A researcher and psychology professor discusses the challenge of getting people to empathize with their future selves and the implications for financial and retirement planning.
Our guest on the podcast today is Professor Hal Hershfield. Dr. Hershfield is Professor of Marketing, Behavioral Decision Making, and Psychology at UCLA's Anderson School of Management. His research concentrates on the psychology of long-term decision-making and how people's perceptions of the passage of time affect the decisions that they make. He has consulted with numerous organizations including Prudential, the Consumer Financial Protection Bureau, Merrill Lynch, and the Principal Financial Group. He received his B.A. at Tufts University and his Ph.D. at Stanford.
“How Elvis Got Americans to Accept the Polio Vaccine,” by Hal Hershfield and Ilana Brody, scientificamerican.com, Jan. 18, 2021.
“Should You Immerse Yourself in Bad News These Days or Ignore It Completely?” by Hal Hershfield, scientificamerican.com, May 5, 2020.
“How to Craft the Vaccine Message for the Undecided,” by Bill Kisliuk, ucla.edu, May 4, 2021.
“Your Messaging to Older Audiences Is Outdated,” by Hal Hershfield and Laura Carstensen, harvardbusinessreview.org, July 2, 2021.
“Time Is Meaningless Now,” by Shayla Love, vice.com, April 10, 2020.
Saving for the Future
“Temporal Reframing and Participation in a Savings Program: A Field Experiment,” by Hal Hershfield, Stephen Shu, and Shlomo Benartzi, halhershfield.com, 2020.
“Using Vividness Interventions to Improve Financial Decision Making,” by Hal E. Hershfield, Elicia M. John, and Joseph S. Reiff, halhershfield.com, 2018.
“Increasing Saving Behavior Through Age-Progressed Renderings of the Future Self,” by Hal Hershfield, Daniel Goldstein, William Sharpe, Jesse Fox, Leo Yeykelis, Laura Carstensen, and Jeremy Bailenson, halhershfield.com, 2011.
“The Future Self,” by Hal E. Hershfield and Daniel Bartels, uchicago.edu, 2018.
“Beliefs About Whether Spending Implies Wealth,” by Heather Barry Kappes, Joe J. Gladstone, and Hal Hershfield, londonschoolofeconomics.com, 2020.
“Seeking Lasting Enjoyment With Limited Money: Financial Constraints Increase Preference for Material Goods Over Experiences,” by Stephanie M. Tully, Hal E. Hershfield, and Tom Meyvis, halhershfield.com, 2015.
“Do Images of Older Americans Reinforce Stereotypes?” by Colette Thayer and Laura Skufca, aarp.org, September 2019.
Retirement and Older Adults
“People Search for Meaning When They Approach a New Decade in Chronological Age,” by Adam Alter and Hal Hershfield, halhershfield.com, 2014.
“You Owe It to Yourself: Boosting Retirement Saving With a Responsibility-Based Appeal,” by Christopher J. Bryan and Hal E. Hershfield, halhershfield.com, 2012.
Christine Benz: Hi, and welcome to The Long View. I'm Christine Benz, director of personal finance and retirement planning for Morningstar.
Jeff Ptak: And I'm Jeff Ptak, chief ratings officer for Morningstar Research Services.
Benz: Our guest on the podcast today is Professor Hal Hershfield. Dr. Hershfield is Professor of Marketing, Behavioral Decision Making, and Psychology at UCLA's Anderson School of Management. His research concentrates on the psychology of long-term decision-making and how people's perceptions of the passage of time affects the decisions that they make. He has consulted with numerous organizations including Prudential, the Consumer Financial Protection Bureau, Merrill Lynch, and the Principal Financial Group. He received his B.A. at Tufts University and his Ph.D. at Stanford. Dr. Hershfield, welcome to The Long View.
Hal Hershfield: Thanks so much. I'm excited to be here.
