1. If I Had a Million $: An Account of the Human (Financial) Condition
Brianne C. Smith, CPA, PFS, ABV

2. Building Wealth
(Source: Bernstein, 2012)

3. The Human (Financial) Condition
42%: have no savings (baby boomers)
38%: have less than $100,000 saved
$120,000: median retirement savings
25%: feel they have enough to retire
29%: plan to work past age 70
Young adults graduating with negative wealth
Lower homeownership, income and wealth compared to young adults 25 years ago

4. Two-System Model for Decisions
Elephant
Emotional
Animal instincts
Doer
Automatic processes
Intuitive response
Weighs immediate outcomes
Rider
Rational
Deliberate/Foresight
Planner
Control processes
Monitors/overrides
Weighs all outcomes

5. The Elephant - weaknesses
Focus – considers immediate emotional impact, shared with other mammals
Tangible imagery – tangible money, social pressure; emotional markers for scenarios; not abstract concepts
Fear of loss – overvalue pain from loss versus benefit of gain, endowment effect, status quo bias

6. Risk Tolerance An individual’s level of acceptance of uncertainty…
in achieving a goal when a loss is possible…
and engaging in activities respective of their acceptance.
(Grable, 2016)

7. More Risk Tolerant Characteristic More Risk Tolerant Gender Male Age
Younger
Marital Status
Single
Marital/Gender interaction
Single Male
Net Worth and Income
High
Ethnicity
Non-Hispanic White
Education
Bachelor’s or higher
Financial knowledge and satisfaction
Employment status
Employed full-time
HUNTINGDON INVESTMENT CHALLENGE!!
(Grable, 2016)

8. The Rider - weaknesses
Speed – slow and effortful, rely on emotional markers or cues to influence responses
Overconfidence – misperceived limitations and control, ignore weaknesses
Endurance – easily exhausted, quickly depleted (ex. availability, default response, limited choices, sales) Video

10. The Race
Age Today
Age at Retirement

11. How much do you need?
Source: Ibbotson et al, 2007

12. Retirement Savings
Source: Ibbotson et al, 2007

13. Allocation and Savings Rate
Source: Ervin et al., 2009

14. Allocation and Savings Rate
Source: Ervin et al., 2009

15. How to Avoid Self Sabotage?
When planning your financial future:
Find an outsider/social network (voice of reason)
Pre-commitment (remove the feeling of loss)
Reframing (remove the feeling of loss)
Bad choices (add a feeling of loss)
Imagination capital
“opt-out” default provisions
Find opportunities for illiquidity

16. Illiquidity Mental Accounts (imaginary illiquidity)
Credit Freeze (self-imposed)
Investments
Primary Residence
Other real estate (land, rental property)
Closely-held business
Retirement Plans
Practice!

17. References
Bernstein, W. J. (2012). The Ages of the Investor: A Critical Look at Life-cycle Investing. CreateSpace.
Ervin, D. M., Faulk, G. K., & Smolira, J. C. (2009). The impact of asset allocation, savings, and retirement horizons, savings rates, and social security income in retirement planning: A Monte Carlo analysis. Financial Services Review, 18(4),
Grable, J. E. (2016). Financial Risk Tolerance. In Handbook of Consumer Finance Research (pp ). Springer International Publishing.
Ibbotson, R., Xiong, J., Kreitler, R. P., Kreitler, C. F., & Chen, P. (2007). National savings rate guidelines for individuals. Journal of Financial Planning, 20(4),
James, R. (2011). Applying neuroscience to financial planning practice: A framework and review. Retrieved from
Thaler, R. H. (2000). From homo economicus to homo sapiens. Journal of economic perspectives, 14(1),