A Wealth of Well-Being A Holistic Approach to Behavioral Finance

Unravel the complex relationship between finances and life well-being

In A Wealth of Well-Being: A Holistic Approach to Behavioral Finance, Professor Meir Statman, established thought leader in behavioral finance, explores how life well-being, the overarching aim of individuals in the third generation of behavioral finance, is underpinned by financial well-being, and how life well-being extends beyond financial well-being to family, friendship, religion, health, work, and education.

Combining recent scientific findings by scholars in finance, economics, law, medicine, psychology, and sociology with real-life stories at the intersection of finances and life, this book allows readers to clearly see how finances are intertwined with life well-being. In this book, readers will learn:

• How dating, marriage, widowhood, and divorce are all affected by finances and affect them
• Why the relationship between parents, grandparents, children, and friends changes as finances fluctuate
• How finances affect choices of education, such as colleges, and how these choices vary across different cultures around the world

A Wealth of Well-Being: A Holistic Approach to Behavioral Finance earns a well-deserved spot in the libraries of financial advisors, financial planners, investors, and all individuals looking to move beyond standard finance and enhance both financial well-being and life well-being.

Preface

Introduction

Financial well-being comes when we can meet current and future financial obligations, absorb financial setbacks, and keep driving toward financial goals, such as adequate retirement income. Life well-being comes when we live satisfying lives, full of meaning and purpose. Yet financial well-being underlies life well-being. Life well-being is at the center of this book.

Chapter 1: Financial, social, cultural, and personal capital

Life well-being is enhanced by four kinds of capital, financial, social, cultural, and personal. Each is associated with utilitarian, expressive, and emotional benefits, and each varies by social class.

Financial capital consists of income and wealth. Social capital centers on social networks of people supporting one another by acceptance, trust, and cooperation. Cultural capital encompasses knowledge of the many aspects of the culture of a group, ease of interactions with fellow members of that group, and comfort of adherence to the group’s values and practices. Personal capital includes physical and mental features, gender and sexual orientation, race, and nationality.

Chapter 2: Financial capital

We aspire to acquire income, wealth, and other financial capital because they enhance our financial and life well-being. We do that by education, enterprise, and hard work, becoming physicians, business owners, policemen, or plumbers. And we do that by spending, saving, and investing.

The domain of finances is crucial in well-being on its own. Moreover, the domain of finances is crucial because it underlies all other well-being domains. We need finances to support ourselves and our families. We need finances to maintain our own health and that of our families. We need finances to pay for education. We even need finances to experience and express our religion.

Chapter 3: Saving and spending

Life well-being is enhanced by a good balance between saving and spending now and in the future. In turn, well-being enhances that balance. Yet a good balance is hard to strike because it requires competent use of the mental tools of framing, mental accounting, and self-control. Deficient self-control can diminish our well-being if it turns us into impulsive spendthrifts. Yet excessive self-control can also diminish our well-being if it turns us into misers.

Chapter 4: Investing

Good balance between saving and spending enhances well-being, but it is not enough. Wise investing, including wise investments and investment behavior, enhance well-being further. Foolish investments and investment behavior can fritter away substantial savings, diminishing well-being.

Wise investments and investment behavior can be simple. People, however, are susceptible to misinformation and a range of cognitive and emotional errors that mislead them into foolish investments and investment behavior.

Chapter 5: Dating and marriage

Links between marriage and well-being go both ways. High well-being enhances the likelihood of marriage, and marriage enhances well-being. People who get divorced are distinct not only in low well-being during marriage but also in low well-being before marriage. Respect between spouses enhances well-being, and disrespect diminishes well-being more than respect enhances it.

Chapter 6: Widowhood and divorce

Widowhood and divorce often diminish people’s finances and well-being, but not always. Widows and widowers experience loss and grief in different ways, and communication with people who have not experienced widowhood is often awkward.

Divorced people experience lower well-being than married ones, but divorce does not necessarily diminish well-being. Indeed, divorce generally enhances well-being by dissolving unsatisfying marriages.

Chapter 7: Parents and children

Parenting is expensive. Insufficient finances are prominent among reasons leading couples to remain childless.

Parents enhance the well-being of children by the utilitarian benefits of food, shelter, and education. Children reciprocate with utilitarian support as necessary when parents grow old, providing money and care in their parents’ homes or their own. And parents and children enhance the well-being of one another by the expressive and emotional benefits of security, support, and love.

Chapter 8: Elderly parents, grandparents, siblings, and pets

Filial loyalty is practiced in the U.S. more than preached, evident is the prevalence of the ‘Sandwich Generation’ of parents stressed financially and emotionally as they care for both young children and elderly parents. Grandparenting usually enhances well-being. The well-being of grandparents to at least one grandchild is higher than that of parents with no grandchildren.

Close sibling relationships in childhood enhance well-being long into middle age. Yet sibling relationships are often difficult, diminished by rivalry. Pets are family members to many pet owners, enhancing the well-being of those who describe themselves as pet parents, as others describe themselves as children’s parents.

Chapter 9: Friendship

Links between friendship and well-being have been observed in children, adolescents, young and middle-aged adults, and the elderly. These links have also been observed across cultures. Friendship extends to communities, large and small, and people who volunteer in their communities enjoy higher well-being than those who do not.

Chapter 10: Health

Health costs money. Far too many people cannot afford health insurance, often postponing visits to physicians or hospitals until too late. People experiencing high well-being enjoy high perceived health, low self-reported pain, and low medical risks. Mental illness can devastate well-being. Indeed, mental Illness is the biggest single predictor of low evaluative well-being.

Chapter 11: Work

We derive utilitarian benefits from our work in earnings, but we also derive expressive and emotional benefits from our work in identity, meaning, community, dignity, and pride. Work enhances well-being and well-being enhances work prospects and income. Men who work longer live longer, and high employee well-being leads to high employee productivity, high customer loyalty, low employee turnover and, ultimately, tangible benefits to employers in increased profitability.

Chapter 12: Education

Education costs money in tuition and living expenses, but it enhances well-being by the utilitarian benefits of better employment and higher income, and by the expressive and emotional benefits of increased knowledge, lifelong friendships, and high social status. The expressive and emotional benefits of education were highlighted by their decline during the COVID-19 pandemic. In-person education at schools, face-to-face with classmates and teachers, enhances well-being by more than online education at home, because it provides expressive and emotional benefits in addition to utilitarian ones.

Chapter 13: Religion

Religiosity measured by frequency of attendance at religious gatherings enhances well-being by more than religiosity measures by private religious acts and beliefs, such as prayer. Members of many religious communities support one another with money and care when needs arise. When tragedy strikes, such as the sudden death of an infant, parents who attend religious gatherings receive support from fellow members, and that support restores well-being.

Chapter 14: Society

Societies vary in well-being and governments vary in enhancing it, yet finances underlie what governments do. Government finances involve well-being tradeoffs among citizens. Both liberals and conservatives care about fairness in income and wealth distribution, but their values are different, affecting government finances. Liberals tend to define fairness in terms of equality, favoring policies that redistribute income and wealth from the wealthy to those in need. Conservatives tend to define fairness in terms of equity, preferring that individuals and private organizations help those in need.

Chapter 15: Conclusion

Few are fortunate enough to enjoy well-being in all its domains. Life well-being calls for applying well-being medicines from one domain to heal well-being injuries in another. Well-being medicine from an ample finances’ domain can heal well-being injuries of a disabled child in the family domain. And volunteer contributions in the domain of work, helping families with disabled children, can heal well-being injuries further.

Notes

About the Author

Index