Benz: Well, we're excited to have you here. We want to delve into your research that relates to saving and financial planning. But before we do that, we wanted to ask you about the pandemic. You've researched the challenges of getting people to take vaccines, you referenced in a Scientific American article, the experience of the polio vaccine and Elvis Presley getting the vaccine on live TV. How did that work to hasten acceptance of that vaccine? And do you think something like that would work today?
Hershfield: It's a great question and a pressing one, of course. This is a very different time, 1950s compared with now. And, of course, we have to acknowledge that polio at the time was obviously devastating the health of children, primarily. Whereas, now we're seeing more kids being sick with COVID, but it's largely been a disease of older people and those who have pre-existing conditions. Of course, we have lots of other examples we see where they're younger, healthier people. But the point is that polio was solely concentrated on the youth. So, I think that made a difference. But people nonetheless were still hesitant to get the vaccine when it came out. And then Elvis went on The Ed Sullivan Show beforehand, and in a very public display in front of reporters, got the vaccine. While we obviously can never fully identify whether this actually caused more people to get the vaccine, but we know shortly thereafter, vaccine rates went through the roof.
Now, I think part of the reason that worked is because he's a well-respected figure. He was an influencer in a very traditional sense of the word. And it was a very vivid example of somebody doing something that might have been questioned beforehand, and now they did it, and they're fine. And I'll add to that: It set a norm. It created a social norm that this is something that other people are doing, other respected people are doing, and other people should be doing. Now, you say, OK, so those same things should be at play now as well. The problem, however, is that there's no one Elvis Presley now; there are so many different possible influencers. And, of course, there's also so many different sources of misinformation. I think we probably saw some of that around the polio vaccine, but more so now, because social media has made it easier for that sort of message to get out there and proliferate.
I think there's a lesson to be learned there, which is to say, if we want those who are hesitant, or on the fence, to become more comfortable with the vaccine, it's not that we should just have some famous person, some influencer, get it live in a vivid way. But rather, we should try to identify specific influencers, influencers who are specifically influencing those subgroups who are the most hesitant. That to me would be one way to go on this.
Ptak: Another important dimension of this is messaging. You're an expert in messaging. I think you've said that messaging to persuade the vaccine-hesitant isn't one-size-fits-all. Different types of messaging will work for different types of people. With that in mind, what are some of the different types of messaging that might work to persuade some of the segments of the vaccine-hesitant population in your opinion?
Hershfield: I think before you can talk about the specific types of messaging you have to figure out what are the specific barriers. To me, this isn't some sort of modern unprecedented situation in terms of the messaging issue here. Rather, this is sort of a classic marketing issue, which is to say we have an action we're wanting some group of people to take. And we have to recognize that there are segments within that overall group, and each of them have different needs and different barriers and interest. And we've got to figure those out. So, for example, I can imagine there's a large segment of folks who are vaccine-hesitant, because they're afraid, they're afraid of the side effects of the vaccine. I think most people in the scientific and medical communities recognize that the risks of COVID are far worse than the risks of the vaccine. But that may be a difficult concept to comprehend. And so rather than say a message that just simply states that the risks of COVID are worse than the risk of the vaccine, it may be better to first try to express some empathy and understanding of where people are at.
So, in other words, it's not about the message per se, but about the way that that message is delivered before you then enter into the delivery of it. And then I would say, let's hire the best ad-copy folks in the country to craft the message. I'm just a marketing professor; I don't make the messages.
Benz: How people perceive the passage of time is a key thrust in your research, really running throughout all of your research. Early on in the pandemic, you wrote that people were likely to think that time was passing more slowly. Now that we're about 18 months into it, is that still the case? I feel like it's a little bit of a hybrid where it does feel slow, but it's also going really quickly. Can you talk about that?
Hershfield: I think the time-perception issues that have arisen due to COVID are just mind-bending. One of the things we know from the research is that there's a difference between perceiving how time is moving in the moment, versus when we look back on something and think about how a certain block of time felt. So, when you have a lot of different activities, say packed into one weekend, that weekend may go by very quickly, because you're moving from one thing to the next. But when you look back on it retrospectively, it ironically may actually seem like it was a pretty long weekend; there was a lot of things you did in there.
