Making Money Changes That Stick with Katy Milkman #613

to be. Katie is a professor at the Wharton School of the University of Pennsylvania, where she explores ways that insights from economics and psychology how they can be harnessed to change consequential behaviors for good like exercise and vaccinations, but also behaviors saving more money, which is what we are we are all about here on the show. She's advised organizations ranging from the White House to twenty four

Hour Fitness. She writes everywhere as well. Her op eds appear in The Times, uh and The Economist, and we're just lucky to have her here with us today to talk about how you can make some of these money changes that stick. Katie, thank you so much for joining us today. Joel and Matt, thank you so much for having me. We are pumped to talk to you today, Katie. So much to discuss, specially since the dawn of a

new year. There's a lot of changes that we want to make, and our listeners of course are tuning in because they want to make money changes. But and we're here kind of with the money advice, but you're here with hopefully the here's how you can continue to do it over a longer period of time advice. But um, the first question we ask anybody who comes on the show is what they like to sport John and give

us a little window into their world. And Matt and I we sported on craft beer while we're saving and investing for the future. But what's that for you? What do you like to spot? John? And some people might think here a little crazy for spending a lot of money in that one area. I don't know if anyone will think I'm crazy, But I like to splurge on vacations, for sure. That's my that's my big one. That's not

crazy at all. But I like the I like it though. Yeah, there's actually a lot of research showing that when we spend on experiences rather than just buying stuff, we get more out of it. So I try to follow the data, and I take really nice vacations, very nice. So are you like a are you a quantity of vacations type of girl or like a quality? So do you go on like one really okay? So so you go on fewer really nice vacations as opposed to more of them throughout the year. Yeah, I will. I would say I

try to have a healthy number. But I think the splurge part is the quality. Our best vacation you've had recently? Well, I have a six and a half year old, so that limits the exotic travel I do these days. I used to go all over the world, but we had a really wonderful vacation to Hawaii, um this summer that was truly spectacular. Looking forward to maybe finally making that

trip happen maybe this year. We've got young kids too, so it's limited up and we're like where our kids are getting a little bit older, it feels like we can finally expand some of our destinations and to requate myself with the world. Yeah. Right, So before we talk about how to go about making change, like, can we just talk about how sometimes folks feel unable to change? Um, Like, what is it that's that's holding most folks back from believing that they just have the ability to to make

progress in their lives at all. Yeah, that's a great question. Well, first of all, I should say there are lots of very real external barriers to change. Right. You might feel like your budget is just too tight to make the changes you want, or you don't have a family support that you need to make the changes, or um job stability. So there are very real external barriers that can block people.

I don't study those. I actually study the internal barriers to change, and I think they're particularly fascinating because even when everything is lined up, which it rarely is, but even whenever reathings lined up in your favor outside, sometimes we're our own worst enemies. And the fascinating thing about the internal barriers to change is there's no one barrier. There's there's a laundry list, and some of us have multiple things we're fighting against. Some of us are just

struggling with one. Diagnosing is really important to using the right solution. So barriers that are common include procrastination, lack of confidence forgetting, which I think we overlook often. But if it doesn't get to the top of your priority list, if it's not top of mind. We often don't take the actions that are important. Habits can get in the way.

We tend to be creatures of habit. We tend to take the path of least resistance, um, which is, you know, following those those habits, and that can be a real barrier to change. So there are many many challenges, uh, And depending on which one a given person is facing when they're trying to make a change, the solution that will be most well suited to help them it is different. Yeah, what I will say forgetting used to be like at the top of the list for reasons I didn't get

things done. And I swear Google Calendar has been a game changer for me in that regard, Like I get a lot more stuff done just because I'm better at putting stuff on the calendar to get it done. But man, nothing worked for me before that, and so I was just like a forgetful mess and the compus nearly as much as I wanted to. So that it's definitely one thing You're right that we don't put a give enough credit just so we're forgetting things because we're not putting

them in front of ourselves. But one of the difference differences, Katie, between resolutions that we make and then the potential for lasting change, because I don't know, something like this is the staff that gets quoted all the time, but there's something like eight percent of people who don't actually follow through on the resolutions they make after a month or two.

So we're in this period right now, with this fresh start period that you talk about, where a lot of people are ready willing and they're trying to move in the right direction when it comes to making change. But yeah, how do we make sure that it sticks around and isn't just a failed attempt a few weeks from now. Yeah, it's a great question. And as you know, this is

sort of a magic moment. I've done research on what's called the fresh start effect phenomenon, where at the start of um new chapters in our lives, moments that feel like new beginnings, So the start of a new year being the best known, but there are many others actually

as well. We pursue goals with extra vigor. But the funny thing about fresh starts is they're short lived, right, So they give you that little boost of motivation to begin something new, but a couple of weeks pass and that's gone, and now you need something to carry you forward. And that's where a lot of folks fall flat. And I actually think one of the biggest issues is that people aren't strategic about how am I going to achieve

this school. They just say, oh, you know, I'm going to go to the gym this year, and I'll go now because I feel motivated, And then three weeks later they don't feel motivated anymore and everything falls apart. But an alternative way you could pursue a goal, and what research is better is actually by um following a bunch of best practices. So ideally, when you want to pursue a goal, first of all, you define a plan. And the plan isn't just I'm going to go to the

gym once, right. The plan is I'd like to do this regularly for some hopefully very long term period of time. If it's about getting in shape, if it's about um cutting back you're spending, whatever that is. Maybe you want to learn a new language this year. UM, you don't want to just say I'm gonna learn Spanish. You actually want to sit down and say, okay, how am I

