Making Money Changes That Stick with Katy Milkman #613

Episode Transcript
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Speaker 1 (00:00):
Welcome to How the Money. I'm Joel and I am Matt,
and today we're talking making money changes that stick with
Katie Milkman. That's right, man, We are going to talk

(00:28):
about how we can make positive money changes in three
and who better to have this conversation with than Katie Milkman,
who is the author of How to Change the Science
of Getting from where You Are to where You Want
to be. Katie is a professor at the Wharton School
of the University of Pennsylvania, where she explores ways that

(00:49):
insights from economics and psychology how they can be harnessed
to change consequential behaviors for good like exercise and vaccinations,
but also behaviors saving more money, which is what we
are we are all about here on the show. She's
advised organizations ranging from the White House to twenty four
Hour Fitness. She writes everywhere as well. Her op eds

(01:11):
appear in The Times, uh and The Economist, and we're
just lucky to have her here with us today to
talk about how you can make some of these money
changes that stick. Katie, thank you so much for joining
us today. Joel and Matt, thank you so much for
having me. We are pumped to talk to you today, Katie.
So much to discuss, specially since the dawn of a
new year. There's a lot of changes that we want

(01:31):
to make, and our listeners of course are tuning in
because they want to make money changes. But and we're
here kind of with the money advice, but you're here
with hopefully the here's how you can continue to do
it over a longer period of time advice. But um,
the first question we ask anybody who comes on the
show is what they like to sport John and give
us a little window into their world. And Matt and
I we sported on craft beer while we're saving and

(01:52):
investing for the future. But what's that for you? What
do you like to spot? John? And some people might
think here a little crazy for spending a lot of
money in that one area. I don't know if anyone
will think I'm crazy, But I like to splurge on vacations,
for sure. That's my that's my big one. That's not
crazy at all. But I like the I like it though. Yeah,
there's actually a lot of research showing that when we

(02:13):
spend on experiences rather than just buying stuff, we get
more out of it. So I try to follow the data,
and I take really nice vacations, very nice. So are
you like a are you a quantity of vacations type
of girl or like a quality? So do you go
on like one really okay? So so you go on
fewer really nice vacations as opposed to more of them

(02:35):
throughout the year. Yeah, I will. I would say I
try to have a healthy number. But I think the
splurge part is the quality. Our best vacation you've had recently? Well,
I have a six and a half year old, so
that limits the exotic travel I do these days. I
used to go all over the world, but we had
a really wonderful vacation to Hawaii, um this summer that

(02:57):
was truly spectacular. Looking forward to maybe finally making that
trip happen maybe this year. We've got young kids too,
so it's limited up and we're like where our kids
are getting a little bit older, it feels like we
can finally expand some of our destinations and to requate
myself with the world. Yeah. Right, So before we talk
about how to go about making change, like, can we
just talk about how sometimes folks feel unable to change? Um, Like,

(03:21):
what is it that's that's holding most folks back from
believing that they just have the ability to to make
progress in their lives at all. Yeah, that's a great question. Well,
first of all, I should say there are lots of
very real external barriers to change. Right. You might feel
like your budget is just too tight to make the
changes you want, or you don't have a family support

(03:41):
that you need to make the changes, or um job stability.
So there are very real external barriers that can block people.
I don't study those. I actually study the internal barriers
to change, and I think they're particularly fascinating because even
when everything is lined up, which it rarely is, but
even whenever reathings lined up in your favor outside, sometimes

(04:03):
we're our own worst enemies. And the fascinating thing about
the internal barriers to change is there's no one barrier.
There's there's a laundry list, and some of us have
multiple things we're fighting against. Some of us are just
struggling with one. Diagnosing is really important to using the
right solution. So barriers that are common include procrastination, lack

(04:26):
of confidence forgetting, which I think we overlook often. But
if it doesn't get to the top of your priority list,
if it's not top of mind. We often don't take
the actions that are important. Habits can get in the way.
We tend to be creatures of habit. We tend to
take the path of least resistance, um, which is, you know,
following those those habits, and that can be a real