Now, when it comes to the last 18 months, the beginning felt so long, in part because nothing was changing; it was like day to day was the same. And so, it felt like each day dragged on and dragged on. And then you look back and you look back on certain periods of time, and I know, anecdotally, some people have said certain months seem to have just flown by. They may have flown by because when you look back at them, it's really hard to distinguish one day from the next.
Hershfield: I think it's a really interesting open research question. I don't know what's going to happen in the months ahead, in terms of our time perception. I think there's a lot of people who are surprised to find out that 2022 is only four months away. It feels like 2021 sort of just started; maybe summer is sort of here; I guess it's over now, who knows. And, I think there's a lot of head spinning that's happening right now and whiplash with all the different events that we're trying to process. The new information that we're processing, and that can really warp our sense of the time.
Ptak: Want to shift and talk about another category of innovative research you've done and that's saving for the future. Specifically, one of your findings is that we tend to see our future selves as some other person, and that can make it difficult to prioritize decisions that benefit the future selves, such as saving for the future or exercising. What causes the disconnect? And what are the implications of seeing ourselves as an “other"?
Hershfield: Your question, what causes the disconnect is such a deep one, and in my research and the research of some of my colleagues and my students, one of the things that we keep coming up against is the idea that in many ways people think of and treat the future self as if it's another person, and there's some qualifications there. It's not truly a stranger. It's not truly like any other person, because our future selves are someone who we will ultimately turn into. But as an analogy, and as a feeling, I think the description works--that we treat that future self like another person.
Where that comes from, however--what's the origin of that? That's a question we don't really know the answer to. And, I can suspect a couple things--one is that, from an evolutionary standpoint, we never really needed to think about the distant future; we needed to think about the near term and maybe a couple of months out. But to go decades into the future for the concept of retirement, which wasn't really invented until the last blink of an eye in evolutionary terms, that was something we didn't really need to do. And so, I think it may be possible that with the many extra years, extra decades almost, of life expectancy that have been added on, we now have to grapple with older and more distant versions of ourselves who we never had to consider before. So that's part of the disconnect. And part of the disconnect could be that it's a lot easier to pay attention to everything that's happening right now.
Danny Kahneman, the renowned psychologist, has said, nothing is ever as important as what you're doing right now. I'm paraphrasing him. Nothing ever seemed as important as the thing that you're doing right now. And I think that's a general concept that plays out in our lives. Everything we do right now feels more important, because it's happening right now. And that makes it hard to step outside of the present and think about the distant future; we're just going to naturally be more focused on right now.
Benz: An extension of that, from a behaviour standpoint, is that if people don't empathize with that future self, it makes it hard to prioritize a lot of decisions that they might make on behalf of that future self. Can we talk about the savings dimension, that idea of spending in the here and now versus saving for this future self who maybe I don't identify with or really care about that much? Can you talk about what your research shows on that front?
Hershfield: The basic idea, and I think you summed it up really well, is that when it comes to spending and saving decisions, these are often decisions that involve some trade-offs over time. In other words, we've got to make a choice about what we might want right now, versus what we potentially think we should be doing for the future. In my own research, we found that, to the extent that people relate to and connect more, feel more emotionally bonded with their distant future selves, well, then they're more likely to have accrued assets, to have saved more, to have greater overall financial well-being. And, by the way, I should say, that's after you've already accounted for other things that might matter, like age and education, income, gender, ethnicity, and so on.
And so the thinking there is that, if I feel more of a sense of connection, more of an emotional bond with my future self, then it may be a little easier for me to put aside some of my immediate interests and tamp them down to some extent so that I can have more resources in the future. I do want to note, though, it's not always so black and white. Making decisions for the long term isn't always just about not spending and saving more. There's certainly cases where I could imagine spending more right now could actually be better for the long run. Buying a more expensive product, whatever that might be—an electronic product that might last longer--that could actually be more beneficial in the long run. There are certain experiences where I would say spending a little more now, if you're doing it wisely, could actually get you more memory utility in the future than if you were to skimp now and you have a mediocre experience, and then you don't have the memories to look back on. And I recognize that that sort of observation is in a privileged context where someone has the money to spend a little bit more now on an experience or a material good, but you can see how doing so may actually be beneficial over time.