going to do it? Well, maybe those details look like saying it's going to be four hours a week that I spend on dual Lingo, and it's going to be Tuesday, Wednesday, Thursday, Friday at five pm right after work when I spend an hour on the app practicing uh, and I'm going to do that every week consistently. Now you're actually starting to um see the groundwork for the kind of plan

that might carry for it. Now that might sound boring, but actually breaking down a big vague into bite sized pieces, whether it has to do with savings, volunteering exercise is one of the most important things you can do. And then figuring out when will I do it, where will I do it, how will I get it done? There's more to the magic as well. You have to make sure you won't forget so you can put it on

your Google calendar. Um. Ideally you're thinking about accountability, So can you create consequences so that if you fail to follow through, it isn't just a shoulder shrug, but you're really gonna feel crummy about that. Um. The more the consequence, the more likely it is that you won't procrastinate or give up on yourself, so you can actually put money on the line for instance, that you agree will forfeit

if you don't achieve a given goal. You can choose referees or some websites like stick dot com and be minder dot com which I am i should say, unaffiliated with just an admire of their product, that allow you to do things like that. And research shows that when you use these so called commitment devices basically penalize seeing yourself for future failures to fall throw on your goals, you dramatically increase the likelihood of success. Because nobody's nobody

likes a fine. So those are a bunch of strategies you can take, and there's more we could get into, depending on what other obstacles you foresee, like making sure you enjoy the way you're pursuing the goal and so on. But that's a pretty good groundwork. Yeah, absolutely, like you kind of just you give it's just like a little sampler platter of a lot of different strategies that you

talk about your book. Um. But essentially, I mean, all of these things can lead an individual to create processes that work for them and which makes me think of like my favorite new quote, which is process saves us from the poverty of our intentions, which I heard recently. I was just like, man, that is so stink and good. But that's what all of this does. It's about creating this plan because we've all got these idealized intentions at this point in the year where it's like, of course

I'm gonna do this, like everyone has goals. I just turned over a new leaf. But if you don't have the processes to back that up, then inevitably it's gonna fall flat for most folks, right, That's exactly right, And unfortunately, too often we aren't focused on those processes. We're just focused on that short burst of motivation and we imagine it will carry us for it and we'll have no problems.

But once you start recognizing no, there are barriers to success and to maintenance um and starting to set yourself up so that you can overcome them, you start seeing better results. And of course everyone resolutions get made at the beginning of the year, and so I feel like that's one that's a little more natural for for a lot of folks. But in your book you also talk about how there are different life events that can occur

that folks can maybe take advantage of. Can you talk through maybe some different examples of maybe even disruptive life events that that folks are able to use to their advantage to basically put them on this path towards a new fresh start for them. Yeah. Absolutely, Well. One of the really interesting things about the way we think about time and the way we think about our lives is that we don't perceive it linearly. We actually think about

ourselves like we're characters in a book. And um, our life is divided into chapters, and there are big chapters, and there are short chapters. There's even you know, subsections of chapters. Every time, um, something happens that feels like a book ends a chapter or a section of our life, UM, we feel this sense of discontinuity. So think about, you know, moving to a new city, and you could think about, you know, the years you maybe were in college or

working at a certain employer. Those are sort of chapters in your life. Or a year is also a major chapter marker for many people in their lives, which is part of why New Year's feels like a fresh start. And whenever we cross one of those boundaries, close one chapter and open another, we have a sense that we are um further apart from our past. Self. Whatever you know, I didn't get done last year or last year I meant to get in shape, or I meant to get

my portfolio under control and diversify better. Whatever it was, Uh, I didn't do it yet. But that was the old me, and this is the new me, and the new me's going to be different. So that discontinuity can be really productive for anything where you you haven't already achieved the goal and maybe you were feeling a little sad about it, and now you can say, well, you know that was the past and and this is going to be different. It also tends to lead us a step back and

think big picture about our lives. So we have shown that this happens um not just with things that you might expect to be momentous like a real physical change. You have a new job or a new house, or um a new community or a new role of some kind. Right, there's actually really wonderful past research by Wendy Wood at the University of Southern California looking at these life disruptions

and how they can break up our habits. But we've shown that even um trivial events on the calendar that truly do not matter and they they create the same psychological and choice effects where we pursue goals with greater vigor. So the start of a new week is a minor fresh start. We already talked about New Years, that's the big one we're all familiar with. At the start of a new month. Sometimes the celebration of spring, especially its

drawn to your attention. The start of spring feels like a new beginning, the celebration of a birthday, and there are many minor holidays that feel like fresh starts to people, So think more Labor Day and less Valentine's Day. And different religions have different holidays that signal a fresh start

for people who practice in that religion. So all these fresh start dates um when we sort of look at data, have this incredible ability to increase, just naturally how much people are doing things like searching for the term diet on Google, or visiting the gym, or setting goals on popular goal setting websites about everything from their health to

their finances to their education. Uh. And we have also done experiments where we show that by highlighting fresh start dates that people might not otherwise be attending to, we can get people to pursue their goals more aggressively. So my favorite experiment involved trying to get more people to sign up for a retirement saving account with their employer. UM That was you know, text beneficial. It was a four or three ban out of four oh one k,

which is probably the most familiar. But this was when I do so I thought I could throw out some of that that fun stuff. Um So, so we UM partnered with four universities that had four or three B plans and we sent out mailings to employees who were not yet saving at the sort of match thresholds. They weren't taking advantage of all of their employeer benefits, or

weren't saving at all. In fact, most weren't saving at all, and we invited them to start saving, either right away or in the future, because we know a lot of people would want to put off that that decision to start saving from past research. And what we varied is whether or not the date in the future when we invited people to begin saving, we said, we'll take care