(04:46):
barrier to change. So there are many many challenges, uh,
And depending on which one a given person is facing
when they're trying to make a change, the solution that
will be most well suited to help them it is different. Yeah,
what I will say forgetting used to be like at

(05:07):
the top of the list for reasons I didn't get
things done. And I swear Google Calendar has been a
game changer for me in that regard, Like I get
a lot more stuff done just because I'm better at
putting stuff on the calendar to get it done. But man,
nothing worked for me before that, and so I was
just like a forgetful mess and the compus nearly as
much as I wanted to. So that it's definitely one
thing You're right that we don't put a give enough

(05:28):
credit just so we're forgetting things because we're not putting
them in front of ourselves. But one of the difference differences, Katie,
between resolutions that we make and then the potential for
lasting change, because I don't know, something like this is
the staff that gets quoted all the time, but there's
something like eight percent of people who don't actually follow
through on the resolutions they make after a month or two.
So we're in this period right now, with this fresh

(05:49):
start period that you talk about, where a lot of
people are ready willing and they're trying to move in
the right direction when it comes to making change. But yeah,
how do we make sure that it sticks around and
isn't just a failed attempt a few weeks from now. Yeah,
it's a great question. And as you know, this is
sort of a magic moment. I've done research on what's
called the fresh start effect phenomenon, where at the start

(06:12):
of um new chapters in our lives, moments that feel
like new beginnings, So the start of a new year
being the best known, but there are many others actually
as well. We pursue goals with extra vigor. But the
funny thing about fresh starts is they're short lived, right,
So they give you that little boost of motivation to
begin something new, but a couple of weeks pass and

(06:34):
that's gone, and now you need something to carry you forward.
And that's where a lot of folks fall flat. And
I actually think one of the biggest issues is that
people aren't strategic about how am I going to achieve
this school. They just say, oh, you know, I'm going
to go to the gym this year, and I'll go
now because I feel motivated, And then three weeks later
they don't feel motivated anymore and everything falls apart. But

(06:56):
an alternative way you could pursue a goal, and what
research is better is actually by um following a bunch
of best practices. So ideally, when you want to pursue
a goal, first of all, you define a plan. And
the plan isn't just I'm going to go to the
gym once, right. The plan is I'd like to do
this regularly for some hopefully very long term period of time.

(07:19):
If it's about getting in shape, if it's about um
cutting back you're spending, whatever that is. Maybe you want
to learn a new language this year. UM, you don't
want to just say I'm gonna learn Spanish. You actually
want to sit down and say, okay, how am I
going to do it? Well, maybe those details look like
saying it's going to be four hours a week that
I spend on dual Lingo, and it's going to be Tuesday, Wednesday, Thursday,

(07:42):
Friday at five pm right after work when I spend
an hour on the app practicing uh, and I'm going
to do that every week consistently. Now you're actually starting
to um see the groundwork for the kind of plan
that might carry for it. Now that might sound boring,
but actually breaking down a big vague into bite sized pieces,
whether it has to do with savings, volunteering exercise is

(08:06):
one of the most important things you can do. And
then figuring out when will I do it, where will
I do it, how will I get it done? There's
more to the magic as well. You have to make
sure you won't forget so you can put it on
your Google calendar. Um. Ideally you're thinking about accountability, So
can you create consequences so that if you fail to
follow through, it isn't just a shoulder shrug, but you're

(08:28):
really gonna feel crummy about that. Um. The more the consequence,
the more likely it is that you won't procrastinate or
give up on yourself, so you can actually put money
on the line for instance, that you agree will forfeit
if you don't achieve a given goal. You can choose
referees or some websites like stick dot com and be

(08:48):
minder dot com which I am i should say, unaffiliated
with just an admire of their product, that allow you
to do things like that. And research shows that when
you use these so called commitment devices basically penalize seeing
yourself for future failures to fall throw on your goals,
you dramatically increase the likelihood of success. Because nobody's nobody
likes a fine. So those are a bunch of strategies

