change so that then once we know what's linked to positive and what's linked to negative, you can move the needle on some of those things.

And how much of this changing of our mindset can be done by ourselves, whether it's reading a book and you've got a book called Loaded: Money Psychology and How to Get Ahead Without Leaving Your Values Behind. So, that is certainly a great place to start to learn about some of the concepts that we're talking about here. But if I want to go about changing my mindset, what do I do?

So, first of all, I love what Carl Jung said that until we make the unconscious conscious, it will rule our lives and we will call it fate. And a lot of it is just taking stock, just figuring out, okay, how am I thinking about money? So, I've mentioned mental time horizon because it's huge, locus of control because it's huge. There are core beliefs because they really affect us. Once you've brought these things into your consciousness, you can then use your critical thinking skills to say, okay, do I want to tweak anything here? And so that's helpful. You can do this on your own. It's not hard. It's— well, let me put it this way. It's simple. It's not always easy. As with anything, with changing any habit, whether it's a habit of behavior or a habit of mind, it's repetition. It's recognition. Conscious recognition, and repetition. You replace one way of thinking with another way of thinking, but you can't even begin that until you've started to take stock. And, you know, you had asked earlier about, you know, how do you begin to work with clients? How do you even know who to work with? Your clients will let you know who's open to this kind of coaching and who's not. Some people are just not open to it, and you don't want to try to shove it down their throats. Other people are really open to the idea of saying, yeah, You know what? I feel like I do have some knee-jerk responses about money. I'd like to explore that. I think I'm probably getting in my own way some of the time. If you learn about them, knowing is half the battle, right? You know, and then you have the option of bringing just a little bit more consciousness to the decision every time you make it. And you'll have many, many opportunities to either make a different decision or make the same habitual one. But at least once you've brought some consciousness to it, you have the option.

Well, Sarah, I've been asking you a lot of questions here as we get ready to wrap up. Is there anything else that you want to add here that we haven't talked about yet?

I think I just want to sort of hit on the main points. We are surrounded by stories about money from the time we are pre-verbal until we die. Stories about money are all around us, and we can't help but absorb some of them. And so So, really taking stock of your own, which ones you've absorbed, what core beliefs have you adopted? Just ask yourself, money is blank. Is money power? Is it control? Is it a friend? Is it a foe? What is money in your life? And then those core beliefs, how do those stories of those beliefs lead you into the strategies that you choose for meeting your fundamental needs? And how can you maybe either, if you find that some of those beliefs are maybe needing some updating, there are ways to do that. Again, you can read my book, you can look up core financial beliefs. There's lots of stuff to help you work with these thoughts, but core beliefs, the stories that we distill, they inform the strategies that we use to try to meet our needs. But if we can look underneath our own strategies, strategies and get to the basic needs. They're all on Maslow's hierarchy. Those are the needs that we're trying to meet. We use financial strategies to meet them. We use non-financial strategies to meet them. But that's the goal, is getting all those needs met within the constraints of our budget. And that becomes a really rewarding, creative problem-solving exercise to say, how am I going to hit on all my needs, including my needs for meaning and self-actualization within the constraints of my budget so that I'm living a great life today as I'm preparing to live a great life tomorrow, but I don't have to choose one or the other.

That's a great way to wrap up, Sara, and I would certainly recommend folks get a copy of your book, Loaded: Money Psychology and How to Get Ahead Without Leaving Your Values Behind. And if people want to get connected with you, are you on social media? What would be the best way for folks to—

Twitter and LinkedIn are probably the the best places to reach me. I'm Finance Therapy on Twitter.

Excellent. All right. Well, Sarah, thank you very much and appreciate all the great work you're doing. Thank you, Steve. My key takeaway from my conversation with Sarah Newcomb is understanding how stories drive financial behavior. Every financial move a person makes is a strategy or an attempt to meet their goals. And that strategy is based on an underlying story that the person believes. And if you try to argue with them about the strategy without understanding their story that underlies their strategy, you'll get nowhere. All right, that's all for today. Make sure you like and share this podcast through your favorite social platforms. And for more great podcasts, visit us at Barrons.com/podcast. Take care and be safe.

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