of it, just mail back this postcard. If that date in the future aligned with a fresh Start and was described in that way, or if it aligned with the Fresh Start but wasn't described So to be really specific, imagine your birthdays coming up in two months and you're in the six arm, and we would flip a coin and the coin toss would determine whether you got a version of the mailing that invited you to start saving

after your upcoming birthday or in two months. Now, they're literally identical, but in one case we are highlighting an upcoming fresh start as the opportunity. So we tried this with birthdays, we tried it with a start of spring um and what we see is that inviting people to begin saving after a fresh start date and like literally calling it out as such, leads to more savings in the following eight months, uh than a literally identical invitation

to save that doesn't name the fresh start date. Significant increase. Y. Yeah, it's pretty exciting. Humans are odd beings, right that we respond differently that, but it's cool to see that that's the case, and then you can tailor your marketing accordingly to help people make better decisions. And I'm curious to you write about Katie. You performed a lot of research that shows that we underestimate the discipline needed to make change in our lives, but that there are ways that

we can make it more fun. So, yeah, I can talk about that because sometimes there are if we can make it more fun, we're more likely to stick to it. Yeah. This is a huge insight and and I think the best research on this comes from islet fish Buck at the University of Chicago and Caitlin Williott Cornell, who showed most of us, when we are left to our own devices, think the best way to pursue our goals is just to look for the most direct path to success and

follow it. So let's take the example of getting in shape. What's the maximally efficient workout machine that will create the most pain and sort of benefits per minute. You're like, I'm going to get on that if I want to get in shape. Yeah, it means I'm gonna start running right this minute. Yeah, exactly, flailing your arms, carrying weights

to all the things that are hard. A small minority of people, though, pursue their goals a different way, which is that they actually look for a fun way to achieve that goal of say getting in shape, so that that person might go to zoomba classes with a friend instead of getting on the punishing StairMaster. And what's really interesting is that the folks who into it they should find a fun way to pursue their goals. They're actually

the ones that have it right. In randomize control trials where people are either encouraged to pursue their goals in ways that are fun or in ways that are maximally efficient, the people encourage to pursue goals and ways that are fun are the ones who actually end up sticking to them longer. And in most cases, it's not about how much progress you make percession. It's about sticking to it

that leads to the real success. So that persistence difference between pursuing goals in a way that's fun and ways that are you know, slightly more efficient, we miss you know, we don't appreciate it, and we we make a mistake there. So I've done some research on different ways you can make it fun to pursue your goals, because there are strategies that systematically make it more enjoyable. Um one is

whenever there's something that would feel like a chore. Otherwise you can actually try to link it with a temptation. So only let yourself say binge, watch your favorite TV show when you are working out at the gym, or only let yourself pick up your favorite beverage from a coffee shop, um, when you're heading to the library to hit the books. If you're a student, I talk to my students that weren't about that one a lot. Or you know, only let yourself listen your favorite podcast while

you're doing household chores. And by combining those two things, something that's a temptation and source of pleasure with something that might otherwise not be super fun, that you might put off and dread, you can transform the experience so that you'll get your chores done and um, keep at it. And and there are other strategies to write. Selecting different types of activities as a way to pursue the same goal and also making it social can be really effective

when you pursue goals with someone who you enjoy. That's another way to change the experience. But the key insight is when you're thinking about a goal, when you're making a plan, just something we already talked about a little bit earlier, how important it is to be strategic, think about pursuing that goal and anning to pursue that goal in a way you will enjoy, because ultimately that is a huge predictor of success. You've got to stick to it. And if you don't enjoy it, if it's no fun

while you're pursuing the goal, you're going to quit. That's right. Yeah, that's where you can use that instant gratification which normally works against us. But then you're harnessing it. You're using that as like wind at your back. But so you're talking about temptation bundling, yes, yeah, yeah, I would love to hear, how like, how are maybe some specific ways that folks can apply temptation bundling to their financial habits to you know, whether it is for them to save more,

whether it's them spending less at the grocery store. I'd be curious to hear if you have any suggestions for ways that folks can temptation bundle to get ahead with their money. Yeah. I think that's a great question. Um, And I do think there are ways that you can

use temptation bundling when it comes to financial habits. Um. You know, one is just thinking about budgeting, which is not a task that everybody relishes and looks for too, um, and thinking about are there are there things you can bundle with budgeting that make it more pleasant, like maybe a favorite bottle of wine you only open once a month when you go through your budget, or a person you really enjoy spending time with and you both um get together when it's sort of time to make budgets

and you get to chit chat and laugh a little bit while you're going through it. I will admit that UM. I was influenced very much on that one by my dad growing up, who used to uh do as taxes with an accountant who become became a very dear friend, and they made it a source of fun every year. It was basically a big party. They stayed up late, they drank a lot of great wine, UM, they had

a really good meal when it was tax time. And so there's lots of ways I think you can make UM some of the things that feel like chores but are really important to healthy financial decision making UM more pleasant. A lot of them are social choosing an advisor who you enjoy spending time with, maybe going out for a special meal at a restaurant you you reserve for only spending time with them. So those are a few ideas, but creative listeners may come up with others. And I'm

always on the market for other temptation bundles. Yeah, no, I like it. I literally had a coworker who she would go to the gym, get on the StairMaster, and she would watch her favorite shows. And it was I remember, like, I think she would have given up her gym commitment if it hadn't have been for the fact that that she so deeply associated watching her favorite shows with working out, that it became this thing like, well, I'm gonna go watch my show, and but inevitably she was getting exercise