(09:10):
you can take, and there's more we could get into,
depending on what other obstacles you foresee, like making sure
you enjoy the way you're pursuing the goal and so on.
But that's a pretty good groundwork. Yeah, absolutely, like you
kind of just you give it's just like a little
sampler platter of a lot of different strategies that you
talk about your book. Um. But essentially, I mean, all
of these things can lead an individual to create processes

(09:33):
that work for them and which makes me think of
like my favorite new quote, which is process saves us
from the poverty of our intentions, which I heard recently.
I was just like, man, that is so stink and good.
But that's what all of this does. It's about creating
this plan because we've all got these idealized intentions at
this point in the year where it's like, of course
I'm gonna do this, like everyone has goals. I just
turned over a new leaf. But if you don't have

(09:54):
the processes to back that up, then inevitably it's gonna
fall flat for most folks, right, That's exactly right, And unfortunately,
too often we aren't focused on those processes. We're just
focused on that short burst of motivation and we imagine
it will carry us for it and we'll have no problems.
But once you start recognizing no, there are barriers to
success and to maintenance um and starting to set yourself

(10:16):
up so that you can overcome them, you start seeing
better results. And of course everyone resolutions get made at
the beginning of the year, and so I feel like
that's one that's a little more natural for for a
lot of folks. But in your book you also talk
about how there are different life events that can occur
that folks can maybe take advantage of. Can you talk

(10:36):
through maybe some different examples of maybe even disruptive life
events that that folks are able to use to their
advantage to basically put them on this path towards a
new fresh start for them. Yeah. Absolutely, Well. One of
the really interesting things about the way we think about
time and the way we think about our lives is
that we don't perceive it linearly. We actually think about

(10:57):
ourselves like we're characters in a book. And um, our
life is divided into chapters, and there are big chapters,
and there are short chapters. There's even you know, subsections
of chapters. Every time, um, something happens that feels like
a book ends a chapter or a section of our life, UM,
we feel this sense of discontinuity. So think about, you know,

(11:19):
moving to a new city, and you could think about,
you know, the years you maybe were in college or
working at a certain employer. Those are sort of chapters
in your life. Or a year is also a major
chapter marker for many people in their lives, which is
part of why New Year's feels like a fresh start.
And whenever we cross one of those boundaries, close one
chapter and open another, we have a sense that we

(11:40):
are um further apart from our past. Self. Whatever you know,
I didn't get done last year or last year I
meant to get in shape, or I meant to get
my portfolio under control and diversify better. Whatever it was, Uh,
I didn't do it yet. But that was the old me,
and this is the new me, and the new me's
going to be different. So that discontinuity can be really

(12:02):
productive for anything where you you haven't already achieved the
goal and maybe you were feeling a little sad about it,
and now you can say, well, you know that was
the past and and this is going to be different.
It also tends to lead us a step back and
think big picture about our lives. So we have shown
that this happens um not just with things that you

(12:23):
might expect to be momentous like a real physical change.
You have a new job or a new house, or
um a new community or a new role of some kind. Right,
there's actually really wonderful past research by Wendy Wood at
the University of Southern California looking at these life disruptions
and how they can break up our habits. But we've
shown that even um trivial events on the calendar that

(12:45):
truly do not matter and they they create the same
psychological and choice effects where we pursue goals with greater vigor.
So the start of a new week is a minor
fresh start. We already talked about New Years, that's the
big one we're all familiar with. At the start of
a new month. Sometimes the celebration of spring, especially its
drawn to your attention. The start of spring feels like

(13:06):
a new beginning, the celebration of a birthday, and there
are many minor holidays that feel like fresh starts to people,
So think more Labor Day and less Valentine's Day. And
different religions have different holidays that signal a fresh start
for people who practice in that religion. So all these
fresh start dates um when we sort of look at data,
have this incredible ability to increase, just naturally how much

(13:30):
people are doing things like searching for the term diet
on Google, or visiting the gym, or setting goals on
popular goal setting websites about everything from their health to
their finances to their education. Uh. And we have also
done experiments where we show that by highlighting fresh start
dates that people might not otherwise be attending to, we