Ptak: You've contributed to research that helps people glimpse themselves in the future using technology to view photographic simulations of themselves at older ages. What types of behaviour did people exhibit after going through that experience? And how is it different than for people who hadn't?
Hershfield: Over the years, we've been trying to devise ways to get people to feel more of a sense of connection to their future selves, to have an easier time identifying with them. And one of the methods we've used is to try to make those future selves more vivid and more visual, to the extent that vivid examples are emotional and emotional examples tend to drive behavior. In some of our earlier work, we've exposed people to these vivid images of their future selves--that would be one group, and another group would just see a vivid image of their current selves. And what we found is that the people who saw the images of their future selves were more willing to make an allocation to a long-term savings fund. And I'll caution this is a small sample. The results aren't particularly overwhelmingly strong, which you might expect, given that there's a lot of different factors that go into these sorts of decisions.
But I think it was a nice proof of concept of this general idea. And since then, the first time we did this work, which was about 10 years ago, we followed up and we've shown people vivid, visual images of their future selves and looked at how that's impacted things like delinquency and ethical decision-making. We've recently just wrapped up a study that should be published hopefully within the next couple months, looking at a set of almost 50,000 consumers in Mexico, and half of them received the opportunity to view their aged selves, and half of them did not. And those who did were more likely to make a contribution to what amounts to a 401(k). It's called a personal pension there. Again, the numbers weren't huge--I believe it was about 1.7% who made a contribution when they saw their future selves and about 1.5% made a contribution when they didn't. But I'll note this was a really difficult context, as people aren't necessarily always making contributions there.
Also, this is a very simple, low-touch intervention. But I think what's important, it's not always about the visualization of future selves; rather, it's the concept that I think matters. When we can try to implement exercises that make those future selves more vivid and more visual, more evocative, that's when I think you can start getting people to balance things out a little bit more between their present-day wants and their future selves’ needs.
Benz: Getting back to your earlier comments about messaging, I want to talk about retirement and getting young people to save for retirement. It's really difficult to get people in their 20s, 30s, and 40s to care about their own retirements. Is that a messaging problem? And should we be talking about financial empowerment, financial independence, something like that, instead of retirement? What's your thought on that?
Hershfield: I think there's a couple things at play here. Like any good behavioral problem, there's not going to be one solution. And not just a one-size-fits all, but just one solution. So, I can imagine that part of the problem might be messaging. Wouldn't it be interesting to run an experiment where, rather than say save for retirement, we say save for your financial independence or freedom? That's a fascinating idea to me. And I think it’s related to the concept that many young people just don't identify with being older. And to some extent being older, thinking about ageing--it feels slightly negative, unpleasant, reminds one of death. Even if those associations shouldn't be there, shouldn't be accurate, and retirement is one of those.
And so, I think it's an experiment worth running, to actually try to see what would happen if you change the framing there, change the messaging. You'd most likely want to couple that was something else, because it can't just be the case that messaging will change this very complex behavior. Because if it was just that, I think we would have come up with something by now. But doing some sort of messaging shift in conjunction with something else may matter. For example, one of the insights that I've been pointing to in my research is that we've got these tensions between current and future selves. And one way to get people to do things to help their future selves, is to try to make it easier on their current selves, that is to try to make sacrifices easier.
So, whether that's breaking those sacrifices down into bite-sized bits or whether it's giving somebody a reward alongside the sacrifice. What if somebody was saving? What if a younger person received some sort of benefit every time they hit some sort of retirement-saving milestone? I recognize that that would have to come from somewhere; you'd have to remove money from some overall pot. But what if you were to actually reward people along the savings journey. Would that make it easier, in conjunction with your great idea of changing the framing, changing the messaging?