at the same time. So I think that's brilliant and it's one of those things that not many people think about. Well, we've got a few more questions we want to get to with. You want to talk about overcoming procrastination and laziness. We'll get to some questions for Katie on those fronts right after this. All right, we are back from the break talking with Katie Milkman about these different money changes that you can make. Uh, and not only that you

can make, that that you can stick with. And Katie, in your book, you talk about how, I mean, basically everybody procrastinates, right, everybody from folks like us all the way down to your students who you teach. But there are constraints or commitment devices you mentioned this just before the break that we can use, So can you explain

how those work and maybe give some examples. Yeah. Absolutely, Commitment devices are fascinating because we're actually quite used to their sort of sister tool, which is being managed by other people. Right, if you have a UM, a boss, or you know, live in a country that has a functioning government, then you are familiar with the fact that sometimes you are incentivized to behave in ways that are good for your organization or your UM community. Right, So,

think about speeding tickets. You are tempted to speed UM, but you get slapped with a fine if you give into that temptation or UM. Think about finishing a project at work. You probably are given a deadline by your boss. I know there will be some real consequence if you don't actually hit that deadline. Well, that's when someone else external to you imposes some cost for say procrastination or giving into temptation UM. But it turns out you can

actually impose penalties on yourself in the same way. And that's when it's called a commitment device. And it sounds weird because The idea of imposing penalties on yourself for not achieving your goals is kind of counterintuitive, like why would I find myself or punish myself or set deadlines with consequences for myself? But there it really does. But the evidence shows that when you create those kinds of

deadlines and penalties for yourself, it can be incredibly effective. Um. This is a podcast about finance, so or financial decision making, so it's a good place to talk about one of my favorite studies on the power of a commitment device, which actually was a saving study, and it involved giving people access to a very unusual kind of savings account.

The study was done in the Philippines, and it was done um to give people access to an account where, uh, they actually wouldn't be able to take their money out unless they reached a predetermined date or predetermined savings goal, and it had no interest rate benefits over a standard account that was fully liquid. It's sort of crazy to think people would actually put money into this. View have

sort of a strict um economic perspective. Somebody who doesn't like freedom or liberty, Yeah, like, why would you ever do that unless there's like a higher interest rate? Why would you ever want to put your money into this account? That's it's just strictly worse. You can't access your cash. But interestingly, in a randomized controlled trial, about thirty of those offered this kind of account chose to put money in it, uh, some of their money at least into

that account. So that's sort of shocking. And then the most astounding fact is that two groups ran only selected we're compared to one another, one of which had access to this account that were told, hey, you can put some money in it if you want, and remember thirty percent did. So. We compare that entire group, everybody who had access to it, whether they put money in or didn't, to a second group, which is the control group that

wasn't given access to this account. And the question is which group saves more of the group that can put money in an illiquid account or the group that can't. And what's fascinating is that having access to these accounts where you don't get any interest rate benefit, but your money is locked up until you've reached a predetermined saving school or hit a date that you selected, having access to it leads to eighty percent more savings year over year.

And again only thirty percent of people are even putting money in these accounts. So just think, you know, imagine if a hundred percent or how how high the savings benefits would be for the whole additional dollar that was the average for the entire group. That's right, exactly, So eighty percent increase in savings for the entire population just offered the account, even though only thirty percent took it up.

An incredible result. UM. So it highlights that when we take steps to constrain ourselves to prevent ourselves from giving into temptation, it's really beneficial. Another great studies showed that UM letting smokers put money into a an account where they would have to forfeit all that cash. So this is a different way of imposing a commitment. Here we're finding people instead of constraining access, but smokers who have a way to put money on the line theft of forfeit.

If they don't quit smoking six months later, they quit at a thirty percent higher rate than otherwise identical smokers who UM just get standard smoking cessation tools. So if we can find ourselves or constrain ourselves, that's the way we can sort of bully ourselves into achieving goals at

a higher rate. And again we're used to others doing this for us, our manager who sets a deadline and says there's a penalty if you don't turn this in on time, or or our government that says I, you know, I'll find you for the behaviors that I don't want to see. But if you do it for yourself, you can reap all the benefits. And I just, uh, I think this has everything to do with why I've been so successful at going to the gym three times a week, Katie, is because I pay a lot of money at the

beginning of the month automatically gets deducted. Well. It was also a fresh start thing, Matt, because you and I started working out when we moved moved over the summer, Katie, and like we thought of it kind of and we didn't connect the terminology because we hadn't read your book at that point, but we were connecting it to this like ability start effect to start some fresh things. And so the move so basically combined with that, I'm never going to stop working, right because I got I got

the double way. Yeah, that's great. And it is funny that by reducing the marginal cost of a gym visit to zero, you're essentially pre committing. Um, there's also a bit of fun psychology. You know, it is a sunk cost, right once you've spent it, you can't recover it. So in a sense, you sort sort of be making a decision that ignores that about whether you're going to go to the gym this afternoon or not. But that's not

the way our mind works. We tend to feel guilty about expenses even if there's sunk costs, if we're not sort of taking full advantage of them. So there's, um, there's a behavioral bias you're leveraging to get yourself to the gym there too. Yeah. Yeah, well, so for so many elements of our financial lives, we're not just trying to incentivize something positive. We're trying to discourage something that's negative, right,

Like reckless spending is one of those things. And so, yes, some studies have shown that using cash is more painful for people, which helps us helps people spend less overall. And although I've heard anecdotal evidence from younger folks that that's not the case, that they actually think of cash as of its burning a hole in their pocket literally and they don't feel the pain associated with it. And so maybe some of these older studies need to be updated.