(13:51):
can get people to pursue their goals more aggressively. So
my favorite experiment involved trying to get more people to
sign up for a retirement saving account with their employer.
UM That was you know, text beneficial. It was a
four or three ban out of four oh one k,
which is probably the most familiar. But this was when
I do so I thought I could throw out some

(14:12):
of that that fun stuff. Um So, so we UM
partnered with four universities that had four or three B
plans and we sent out mailings to employees who were
not yet saving at the sort of match thresholds. They
weren't taking advantage of all of their employeer benefits, or
weren't saving at all. In fact, most weren't saving at all,
and we invited them to start saving, either right away

(14:34):
or in the future, because we know a lot of
people would want to put off that that decision to
start saving from past research. And what we varied is
whether or not the date in the future when we
invited people to begin saving, we said, we'll take care
of it, just mail back this postcard. If that date
in the future aligned with a fresh Start and was
described in that way, or if it aligned with the
Fresh Start but wasn't described So to be really specific,

(14:57):
imagine your birthdays coming up in two months and you're
in the six arm, and we would flip a coin
and the coin toss would determine whether you got a
version of the mailing that invited you to start saving
after your upcoming birthday or in two months. Now, they're
literally identical, but in one case we are highlighting an
upcoming fresh start as the opportunity. So we tried this

(15:17):
with birthdays, we tried it with a start of spring
um and what we see is that inviting people to
begin saving after a fresh start date and like literally
calling it out as such, leads to more savings in
the following eight months, uh than a literally identical invitation
to save that doesn't name the fresh start date. Significant increase. Y. Yeah,

(15:40):
it's pretty exciting. Humans are odd beings, right that we
respond differently that, but it's cool to see that that's
the case, and then you can tailor your marketing accordingly
to help people make better decisions. And I'm curious to
you write about Katie. You performed a lot of research
that shows that we underestimate the discipline needed to make
change in our lives, but that there are ways that

(16:00):
we can make it more fun. So, yeah, I can
talk about that because sometimes there are if we can
make it more fun, we're more likely to stick to it. Yeah.
This is a huge insight and and I think the
best research on this comes from islet fish Buck at
the University of Chicago and Caitlin Williott Cornell, who showed
most of us, when we are left to our own devices,
think the best way to pursue our goals is just

(16:21):
to look for the most direct path to success and
follow it. So let's take the example of getting in shape.
What's the maximally efficient workout machine that will create the
most pain and sort of benefits per minute. You're like,
I'm going to get on that if I want to
get in shape. Yeah, it means I'm gonna start running
right this minute. Yeah, exactly, flailing your arms, carrying weights

(16:43):
to all the things that are hard. A small minority
of people, though, pursue their goals a different way, which
is that they actually look for a fun way to
achieve that goal of say getting in shape, so that
that person might go to zoomba classes with a friend
instead of getting on the punishing StairMaster. And what's really
interesting is that the folks who into it they should

(17:06):
find a fun way to pursue their goals. They're actually
the ones that have it right. In randomize control trials
where people are either encouraged to pursue their goals in
ways that are fun or in ways that are maximally efficient,
the people encourage to pursue goals and ways that are
fun are the ones who actually end up sticking to
them longer. And in most cases, it's not about how
much progress you make percession. It's about sticking to it

(17:28):
that leads to the real success. So that persistence difference
between pursuing goals in a way that's fun and ways
that are you know, slightly more efficient, we miss you know,
we don't appreciate it, and we we make a mistake there.
So I've done some research on different ways you can
make it fun to pursue your goals, because there are
strategies that systematically make it more enjoyable. Um one is

(17:53):
whenever there's something that would feel like a chore. Otherwise
you can actually try to link it with a temptation.
So only let yourself say binge, watch your favorite TV
show when you are working out at the gym, or
only let yourself pick up your favorite beverage from a
coffee shop, um, when you're heading to the library to
hit the books. If you're a student, I talk to

(18:13):
my students that weren't about that one a lot. Or
you know, only let yourself listen your favorite podcast while
you're doing household chores. And by combining those two things,
something that's a temptation and source of pleasure with something
that might otherwise not be super fun, that you might
put off and dread, you can transform the experience so
that you'll get your chores done and um, keep at it.

