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