I'd be curious to see if that like still holds. But but how else can we create pain points to help us curb some of those negative habits, some of those ways maybe in the realm of money that we're using it kind of like in ways that we don't want to be using it anymore, ways that are really working where we're working against ourselves. Yeah, Well, accountability to other people can be an important way of sort of punishing yourself if you want to avoid a bad behavior.

So we talked a little bit about UM accounts that are a liquid so you can you know, you're literally not able to touch it. That's one way of penaltizing yourself. You can literally find yourself. But that's sort of counterproductive. You're trying to save more money and then you find yourself for not saving enough, right, you can see how

that becomes a vicious cycle. UM. But another tool is just UM giving visibility to someone so that you'll be ashamed if they find out that you don't achieve a goal. That's another kind of penalty UM. And and so uh, having having accountability to someone else, giving them visibility into a financial goal in whether or not you're achieving it.

Um that could be a you know, still somewhat painful, but less painful way that you could achieve success, kind of like announcing on social media, Hey, I'm gonna run run a marathon at the in November or something. I like, if you don't actually make it happened, you kind of like set yourself up. All your peer group is expecting you to accomplish this, and there is some sort of a level of public failure if you don't hit it

and hit that goal. So yeah, I can see that being working in your favor to even as like a negative kind of motivation. Yeah, absolutely, Although I would say one important thing about any sort of public accountability is generally it's more effective to define small sub goals that you want to achieve and give some visibility into that rather than a big end goal. So you talked about, oh, I'm going to run a marathon, uh next year, you know in the fall. That's a really big end goal.

The ideal would be to say, you know, I'm going to run a marathon next fall, and I'm starting with a five k next month. Uh, and then you know, the month after that, I'll do a half marathon and so and so. You sort of work your way up and there's visibility at each point along the way. Um. When it's a big goal that's distal, then even with that penalty and shame, you may not take the steps

in between. You may sort of put it off and put it off, and then it it's too late to actually train for the marathon by the time you realize how embarrassed you'll be. So. Um, smaller, bite sized goals with visibility to others and accountability are a better approach. Yeah. I mean you talk about putting that plan together and how that's probably one of the most most important things you can do because literally, like what you start planning

things out, you start tackling the problem. It's not like it's just this device that sits on the shelf until it's needed. Like literally the process of planning starts. You start to implement the very next steps that you need to take. It kind of like gets you started on that setting things in motion at that point. Exactly, Yeah, exactly, got it. Okay, Automation. When it comes to defining laziness, I think that that's a device that can be used.

How important do you think automation is when it comes to creating lasting change and specifically fighting against laziness. Automation is such an amazing tool for changing for good, particularly in the domain of financial decision making. If we could have automation and every part of our lives, I think we would have far fewer problems. Uh if you if only I could just automate rejecting dessert for the next month, can you can you imagine? Or I could automate today.

I'm just gonna put it on autopilot that I will show up at the gym every day at five pm. Um. The amazing thing about automation and your finances is that you really can, sort of, in the words of Nobel right at Richard Taylor, set it and forget it. You can say, I'm gonna take this amount of money. I'm gonna auto deduct it from my paid check every month when it arives and send it straight to a retirement savings account or straight to an emergency savings account, or

whatever it is I need to save for. You do it. Once it happens automatically, you literally don't have to think about it. Again and then that money isn't sitting there for you to spend. It's a really incredible tool and there have been a lot of studies showing just how useful these kinds of auto deduct settings are for increasing savings. Frankly, I do a lot of work. I do work on savings.

I also do work on health, uh and education, and it is frustrating that we cannot automate um, you know, study habits, healthy eating and so on everyday behavior that we're still take some sort of willpower. That's right, And of course you can't automate resisting the temptation every day to splurge spend, But but it sure is helpful that some of that money has disappeared in your account balance is limited in terms of the splurge spending because you

automated those deductions and sending money to savings. Yeah. I mean, when you look at the results of automatic opt ins when it comes to like four one K contributions, the amount of people that contribute to their four one K when the default position is that they are like, it's

so much higher when it's left up to the individual choice. Right. Yeah, So this is this is a classic study that was done and I guess two thousand and three by um Bridget Madrian, and what she and her collaborator showed is that when this single employer switched from having new employees fill out paperwork UM where they had to check a box to opt in to be a part of the employers for a one K to having new employees check a box to opt out, they saw about a thirty

percentage point increase overnight in how many people were saving UM for retirements. Just extraordinary. And this has now been replicated many times. The effects aren't always necessarily thirty percentage point increases, but they're large increases. Uh. And it's really powerful and and lots of companies now have smart defaults.

And in fact, I think the two thousand six US Pension Protection Act legislated that its tax advantaged for your employer to automatically enroll you in their in their savings plan. That's when good process design or I don't know what they call it, all the software engineers who designed the different software that when you're on boarding employees, but just some of the right tweaks to the system can make a significant impact on the ability for folks to say

for future years UM. But Katie, we've got a few more questions for you that we're gonna get to here after the break, including we want to talk about the impact of the people we hang out with. We're gonna talk about peer pressure and more. Right after this all, we're back from break, still talking with Katie Miltman. We want to make money changes in most of us, at least unless you're just already crushing it, but most of us want to make money changes this year. We want

to get better with our finances. But we don't want to just make empty gestures in this new year and then find out that we fall flat on our face weeks from now. And so Katie, I'm glad. We're glad to have you here talking about how to make money changes that are going to stick around stand the test of time, creating, initiating and incorporating some of these tactics to do that. You give an example in your book about a way that high school students were able to

boost their performance. Uh, can you share that story? I think I found that one fascinating. Yeah. Absolutely so. One of the most interesting studies I've gotten to be involved in UM was a study led by Lauren S. Chris Winkler at the Kellogg School at Northwestern University, showing that when students are invited to advise their peers on how to study more effectively, the invitation to give that advice to others and the act of doing so improves advisor's

own grades. So let me just say that again, it's not the students getting advice who are getting better grades. It's the students giving advice who are getting better grades, which I think is just absolutely fascinating. And the psychology there is that um when you're invited to coach someone else on how to achieve a goal that you also are trying to pursue, like boosting your grades in school. One, it improves your confidence. If somebody's asking me for advice,