Ptak: That's a good segue to what was going to be my next question, which is research that has found that people are more inclined to save if the saving is framed in smaller increments. In fact, I think you alluded to that idea of breaking things into smaller bite-sized chunks--$5 a day in savings versus $150 a month. Why is it that people might respond more to that? And what are the takeaways for applications like robo-advisors, 401(k)s, and other platforms that attempt to encourage savings?
Hershfield: This is a research project that we recently published, my collaborators were Shlomo Benartzi and Steve Shu. The basic idea there was that we tried to get new investors, through a fintech app, to sign up for an automatic savings plan. And we framed that plan either as $150 a month, $35 a week, or $5 a day, which all amounts to the same chunk of money, but $5 a day feels like an easier sacrifice to make. It also feels like something we can easily imagine giving up. There's a lot of things that I think of that could be $5 a day that I could do without. But when it comes to $150 a month, it's harder to have those thoughts. So, I think there's a lesson to be learned here. One is that, this is what we call temporal reframing. Of course, we're not the first to do this. The mattress industry has been doing this sort of thing for decades now: They tell you that this expensive mattress is only $0.06 a night for the best sleep of your life.
But this sort of temporal reframing I think can help people conceptualize these sacrifices. But I do think that there's an important caveat here, which is that we've got to consider what the different amounts are going to be and for what different groups we're talking to. This is something that I think needs some more experimentation in the field. When you talk to, and when you think about a robo-advisor, when you think about helping somebody try to save-- what if I'm making less than $50,000 a year? What if I'm making more than $250,000 a year? How should I break those saving chunks down? And I think that's something that needs some experimentation to really look at in a way that could be the most effective.
Benz: That reminds me too, thinking about retirement savers, we often would counsel them that they need X number of dollars to retire or something like that. And it seems like that's really daunting, potentially discouraging. Do you think it would be more helpful to frame that as smaller benchmarks on the road to hitting some larger benchmark? Would that be less discouraging?
Hershfield: Absolutely. I think that there's probably two reasons here why we might want to move away from talking about retirement in this big number-type of way. One, as you said, it can be really daunting to think about getting from wherever you are now to this big number and maybe easier to think about benchmarks along the way. Two, I worry that the conversation about retirement as a lump-sum-type of number can really end up backfiring, can be misleading to people. Let's just say for sake of an example, you tell me that I need to save $500,000, which sounds like a lot of money for a lot of people. But if I'm going to be retired for 25, 30 years, and I need some income those years, and I might have some health issues, when you start breaking it out year by year, month by month, it's maybe not a ton.
However, most people are not used to thinking about or dealing with financial amounts that are that large, except for when it comes to say, houses and cars. I'm not saying cars are $500,000 that people are getting, but I'm just saying those are the two areas that people are thinking about large sums of money.
Hershfield: And so the problem arises where, I might start saving, I might have done well saving, I might see my lump sum there and say, “That's a lot of money that I've saved,” and stop or dial it down, ratchet it down a hair. And once you start translating those lump sums into an annuitized amount later on in life, that's when you realize that the lump sum doesn't really add up to as much as you might have hoped it would. This is what my colleagues and I have called “the illusion of wealth.” And, so it may be better to reframe it into smaller amounts.
Ptak: Another somewhat paradoxical topic is the way people tend to confuse wealth and spending, or specifically, you've done research that's found that for people who believe that high spending implies wealth, they tend to spend more themselves so that hampers their financial well-being. Can you talk about that research and the implications for financial advisors and other people trying to influence positive financial outcomes?
Hershfield: Yes, the work that you're talking about is really led by Heather Barry Kappas and Joe Gladstone, two of my collaborators who are just, well, maybe you should have them on sometime. They're just great and very sharp. But, the gist of that work is that there's this irony, where when we see people spending a lot of money, many of us make the assumption that means that they have a lot of money to spend. And the ironic part, of course, is that the more money I spend, the less money I have. It takes away from my overall pot of money. Now, of course, it may be the case that the wealthier people have more. The problem arises when I see someone spending money and make an inference that's maybe not accurate. And assume, well, if that person is able to spend more money, it must mean they have a lot of money. And then I start aspiring to wanting to do that. Well, maybe I'll look more wealthy if I spend more.
