MEDIA REVIEWS – August 16-23, 2019

MEDIA REVIEWS – August 16-23, 2019

I’m not sure why the June issue of Financial Planning Review is released in August, with the articles dated in July and August, but this is an academic publication which must have its own rules.

The first article looks at whether money beliefs and (especially dysfunctional) money behaviors have deep roots, as in: being associated with personality disorders as defined by the psychological community. The evidence is there, but it seems to me to be weak, first based on a questionnaire (where it’s not easy to get people to give honest answers about the darker side of their personalities), and then the correlations aren’t as strong as you might imagine. And anyway, how would you use this information? Would you delve into resolving deeper personality disorder issues in order to help them save and invest more?

The second article, again using a questionnaire, finds that people who are financially confident are more likely to use a robo-advisory service, even though nearly 100% of the people taking the survey have never actually done so. But the conclusion is logical.

The third article, the most interesting of the four, finds that women and men both perceive persistent gender discrimination in advisory firms, and women see less of it when they start their own firms or work in smaller one-person shops. Yet a relatively small percentage of women are firm owners today.

Fourth? Using data on Chinese consumers, the researchers found that ‘present bias’ (basically not practicing healthy levels of deferred gratification in their finances) was positively associated with impatient behavior generally. But you probably knew that already.

    Articles

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“The Personality Disorders and Money Beliefs and Behaviors”
by Adrian Furnham
Financial Planning Review, June 2019
https://onlinelibrary.wiley.com/doi/10.1002/cfp2.1046
Relevance: high

Are money attitudes a function of personality disorders? The author specifically hypothesizes that people with narcissistic tendencies will be focused on achievement and success, and power and prestige money behaviors. Those who exhibit histrionic behavior will focus on power and prestige. Obsessive compulsive behavior will be related to mindful and responsible (careful or cautious) behavior around money. Avoidant personalities will be correlated with savings concerns and financial literacy worries; basically being worrying and uncertain. And the author hypothesizes that females will score higher than males on savings concerns and financial literacy worries.

To test these hypotheses, the author had 402 participants take an online questionnaire, which asked questions regarding attitudes toward money on a scale of 1-8 (strongly disagree to strongly agree) and 70 questions to test a broader range of personality disorders than those in the hypotheses (including paranoid, self-defeating, schizotypal and schizoid).

Result: all but the avoidant correlation with savings concerns and financial literacy worries hypothesis were confirmed. Individuals who scored higher on Avoidant, Narcissistic and Sadistic, and lower on Antisocial and Self-Defeating, were more likely to associate money with achievement and success. Those who viewed money in terms of power and prestige were more likely to be male, high on Dependent, Histrionic, Narcissistic and Sadistic tendencies, but low on Depressive. Individuals with a mindful and responsible money attitude were more likely to score high on Obsessive Compulsive and lower on Antisocial. Financial literacy worries were typically held by those who score higher on Avoidant, Borderline and Narcissistic. There were no money attitudes associated with Paranoid, Schizoid or Schizotypal traits.

The author says that, based on the nature of the test, it is impossible to infer causation here. Peoples’ early experiences with money might have as much to do with their money beliefs as their personality types.

“Acceptance of Robo-Advisors: Effects of Financial Experience, Affective Reactions and Self-Enhancement Motives”
by Christoph Hohenberger, Chaiwoo Lee and Joseph F. Coughlin
Financial Planning Review, June 2019
https://onlinelibrary.wiley.com/doi/10.1002/cfp2.1047
Relevance: moderate

Here’s a deceptively simple question: what are the traits most associated with people who are willing to use online investment technology (robo-advisors) and who enjoy the experience? In other words, what sort of people are most likely to have a good experience investing without a person in the loop? The study surveyed 630 adults, 94.3% of whom have never used a robo advisor service, and 67.6% have never used a human financial advisor. (Does that make you wonder about the relevance of the results?)

People who assessed themselves as financially experienced said they were more likely to be willing to use robo-advisor services. Higher levels of financial anxiety were associated with lower likelihood to invest through a robo-advisor.

“Success and Satisfaction of Women in Financial Planning”
by Jim Pasztor, Aman Sunder and Rebecca Henderson
Financial Planning Review, June 2019
https://onlinelibrary.wiley.com/doi/10.1002/cfp2.1049
Relevance: high

A survey of 224 (73 women, 136 men) experienced professional financial planners found that their career satisfaction was higher if they worked in a solo practice rather than a large firm, but you read this article for the excellent review of literature. The authors note that women may experience diminished promotional opportunities and pay disparity, and some firms have their share of misconduct complaints against women initiated by their employers—even though men were three times more likely to exhibit gross misconduct. A survey showed that 91% of the financial advisor community felt that men had an edge over women in becoming successful financial planners, and 69% of CFP advisors felt that men were more likely than women to “have what it takes to be great financial planners.” Only 29% of women felt that the office culture of financial planning firms made women feel welcome and respected. Only 39% of women (vs. 63% of men) owned all or part of their practices.

The survey analysis showed that female planners are less likely to report high satisfaction compared with their male counterparts, but are much more likely to feel highly satisfied in solo and smaller firms compared with large ones. More women than men were drawn to financial planning because they wanted to be independent.

“Present Bias and Financial Behavior”
by Jing Jian Xiao and Nilton Porto
Financial Planning Review, June 2019
https://onlinelibrary.wiley.com/doi/10.1002/cfp2.1048
Relevance: high

Present bias here means the tendency to spend now rather than save for the future; to overvalue the instant gratification and undervalue the potentially positive impact of deferring that gratification. It is associated with lower self-control and a lack of financial sophistication. The authors examined the 2014 China Survey of Consumer Finances, which contains information on 3,921 households from 25 provinces or municipalities. Taking 16 questions from the survey, the authors found (unsurprisingly) that present bias was positively associated with impatient behavior, prefer spending to saving, but on the positive side, they tended to avoid “too good to be true” investment “opportunities” when they present themselves.