I must not be such a dufous. There must be something I could say that's you're right, Like, Okay, I guess I'm not. I'm not going to be a straight sea student forever. I've got something to offer somehow you've figured out how to money. You guys are making such such great decisions now that you're giving advice. No, so that there's magic there. And then the second ingredient is you have to introspect now deeply about what might work

for someone else. You're gonna think about things that would work for you too, of course, because that's what you have access to. So you're gonna think deeply because now I have to tell somebody something, so I've got to come up with some answers and then um, then you're

gonna say it out loud to another human. And when you do that, there's something called the saying is believing effect, where you know, I wouldn't be giving this advice if I didn't think it was good advice, and it would be totally a po critical if I didn't take it. So all those things combined are a really powerful force to help people achieve better results when they give advice to someone about a goal they too hope to um

succeed on. Absolutely, I mean and truly this is something that has had a positive impact on both your mind and those finances the ability too. There's a there's a

degree of responsibility. Not only are we just posting it on social media that we've got these goals, it's like we've got a podcast that's you know, that is also documenting all these different strategies and tips, and we're talking about don't revised funds in November, and I was like, Man, I know about these things and I believe that they're good,

But now I'm gonna open my own. Yeah, exactly. And when it comes to our listeners as well, I think, like, what's so great about this is we often are encouraging our listeners just to start talking about money. That's the biggest reason why we started the show five years ago. We just wanted it to be something that did not

feel like was unspeakable. And even with our listeners, as do you start hearing about what you should be doing with your money, but just taking this first steps and talking about it with somebody else gets the conversation started

pretty soon. Yes, they They might ask you a question and all of a sudden, it sort of feels like you're a teacher and you always you hear the saying that there's no faster way to learn something than to actually teach it, And just like you said, the saying is believe in effect, I think the same thing applies. And that's I mean, we love seeing that that happened

with our listeners as well. Yeah, and I want to know to Katie because like some of us are are inevitably going to fail at some of the goals we set, right, none of us is ever perfect. We just accomplish everything we set out to do in record time. So so how do we recover from from failure. Let's say someone set their goal to max out their roth IRA last year, but they fell short, Like, how should they approach that goal moving forward now? In Yeah, it's a great question.

There's a couple of things that research has to say about that. One thing that I think is really important is an insight about the way we code failure and it comes from work by Carol Dweck at Stanford University. She's studied something um called growth mindset and she compares it to a fixed mindset, and they're basically two extreme

ways of thinking about failure and success. In a growth mindset, the way you perceive the world, or the way you perceive your skill at anything, whether it's investing or your intelligence, is that it's not a fixed set of abilities you're born with that you can learn and grow and develop over time. But if you have a fixed mindset, you think about things just the opposite that you're sort of born with some innate abilities and whatever they are, they are.

And so these two perspectives that people can take on the world lead to really different ways of interpreting failure. If you have a if you have a fixed mindset and something goes badly for you, you fall down on a goal, you're going to interpret that as diagnostic of

your capabilities, and it's gonna be really discouraging. But if you have a growth mindset and you recognize the truth, which is that in almost everything in life, maybe the exception of your height, you have the ability to improve over time with learning, then you're going to interpret that failure as input and an opportunity to learn and grow and do better next time. And it turns out these

which mindset you use, it's it's malleable. There's research showing that we can teach people to have a growth mindset by pointing out that basically everything in the world you can get better with practice and and effort and and learning, and to the extent that you can be deliberate about adopting a growth mindset. Then when you fall short of your goals, which inevitably that's what goal. If you're setting goals correctly, by the way, you should be falling short

of some of your goals. You want to always stretch yourself with your goals. That is what the research shows. If you're setting wimpy goals and you always succeed, you are not pushing yourself enough and you're not you're not getting enough out of yourself. Um. So when you stumble though, think about it with a growth mindset and say, what did I learn from this? Not like, oh no, this means I could never do it, but rather you know, what can I do differently next time? What was the

obstacle that tripped me up? How could I adopt a new strategy so that in the future when that same obstacle gets in my way, I'll have a better outcome. So I'd take growth mindset approach to all goals is

really important. And then the other thing is based on research by my colleague Merca Sharif at the Wharton School, who's shown that when we set stretch goals for ourselves, which is the ideal, right, you know, I want to go to the gym seven days a week is better than I want to go to the gym two days a week. Um, it's we're motivating, You're more likely to push yourself. But when we do that um anticipating that we're gonna need to have the ability to give ourselves

some get out of jail free cards. She calls them. Emergency reserves can be really useful. So when you set tough goals, that is ideal, but it's also ideal to make sure that you let yourself off the hook not a lot. Because if you say, like, oh, you know, I'm gonna go to the gym seven days a week and I have six emergencies that I can take then,

but that's not going to get you very far. But it's better to say I'm going to aim for seven days a week of this this behavior and I give myself a little wiggle room to to get out of jail free than to say I'm going to try to go five days a week. And the reason is you're not gonna want to take those get out of jail free cards if you can avoid it, So you're likely to put yourself really hard. But if you do have a miss um, you won't give up and you'll still

keep pushing to do quite well. Nonetheless, don't scrap it all together. It keeps you from throwing everything out the window, to having those those doovers or those Mulligan's like you're sick for a few days, and like it gives you the grace to say, Okay, that's cool, Like that's a reason to miss a Jim, it's a decent reason to not be able to make it. And I mean, I don't think we're gonna have time to touch on it.