(18:35):
And and there are other strategies to write. Selecting different
types of activities as a way to pursue the same
goal and also making it social can be really effective
when you pursue goals with someone who you enjoy. That's
another way to change the experience. But the key insight
is when you're thinking about a goal, when you're making
a plan, just something we already talked about a little
bit earlier, how important it is to be strategic, think

(18:58):
about pursuing that goal and anning to pursue that goal
in a way you will enjoy, because ultimately that is
a huge predictor of success. You've got to stick to it.
And if you don't enjoy it, if it's no fun
while you're pursuing the goal, you're going to quit. That's right. Yeah,
that's where you can use that instant gratification which normally
works against us. But then you're harnessing it. You're using

(19:21):
that as like wind at your back. But so you're
talking about temptation bundling, yes, yeah, yeah, I would love
to hear, how like, how are maybe some specific ways
that folks can apply temptation bundling to their financial habits
to you know, whether it is for them to save more,
whether it's them spending less at the grocery store. I'd
be curious to hear if you have any suggestions for

(19:42):
ways that folks can temptation bundle to get ahead with
their money. Yeah. I think that's a great question. Um,
And I do think there are ways that you can
use temptation bundling when it comes to financial habits. Um.
You know, one is just thinking about budgeting, which is
not a task that everybody relishes and looks for too, um,
and thinking about are there are there things you can

(20:03):
bundle with budgeting that make it more pleasant, like maybe
a favorite bottle of wine you only open once a
month when you go through your budget, or a person
you really enjoy spending time with and you both um
get together when it's sort of time to make budgets
and you get to chit chat and laugh a little
bit while you're going through it. I will admit that UM.
I was influenced very much on that one by my
dad growing up, who used to uh do as taxes

(20:27):
with an accountant who become became a very dear friend,
and they made it a source of fun every year.
It was basically a big party. They stayed up late,
they drank a lot of great wine, UM, they had
a really good meal when it was tax time. And
so there's lots of ways I think you can make
UM some of the things that feel like chores but
are really important to healthy financial decision making UM more pleasant.

(20:52):
A lot of them are social choosing an advisor who
you enjoy spending time with, maybe going out for a
special meal at a restaurant you you reserve for only
spending time with them. So those are a few ideas,
but creative listeners may come up with others. And I'm
always on the market for other temptation bundles. Yeah, no,
I like it. I literally had a coworker who she

(21:13):
would go to the gym, get on the StairMaster, and
she would watch her favorite shows. And it was I remember, like,
I think she would have given up her gym commitment
if it hadn't have been for the fact that that
she so deeply associated watching her favorite shows with working out,
that it became this thing like, well, I'm gonna go
watch my show, and but inevitably she was getting exercise
at the same time. So I think that's brilliant and
it's one of those things that not many people think about. Well,

(21:34):
we've got a few more questions we want to get
to with. You want to talk about overcoming procrastination and laziness.
We'll get to some questions for Katie on those fronts
right after this. All right, we are back from the
break talking with Katie Milkman about these different money changes

(21:58):
that you can make. Uh, and not only that you
can make, that that you can stick with. And Katie,
in your book, you talk about how, I mean, basically
everybody procrastinates, right, everybody from folks like us all the
way down to your students who you teach. But there
are constraints or commitment devices you mentioned this just before
the break that we can use, So can you explain

(22:19):
how those work and maybe give some examples. Yeah. Absolutely,
Commitment devices are fascinating because we're actually quite used to
their sort of sister tool, which is being managed by
other people. Right, if you have a UM, a boss,
or you know, live in a country that has a
functioning government, then you are familiar with the fact that

(22:40):
sometimes you are incentivized to behave in ways that are
good for your organization or your UM community. Right, So,
think about speeding tickets. You are tempted to speed UM,
but you get slapped with a fine if you give
into that temptation or UM. Think about finishing a project
at work. You probably are given a deadline by your boss.