The problem here, of course, is that that's not a sustainable behavior. Actually I think when it comes to thinking about advisors talking to clients, this points to kind of a bigger thing--this tendency to conflate spending with wealth--it points to a bigger thing, which is to step back and try to focus on what a client is spending their money on and why. In my teaching, especially in exec-ed teaching, I talk to a lot of financial advisors. And one of the things I hear is that their clients seem focused on just making more money or being able to spend more money without a really clear statement or really clear conversation about why they want to spend that money, what they want to spend it on, what they want to do with that money, conversation with their families about that.
And I think there's no problem here in spending the money that you've earned; the problem arises when you spend it in such a way that ultimately then depletes the pot faster than it needs to. And does it in a way that may not ultimately be as rewarding to well-being as you would hope it would be.
Benz: To what extent is social media contributing to all this? People are clearly comparing themselves to others on Instagram or Facebook or wherever? And what's the impact of that activity on their financial health and mental wellbeing?
Hershfield: It's funny, there's a really robust body of research on the benefits of experiential purchases over material purchases. And early on--I'm sure that you've talked about that even and know about it--early on, one of the insights in that line of research was, well, experiences are great, because they're harder to compare to one another than material purchases are.
Hershfield: I think your question kind of suggests that one piece of the puzzle may not be so true anymore, where people can compare lots of experiences on social media. And it's not just experiences; but we can compare education and these other things that used to not be considered a material purchase, but now are being touted as another wealth indicator. I haven't done the research on social media, and the research that has been done on the effects of social media on say, our well-being is complex, and I can't pretend to have been up on all of it; it seems to be constantly evolving.
But, if I can speculate, being exposed to a lot of other people's amazing vacations, or amazing life experiences, may prompt us to want to have those types of experiences as well, based on a fundamental insight of psychology, which is that we are social creatures and we want to connect to others. And this is one way to do so. So, the problem can arise when we think that's the thing that I want, that's the vacation that I need, when maybe there's actually something else that would be just as good. But if I'm seeing other people do it, well, now I've kind of lost focus a little bit.
Ptak: Want to go back to messaging for a moment, if I could. You and Dr. Laura Carstensen at Stanford drew some conclusions about what kind of messaging connects with older adults and what's less effective. What types of messaging tends to work with older adults and how is it different from the messaging that tends to work with younger people?
Hershfield: Laura Carstensen was actually my graduate advisor. And she's an expert in ageing and the emotional changes that happen over the course of your life span. And, I'll just say as background, we were actually asked to work on a memo, a brief about how to better message to older adults for one of the presidential campaigns. And one of the things we realized is that many of the messages that were being put out there were really missing the mark. There are a couple of insights: one is that older adults tend to have demonstrated what's known as a positivity effect. They actually gravitate more toward and remember better positive information relative to negative and you don't necessarily see that sort of "bias" among younger people. And so, one insight there is that messaging toward older populations should maybe be shifted more toward the positive and away from the negative.
Another thing that we know is that older adults and young adults differ greatly in terms of their time horizons. And what I mean by that is that their lifetime horizons. So older adults naturally see a shorter future ahead of them than younger adults do. And that changes the way that we think, it changes the way that we behave, it changes what we focus on and in a very, I would say specific way, which is that with limited time horizons, we spend our time on meaningful pursuits, emotionally meaningful pursuits. With open-ended time horizons, the type that we see with younger people, on the other hand, we tend to focus our time on information-related ones, knowledge-related pursuits, goal pursuits, things we may engage in that could put ourselves in a better position in the future.