But you talk about elastic habits and how not being overly rigid, how important that is to keep us on track. I think the same thing applies with sort of these doovers as well. But Katie, what yeah, what about using

peer pressure? Peer pressure social relationships? I think that there are different ways that we can use those to our advantage as well, because it's it's not just middle schoolers that feel that kind of pressure, you know, like we're we're all social animals, and so how can we harness that reality to propel us forward with our financial goals? Yeah? I love this topic. It's so important. UM. So we are incredibly influenced by the people who surround us. They

show us what's possible. UM. They shape our beliefs about, um, how we should be behaving. When my favorite studies showing this is just looking at the college roommate you're randomly assigned as a freshman, and shows that if you end up with a roommate who is basically a better student historically, you get better grades than if you end up with roommate who had sort of less less studious nous historically. So, you know, think about the logic of it. Your your

roommate goes out and parties every Thursday and Friday. You think, well, that's the thing to do in college. I should be partying all the time, versus your roommate every Thursday and Friday stays in with a book, makes um, you know, flash cards. You're thinking, gosh, I guess the succeeding college, I should be staying in Thursdays and Fridays and making flash cards. So we're in. My roommate is a nerd, and I gotta get a new one. In the extreme,

that also happens. But on average, Um, you're right, it's yes, there can there can be. There could be situations where you're like, God, you're so crazy that you don't aren't influenced by people. But on average, if there is two much of a disparity, it turns folks off that way, Yeah, I mean, in that way, it can kind of backfire.

And so it's it's so important to surround yourself with, like, you know, individuals who have something in common with you, but who who aren't, like at the very top of their game, because when there is that gulf, it can, like if I'm working out with, it can prevent you. It's going to be it's gonna be dispparenting, right, it's gonna make me. So you want someone who stretches you a little bit because they are a little bit ahead of you, but it's not hopeless. It's not a hopeless golf.

And that's also what this research on college roommates showed was you want somebody who is, um was a stronger student than you, ideally as your roommate. But you don't want, you know, the valedictorian if you were a straight A student, because now there's there's such a gulf that you can't even relate. And like you said, you say, hey, this person is a nerd. I'm going out every night. I

gotta get away from them. Um. So that but it is important to cultivate, if you if you have big goals in any part of your life, trying to cultivate social relationships with people who share those goals and who are frankly a little bit ahead of you and from whom you can learn is incredibly valuable. UM. They can be a support group. You can also offer them advice, which we already talked about the power of advice giving. Right, you can talk about those shared goals and you'll find

you actually do have something to offer. UM. But you can do what my collaborator Angela Duckworth and also Katie Mayor and I'll call copy and paste, which is actually we show that when you deliberately coach people to go out and look for friends who are using clever tactics to achieve a goal they too want to achieve, and say go find what they're doing and try to emulate it, there's benefits to that people somehow, even though they naturally

soak up some of what's around them, there's still something left on the table because just that nudge to copy and paste leads people to go looking for um mimicable behaviors. And that is really important and valuable because other people have approached and tried to pursue most of the goals that you want to achieve, and some of them have found a degree of success. And particularly people in your social net work. They have more in common with you,

their lifestyle might resemble yours in many ways. Um so they probably the things that they're trying maybe quite effective for someone like you too, So ask and try to figure out. What can you learn from others who have succeeded. No need to reinvent the wheels. Start from scratch, not

rocket science. But we often forget it right, like we forget, hey, somebody else already did this, and I should go collect that data like we're used to, you know, trying to learn from experts and so much of life I you know, I teach it to business school people go look at an accounting textbook when they have to figure out accounting.

But sometimes with goal setting, we forget that there are other people who've come before us, and that there's expertise there too, for sure, and you don't have to just figure it out all on your own, and other people are a great resource. Katie, thank you so much for joining us today. Not only do you have your book How to Change, which you've also got a podcast, You've got a newsletter in addition to all your work being a professor. So where can folks learn more about you

and what you're up to. Yeah, thanks for asking and thanks for having me. Um, best place to find more about me is that Katie Milkman dot com. It's Katie with a while like Katie Perry, and you can subscribe for Milkman Delivers if you so choose to get monthly tidbits or yeah, listen to my podcast, check out my book or read the nerdy research papers. If that's your thing, that's definitely my thing. You love it all, Katie, thank you so much for joining us today. We really appreciate it.

Thanks for having me. It was a blast. Well all right, man, I only wish we just had more time to actually talk with Katie. Yeah. Well, maybe our new goal in three is that our interviews are more Joe Rogan from even going one hour, I think sometimes as long, but yeah, maybe we should take it to like two four hours long. Now, this this really was an awesome conversation though, that we had with Katie. What was your your big takeaway from this conversation? And she's smart, She's got a depth of

knowledge that's fascinating. But she also researched all the different examples and stories as you and I were talking about before we started chatt with Katie, she just she not only has the head knowledge, but she's done all this practical work with companies that give us the ability to connect to to everyday human actions, which I think is super helpful. But you get from consulting like you have to make that connection. Otherwise you're not really a consultant, right,

You're just a professor. You're just a research exactly. They're like, I would have taken your class if that's what I wanted. I want the practical application to this. But I think my biggest takeaway was when she talked about making it fun and that you know, even if progress takes longer, you're gonna be more likely to stick to it. And I think, yeah, when we're talking about budgetings, she said, do it over a class and wine or something like.