(23:01):
I know there will be some real consequence if you
don't actually hit that deadline. Well, that's when someone else
external to you imposes some cost for say procrastination or
giving into temptation UM. But it turns out you can
actually impose penalties on yourself in the same way. And
that's when it's called a commitment device. And it sounds
weird because The idea of imposing penalties on yourself for

(23:23):
not achieving your goals is kind of counterintuitive, like why
would I find myself or punish myself or set deadlines
with consequences for myself? But there it really does. But
the evidence shows that when you create those kinds of
deadlines and penalties for yourself, it can be incredibly effective. Um.

(23:44):
This is a podcast about finance, so or financial decision making,
so it's a good place to talk about one of
my favorite studies on the power of a commitment device,
which actually was a saving study, and it involved giving
people access to a very unusual kind of savings account.
The study was done in the Philippines, and it was
done um to give people access to an account where, uh,

(24:08):
they actually wouldn't be able to take their money out
unless they reached a predetermined date or predetermined savings goal,
and it had no interest rate benefits over a standard
account that was fully liquid. It's sort of crazy to
think people would actually put money into this. View have
sort of a strict um economic perspective. Somebody who doesn't

(24:31):
like freedom or liberty, Yeah, like, why would you ever
do that unless there's like a higher interest rate? Why
would you ever want to put your money into this account?
That's it's just strictly worse. You can't access your cash.
But interestingly, in a randomized controlled trial, about thirty of
those offered this kind of account chose to put money
in it, uh, some of their money at least into

(24:53):
that account. So that's sort of shocking. And then the
most astounding fact is that two groups ran only selected
we're compared to one another, one of which had access
to this account that were told, hey, you can put
some money in it if you want, and remember thirty
percent did. So. We compare that entire group, everybody who
had access to it, whether they put money in or didn't,

(25:14):
to a second group, which is the control group that
wasn't given access to this account. And the question is
which group saves more of the group that can put
money in an illiquid account or the group that can't.
And what's fascinating is that having access to these accounts
where you don't get any interest rate benefit, but your
money is locked up until you've reached a predetermined saving

(25:35):
school or hit a date that you selected, having access
to it leads to eighty percent more savings year over year.
And again only thirty percent of people are even putting
money in these accounts. So just think, you know, imagine
if a hundred percent or how how high the savings
benefits would be for the whole additional dollar that was
the average for the entire group. That's right, exactly, So

(25:58):
eighty percent increase in savings for the entire population just
offered the account, even though only thirty percent took it up.
An incredible result. UM. So it highlights that when we
take steps to constrain ourselves to prevent ourselves from giving
into temptation, it's really beneficial. Another great studies showed that
UM letting smokers put money into a an account where

(26:22):
they would have to forfeit all that cash. So this
is a different way of imposing a commitment. Here we're
finding people instead of constraining access, but smokers who have
a way to put money on the line theft of forfeit.
If they don't quit smoking six months later, they quit
at a thirty percent higher rate than otherwise identical smokers
who UM just get standard smoking cessation tools. So if

(26:43):
we can find ourselves or constrain ourselves, that's the way
we can sort of bully ourselves into achieving goals at
a higher rate. And again we're used to others doing
this for us, our manager who sets a deadline and
says there's a penalty if you don't turn this in
on time, or or our government that says I, you know,
I'll find you for the behaviors that I don't want
to see. But if you do it for yourself, you

(27:04):
can reap all the benefits. And I just, uh, I
think this has everything to do with why I've been
so successful at going to the gym three times a week, Katie,
is because I pay a lot of money at the
beginning of the month automatically gets deducted. Well. It was
also a fresh start thing, Matt, because you and I
started working out when we moved moved over the summer, Katie,

(27:24):
and like we thought of it kind of and we
didn't connect the terminology because we hadn't read your book
at that point, but we were connecting it to this
like ability start effect to start some fresh things. And
so the move so basically combined with that, I'm never
going to stop working, right because I got I got
the double way. Yeah, that's great. And it is funny
that by reducing the marginal cost of a gym visit

(27:44):
to zero, you're essentially pre committing. Um, there's also a
bit of fun psychology. You know, it is a sunk cost,
right once you've spent it, you can't recover it. So
in a sense, you sort sort of be making a
decision that ignores that about whether you're going to go
to the gym this afternoon or not. But that's not
the way our mind works. We tend to feel guilty
about expenses even if there's sunk costs, if we're not

