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Financial Planning > Behavioral Finance

"If You're Happy and You Know It ...

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At the recent International Positive Psychology Summit, I had the opportunity to conduct an interview with leading psychologist Dr. Martin Seligman, past president of the American Psychological Association. You may wonder what positive psychology has to do with investments and financial advice. Stick with me here, because there is a definite and powerful connection.

A legendary industry leader, Dr. Seligman is the founder of the Positive Psychology Network. This exciting new field includes research on positive emotions, positive character traits, and positive institutions. Dr. Seligman has secured over $30 million in research grants and has persuaded the John Templeton Foundation to create the largest prize in the field of psychology. The Templeton Positive Psychology Prize, which recognizes outstanding research on what creates happy, functional people and healthy institutions, totals $100,000.

Dr. Seligman is a professor at the University of Pennsylvania. He has written 20 books and 170 articles on motivation and personality. His books have been bestsellers internationally, and his articles have been featured in the The New York Times, Time, Newsweek, Reader’s Digest, Fortune, and many other publications.

Dr. Seligman was highly supportive of my goal to bring the science of happiness to the financial advisory industry. My question was simple: How can financial advisors use the new science of happiness to improve client satisfaction and to grow their business? Here is the advice Dr. Seligman had for financial advisors.

I’ve been talking to financial advisors about positive psychology and “vision coaching” based on the science of happiness. What are your thoughts about putting these concepts to work in the investment community? Martin Seligman: I would say there is one equation that financial advisors need to know: Life Satisfaction equals Positive Emotion plus Engagement plus Meaning. When people invest money, I believe they need to ask themselves to what extent they value positive emotion (pleasure), engagement (flow), and meaning (serving a higher cause). It’s also important that financial advisors understand where their clients stand on this matter.

Why is this understanding so important? When you know which of these three kinds of happiness your clients care about, you can give them wise advice to maximize their satisfaction in their assets.

For example, someone who is very interested in spending their life pursuing purpose and meaning is not going to want a beach house on Maui. Rather, they will want to take on a larger goal or mission they believe in, and apply their strengths and their money in that direction. But for someone who wants pleasure, that may mean a condo on the ski slopes.

It’s one thing to give advice about making money grow. But financial advisors can add the most value for clients by counseling them on the appropriate deployment of their money and other resources for maximum happiness.

Positive Psychology is a new concept for many financial advisors. What do you say to those who are interested but unsure of this approach? I believe financial advisors can learn how to talk to clients about happiness and how to measure what kinds of happiness people want. Then they can guide them to make appropriate choices.

How can advisors determine which type of happiness their clients desire? There are measuring processes that they can use. I know people may be reluctant to use tests – it’s too much like school. But these questionnaires are valuable because they can tell you the extent to which you value pleasure, the extent to which you value meaning, and the extent to which you value engagement or flow. The science of Positive Psychology is concerned with quantifying subjective emotions, desires, and experiences.

That sounds like a language that financial advisors will understand. This means financial advisors could actually track their clients’ life satisfaction. Many of these questionnaires are on your Web site,, right? Yes. They’re free. A simple one to get started with is the “Approaches to Happiness” Questionnaire. It is only 18 questions and can be completed in just a few minutes. It will tell you what type of happiness is most important to your clients, pleasure, engagement, or meaning.

(Note to readers: I did this profile in about one minute and found out that I rank “Meaning” higher than “Pleasure.” I was dismayed to find that I put “Engagement” last. Now I am alerted to try to get more “flow and immersion” in my life. There is a simple registration step required to access the tests.)

So what would you say to people who believe money can buy happiness? The basic belief of economists is that the more money you have, the more choice you have–and that is a reasonable premise. But the premise “the more money, the more happiness,” is completely wrong. The problem is, people commonly make the wrong choices when pursuing happiness. That’s where a financial advisor who understands the science of happiness can add tremendous value–helping their clients define goals that will actually make them happier.

It’s pretty clear that happiness consists of some combination of positive emotion, engagement, and meaning. Money cannot be translated into positive emotion, meaning, or engagement–they are totally different concepts.

Integrate Positive Psychology Into Your Practice

At first glance, Positive Psychology may sound too “fluffy” for the number-crunching, data-driven world of money management and financial planning. But the principles of this discipline apply directly to our business because too often people think that money is the source of happiness. By helping your clients identify their true sources of happiness, you will not only better serve their needs, you will see your business climb to new levels of success. Remember that happy clients introduce you to their family, friends, and colleagues. They become raving fans and marketing apostles.

After discussing Dr. Seligman’s ideas on how financial advisors can benefit from the science of happiness, an advisor told me an interesting story that perfectly illustrates the connection between positive psychology and financial advice.

Solve Real-World Challenges with Scientific Questionnaires

Ted and Kate Gregory, whose practice is in Huntington Beach, California, had worked with a couple for many, many years to help them achieve a secure retirement. When they finally retired, the happy couple moved to their dream home in a resort community about 400 miles away. Unfortunately, after a year, the client and his wife realized that they were missing their family terribly. It turned out that being with family was one of the main things that brought happiness to this couple.

After agonizing over their predicament, they decided they wanted to move back to be close to their loved ones. The problem was that it would cost them some of their security to get the happiness they desired. Their new home had not appreciated as quickly as homes in the city. Making this unexpected change threw a monkey wrench in their excellent financial plan and their years of work and saving.

Under the original plan, the financial advisor had calculated the clients had a 91% chance of achieving their financial goals. However, after the unplanned second move, their new success probability dropped to only 83%–and that was assuming favorable terms and a reasonably quick sale. Yet the clients were not willing to sacrifice their happiness for financial reasons. They were willing to take on the extra financial risk if it would bring them happiness.

Help Clients Get What They Want

Ted told me he wished he had some systematic questioning process to help his clients avoid these kinds of mistakes. Perhaps applying some of the scientific questionnaires on Dr. Seligman’s Authentic Happiness Web site will help clients avoid these problems in the future (

The technical term for setting goals that do not make us happy is “mis-wanting.” Many people in our society are out of touch with what will truly make them happy. Researchers have discovered that human beings are notoriously bad at predicting what will make us happy in the future; the adage “be careful what you wish for” has more than a grain of truth in it. Many investors will realize too late that their retirement dreams are really fantasies, or possibly even nightmares.

By combining scientific research with individual preferences, financial advisors can dramatically enhance their value to their clients. After all, money is only a means to an end. To the extent that you can help your clients make smart decisions about their finances and their lives, you will be able to provide better advice and create higher levels of financial security for your clients.

At the end of my interview with Dr. Seligman, he told me that no financial advisor he’s ever known has tried to change their client’s level of happiness. This is a crucial point. Why? Because by focusing on your clients’ happiness, you dramatically differentiate yourself from your product-centered peers. And standing out in the crowded market is the best way to attract savvy, wealthy investors who want more from their lives than to beat the market.


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