That's kind of advice we've given over the years, like incorporate something fun into that money management. Set little rewards for yourself as you do make gains, as you do accomplish those smaller goals that you've set out for yourself. It doesn't need to be all drudgery, and ultimately the goal is that you're you know, hitting on all cylinders your your budget reflects the biggest goals that you have for your life, and so that when you achieve those things,

it's like it's fun and it's energizing. But the more that we can make what seems boring to be fine. Like when I thought about working out, Matt, you decided for CrossFit, I said, you don't what sounds fun to me? A water rowing that splashy, splashy. Yeah, I wanted to sound fun while I was working out, and I was like, this is gonna be like kind of a whole body thing, but it's also there's something enjoy I find enjoyable about it, or riding my bike on the path and then up

our local mountains like that kind of thing. I was curious, though, did you Did you make it fun though, in the way that you were able to um temptation bundle, Like, I assume that's well, actually I do. I listen to a podcast for music typically when I'm working. But like, I just tried to set out instead of signing up for the most hardcore workout I could, I found something.

I was like, I know this is gonna be less intense, right, and I'm not going to see results as quickly but it's going to be the thing that I find enjoyable. I feel like I can stick to seem more appealing to you. Yeah, and I think that's really important. I think if it allows you, it's like playing the game of basketball versus going for a run. I'll sign up for a game basketball any day of the week, but I'm not going to go on to find out run

like just not gonna happen. I hate it, and so find the things that's gonna stick to know yourself a little bit. That's so true, man, This is like one of the ways where you are so different. I guess for me, like hearing a five mile run like up the mountain or something, I'm like, oh, yeah, that sounds awesome. Basketball not so much jammed way too many fingers playing basketball. But so my big takeaway, I'm gonna do something completely new, which we've never done with an interview before. But I

want to say something like literally entirely new. This is something we didn't get to but in her book as well, I just want to be able to present more information because Katie has so many great ideas, but she talks about how these different strategies, these different tactics they're not something that you can awesent times just do once and then completely forget about it and have your problem solved.

And oftentimes some of these strategies that they may not work as well as they used to maybe when you first started. And so she had talked about when you do see some growth stalling out, just considered new ways to reach your goals, because a chore for one person, like running five miles, that might be fun for somebody else like me. And so I know that that really stuck with me as well, because she was encouraging folks to think about these different problems we're faced with more

as a disease rather than a rash. So, for instance, like doctors wouldn't give insulin to a diabetic for a one month and then be like, all right, you're set you now, that's not how it works. It's something ongoing that you have to revisit. Uh. And so in the same way that is how you would treat a rash, you know, something that is more temporary. But oftentimes with some of these larger goals, especially the financial goals that we have in our lives, think about it like a disease.

It's this thing that is going to be with you for a really long time, and it is up to you, like you said, Jill, to know yourself and to adapt and figure out how it is that you're going to accomplish that goal because oftentimes there isn't somebody outside of you. There isn't that external pressure who is encouraging you to reach that goal. Oftentimes, like I mean, this is what you should try to thank that happen, because that's a

helpful way. It is helpful, but oftentimes, like these are internal things that we have to figure out ourselves, and so I just found that really helpful. The disease of money management will be with you forever, but we want you to be able to implement some of the things that Katie talked about on this episode, so you can stick to the goals that you have just created. Like now is a brilliant time. It's the the fresh start effect that Katie talked about. Now is the best time.

And one of the things that I've heard Katie say before too, she didn't say today, but like like so many New Year's resolutions fail, but there's a huge percentage

something stick to it. We should take the positive side of that and say, you know, what, There's no better time of year that more people make lasting change than right now, and so hopefully you can incorporate some of the things Katie talked about and make some lasting change moving forward when it comes to your personal finances, because

focus on the brighter side of things for sure. Well, let's mention the beer that we had speaking of the brighter side of things that we enjoyed on this episode. This one was called half of Vised Guy by Mutation Brewing. It's a helf of vising and yeah, Matt, what we your thoughts on this beer? It was great? Yeah, this was another delightful beer by the guys by Jack and friends over there at Mutation. But yeah, light, pillowy wheat beer.

It had a little bit of sweetness. I feel like, maybe maybe for a half of Eisen, it was a touch sweeter than some of the ones out there, Like we've had some that are quite dry. But this is the kind of beer I would drink with a pizza in particular, one that's got maybe some some spicier sausage on it. And if you're looking for something to cool you down, Yeah, this is if you're normally in the pilsner crowd, like if you're like Budwise or bud Light,

that's what I drank occasionally blue Moon. This is like the better version of Blue Moon kind of thing, right, Like, if you want, if if you want to helf of vising moving too that craft beer realm and you haven't really gotten there, find a good helf of Vising from a local brewery. That's a good thing to to start off with. I still remember one of my first craft beers was win were Brothers in Portland oregan helf of Easing. They make one of the better ones out there. This

one wasn't shocked top No, it was not. This one rivaled it though, I think I really like this beer. Even though helf of Visins or not my go to style, this was a good version of it. So exactly, that's gonna do it for this episode. For show notes links to some of the resources that we mentioned that Katie mentioned on this episode, you can find those up on our website at how to money dot com. Right man, So that's going to be it until next time. Best Friends Out, Best Friends Out,