(28:07):
sort of taking full advantage of them. So there's, um,
there's a behavioral bias you're leveraging to get yourself to
the gym there too. Yeah. Yeah, well, so for so
many elements of our financial lives, we're not just trying
to incentivize something positive. We're trying to discourage something that's negative, right,
Like reckless spending is one of those things. And so, yes,

(28:29):
some studies have shown that using cash is more painful
for people, which helps us helps people spend less overall.
And although I've heard anecdotal evidence from younger folks that
that's not the case, that they actually think of cash
as of its burning a hole in their pocket literally
and they don't feel the pain associated with it. And
so maybe some of these older studies need to be updated.
I'd be curious to see if that like still holds.

(28:51):
But but how else can we create pain points to
help us curb some of those negative habits, some of
those ways maybe in the realm of money that we're
using it kind of like in ways that we don't
want to be using it anymore, ways that are really
working where we're working against ourselves. Yeah, Well, accountability to
other people can be an important way of sort of
punishing yourself if you want to avoid a bad behavior.

(29:13):
So we talked a little bit about UM accounts that
are a liquid so you can you know, you're literally
not able to touch it. That's one way of penaltizing yourself.
You can literally find yourself. But that's sort of counterproductive.
You're trying to save more money and then you find
yourself for not saving enough, right, you can see how
that becomes a vicious cycle. UM. But another tool is
just UM giving visibility to someone so that you'll be

(29:33):
ashamed if they find out that you don't achieve a goal.
That's another kind of penalty UM. And and so uh,
having having accountability to someone else, giving them visibility into
a financial goal in whether or not you're achieving it.
Um that could be a you know, still somewhat painful,
but less painful way that you could achieve success, kind

(29:53):
of like announcing on social media, Hey, I'm gonna run
run a marathon at the in November or something. I like,
if you don't actually make it happened, you kind of
like set yourself up. All your peer group is expecting
you to accomplish this, and there is some sort of
a level of public failure if you don't hit it
and hit that goal. So yeah, I can see that
being working in your favor to even as like a
negative kind of motivation. Yeah, absolutely, Although I would say

(30:16):
one important thing about any sort of public accountability is
generally it's more effective to define small sub goals that
you want to achieve and give some visibility into that
rather than a big end goal. So you talked about, oh,
I'm going to run a marathon, uh next year, you
know in the fall. That's a really big end goal.
The ideal would be to say, you know, I'm going

(30:37):
to run a marathon next fall, and I'm starting with
a five k next month. Uh, and then you know,
the month after that, I'll do a half marathon and
so and so. You sort of work your way up
and there's visibility at each point along the way. Um.
When it's a big goal that's distal, then even with
that penalty and shame, you may not take the steps

(30:58):
in between. You may sort of put it off and
put it off, and then it it's too late to
actually train for the marathon by the time you realize
how embarrassed you'll be. So. Um, smaller, bite sized goals
with visibility to others and accountability are a better approach. Yeah.
I mean you talk about putting that plan together and
how that's probably one of the most most important things

(31:18):
you can do because literally, like what you start planning
things out, you start tackling the problem. It's not like
it's just this device that sits on the shelf until
it's needed. Like literally the process of planning starts. You
start to implement the very next steps that you need
to take. It kind of like gets you started on
that setting things in motion at that point. Exactly, Yeah, exactly,
got it. Okay, Automation. When it comes to defining laziness,

(31:40):
I think that that's a device that can be used.
How important do you think automation is when it comes
to creating lasting change and specifically fighting against laziness. Automation
is such an amazing tool for changing for good, particularly
in the domain of financial decision making. If we could
have automation and every part of our lives, I think

(32:02):
we would have far fewer problems. Uh if you if
only I could just automate rejecting dessert for the next month,
can you can you imagine? Or I could automate today.
I'm just gonna put it on autopilot that I will
show up at the gym every day at five pm. Um.
The amazing thing about automation and your finances is that
you really can, sort of, in the words of Nobel