So how does this bear out concretely? What we see is older adults have smaller social networks, but they have a higher ratio of meaningful social connections in them, because they cut out the fat, if you will. And one implication there is that when it comes to messaging, it may be better to focus on meaningful material, on how a certain action may give rise to greater meaning. Rather than say, just straight up positivity. And then, the final thing I'll note here is that when it comes to messaging older adults, many of the times--this is changing--but much of the time, the people who make the messages, the folks who work in ad agencies and marketing firms are younger. And what that means is that when they come up with the framing--the messaging, the ad copy, the visuals--they're doing it in a way that represents their images, their views of older adults. Now, that may not be the way that older adults see themselves.
For example, there's a big study done by the AARP, showing the representation of older people in ads. And one of the data points that stuck out to me was that some huge proportion of these ads showed older people with grey or white hair. Well, then you actually look, and you see that the number of older people who dye their hair turns out to be vast. And so, it's not really representative to show all these people with white hair in ads. I'm not talking about people in their late 90s, who have white hair, but I'm talking about people in their 60s and 70s, many of whom dye their hair. So, portraying somebody as they see themselves, rather than as, say someone else sees them, is a key lesson here. By the way, clearly that's not a lesson just for messaging the elderly, but the field of marketing has started to recognize that insight for lots of other marginalized groups as well.
Benz: Definitely. And speaking of how older adults see themselves, you found that older adults do tend to perceive themselves as being younger than they actually are. I think that maybe that starts early; you don't necessarily have to be retired to start feeling that way. Why is that? I guess it's because we want to think of ourselves as young or we feel young? And what are the implications from a financial standpoint, if someone feels like they're, say 10 years younger than they actually are, or whatever it might be?
Hershfield: I'll just clarify, so that you know that's not my research, per se. There are other researchers that have looked at this concept of subjective age, finding that older people tend to feel subjectively younger than they actually are, whereas, actually it goes the other way. With younger people, they tend to feel like they are slightly older than they are. Anecdotally, you hear quotes, like, “When I look in the mirror, I see this older face on the outside, but I still sort of expect to see the 35-year-old version of me or the younger me.”
Laura Carstensen, my collaborator on some of this work, related to me that when she went back for, I think it was her 30th high school reunion, she was shocked to see that everyone's parents showed up. Everyone looked the way that she remembered their parents having looked 10 years ago. And I think, to some extent, that may happen in our own lives as well. Why this happens is, I'm sure you're right, some of it could be motivational--we want to think about ourselves as younger and healthier. And, of course, ageing is intimately associated with dying. And the younger we are, the further the end of our lives are away from us.
I could also imagine that one of the reasons that we tend to feel a little younger is because many formative experiences happen in our lives early on. There's something called the reminiscence bump, and this is the idea that we have better memory for these things that happen in our young adulthood, because that's when we experienced a lot of firsts in our lives. The first time we moved away, the first time we lived with a roommate, the first time we did X, Y, and Z. And those initial experiences are more memorable, and so then we gravitate toward material from that period of time: music, songs, movies, TV shows, and so on. Those occupy a special place in our minds. So, the same may be true for our concept of ourselves when we look back on the past. That's just a speculation, though.
Now what does that mean when it comes to financial decisions, is a great question. I'm actually investigating something tangential to this with collaborators Adam Alter and Megan Weber. Megan is a Ph.D. student at UCLA here; Adam is a professor at NYU. Rather than financial decisions, we're actually looking at health decisions and whether or not, for example, someone who's older may be less likely to want to engage in some sort of positive health behavior if it's framed as something that can prevent ageing, if, for example, they don't think of themselves that old. So, I think we saw this, anecdotally, at the beginning of COVID when there were lots of warnings out there that older people needed to mask up, they needed to socially distance, and isolate. And anecdotally, a lot of people mentioned that they had a hard time conveying these ideas to their baby boomer parents who said, “Well that's not me, I'm not old.”
Hershfield: So, financially, you can imagine that this could matter, if you're trying to get an older client to appreciate the benefits that would be afforded to them, say through the purchase of an annuity. Well, if they don't see themselves as, say older that far into their retirement, this may seem like something they can put off to a later time. Similarly, updating one's will or estate plan. I don't mean to be dark about it—but, of course, you don't have to wait till you're older to die; that could happen at any time. But people think about it as something that will happen when they're older. And if I don't view myself subjectively, like an older person, then again, I could justify putting it off till the future.
Ptak: Your story about the 30-year high school reunion and parents showing up, it actually raises what's admittedly a dumb question in my mind. Given our inability to picture our future selves, why can't we see our future selves in our parents?
Hershfield: First of all, it's not a dumb question. And I think that is one of the places where we can see our future selves. I think there's also a lot of individual factors at play there. If you have a good relationship with your parents, it may be easier to use one of them to sort of project ahead. On the other hand, if that relationship is strained, or complex, or maybe you aren’t close to them, but you've seen them behave in ways that you don't want to emulate. Well, then you may be motivated not to use your parents as a proxy for your future self. I do think that we probably don't spend enough time looking to elderly role models in our lives. There's a really interesting bit of research now on ageism, really spearheaded by Mike North, also at NYU. We tend to be generous and kind to older people, so long as they're not stepping on our shoes or taking away our resources. And that's when you start seeing really intergenerational conflict.
But you can imagine that there's a lot of older people who could realistically act as ideal proxies for our future selves. They may not be related to us, they may be colleagues, coworkers, it could be a relative. But I think in the absence of being able to actually see ourselves in the future, trying to find somebody who is significantly older, but whose life represents one that you might want to emulate, that could be a nice way to try to better visualise our future selves.
Benz: Financial advisors who work with retired people sometimes say that retirees underspend relative to what they could spend. And it seems like kind of the opposite of what we talked about with younger folks, where they don’t prioritize their future selves.
Benz: In some cases, some of these older adults seem to be over-prioritizing the future or maybe children or grandchildren in the future. So, what's going on there? And how can financial advisors encourage their clients to enjoy the here and now and not be overly fixated on the future and perhaps saving too much for the future?
Hershfield: I think it's such a fascinating question. It's something that I've talked to advisors about as well. And there's a quote that I'm now forgetting who said it, I apologize: “It's better to give with a warm hand than a cold one.” Now, that's of course, just about giving. But you can imagine that there's some habits that have formed here. If someone goes through a lifetime of saving and recognizing that they need to make sure that the future is taken care of, it can be hard to break that and get someone, get a client, to recognize that the future is taken care of now; now it's time to start enjoying. To some extent, I don't think we have great well-established research yet on this particular topic. So much of behavioral economics and marketing and social psychology has been focused on trying to get people to save more for the future, rather than to spend it down.
Hershfield: But I would argue that the spending-down problem is as much related to well-being later in life as saving more is related to well-being earlier in life. So, how to go about doing it, how to go about doing that shift is, is just a great open question. And I could imagine that maybe we need to tie those expenses to the things that matter--emotionally meaningful pursuits, experiential pursuits, experiential pursuits done in conjunction with loved ones or socially meaningful others. I think, oftentimes when we think about saving, when we think about spending in the distant future, it's very abstract. We think about, to echo our earlier conversation, we think about saving up for some number, or we think about drawing down at some rates, and not saving for a specific set of things or spending on a specific set of outcomes. And I think if we can make the accumulation and decumulation side more concrete, it may help with both.
Benz: Well, Professor Hershfield, this has been such an interesting discussion. We're so grateful to you for taking time out of your schedule to be with us today.
Hershfield: Thank you so much. I love the set of questions that you came up with and just such an interesting conversation. Thanks for having me.
Ptak: Thanks so much.
Benz: Thanks for joining us on The Long View. If you liked what you heard, please subscribe to and rate The Long View from Morningstar on iTunes, Google Play, Spotify, or wherever you get your podcasts.
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Ptak: And @Syouth1, which is S-Y-O-U-T-H and the number 1.
Benz: George Castady is our engineer for the podcast and Kari Greczek produces the show notes each week.
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