(32:23):
right at Richard Taylor, set it and forget it. You
can say, I'm gonna take this amount of money. I'm
gonna auto deduct it from my paid check every month
when it arives and send it straight to a retirement
savings account or straight to an emergency savings account, or
whatever it is I need to save for. You do it.
Once it happens automatically, you literally don't have to think
about it. Again and then that money isn't sitting there

(32:43):
for you to spend. It's a really incredible tool and
there have been a lot of studies showing just how
useful these kinds of auto deduct settings are for increasing savings. Frankly,
I do a lot of work. I do work on savings.
I also do work on health, uh and education, and
it is frustrating that we cannot automate um, you know,

(33:06):
study habits, healthy eating and so on everyday behavior that
we're still take some sort of willpower. That's right, And
of course you can't automate resisting the temptation every day
to splurge spend, But but it sure is helpful that
some of that money has disappeared in your account balance
is limited in terms of the splurge spending because you

(33:27):
automated those deductions and sending money to savings. Yeah. I mean,
when you look at the results of automatic opt ins
when it comes to like four one K contributions, the
amount of people that contribute to their four one K
when the default position is that they are like, it's
so much higher when it's left up to the individual choice. Right. Yeah,

(33:49):
So this is this is a classic study that was
done and I guess two thousand and three by um
Bridget Madrian, and what she and her collaborator showed is
that when this single employer switched from having new employees
fill out paperwork UM where they had to check a
box to opt in to be a part of the

(34:09):
employers for a one K to having new employees check
a box to opt out, they saw about a thirty
percentage point increase overnight in how many people were saving
UM for retirements. Just extraordinary. And this has now been
replicated many times. The effects aren't always necessarily thirty percentage
point increases, but they're large increases. Uh. And it's really

(34:29):
powerful and and lots of companies now have smart defaults.
And in fact, I think the two thousand six US
Pension Protection Act legislated that its tax advantaged for your
employer to automatically enroll you in their in their savings plan.
That's when good process design or I don't know what
they call it, all the software engineers who designed the

(34:51):
different software that when you're on boarding employees, but just
some of the right tweaks to the system can make
a significant impact on the ability for folks to say
for future years UM. But Katie, we've got a few
more questions for you that we're gonna get to here
after the break, including we want to talk about the
impact of the people we hang out with. We're gonna
talk about peer pressure and more. Right after this all,

(35:22):
we're back from break, still talking with Katie Miltman. We
want to make money changes in most of us, at
least unless you're just already crushing it, but most of
us want to make money changes this year. We want
to get better with our finances. But we don't want
to just make empty gestures in this new year and
then find out that we fall flat on our face
weeks from now. And so Katie, I'm glad. We're glad

(35:42):
to have you here talking about how to make money
changes that are going to stick around stand the test
of time, creating, initiating and incorporating some of these tactics
to do that. You give an example in your book
about a way that high school students were able to
boost their performance. Uh, can you share that story? I
think I found that one fascinating. Yeah. Absolutely so. One
of the most interesting studies I've gotten to be involved

(36:04):
in UM was a study led by Lauren S. Chris
Winkler at the Kellogg School at Northwestern University, showing that
when students are invited to advise their peers on how
to study more effectively, the invitation to give that advice
to others and the act of doing so improves advisor's
own grades. So let me just say that again, it's

(36:25):
not the students getting advice who are getting better grades.
It's the students giving advice who are getting better grades,
which I think is just absolutely fascinating. And the psychology
there is that um when you're invited to coach someone
else on how to achieve a goal that you also
are trying to pursue, like boosting your grades in school. One,

(36:47):
it improves your confidence. If somebody's asking me for advice,
I must not be such a dufous. There must be
something I could say that's you're right, Like, Okay, I
guess I'm not. I'm not going to be a straight
sea student forever. I've got something to offer somehow you've
figured out how to money. You guys are making such
such great decisions now that you're giving advice. No, so

(37:12):
that there's magic there. And then the second ingredient is
you have to introspect now deeply about what might work
for someone else. You're gonna think about things that would
work for you too, of course, because that's what you
have access to. So you're gonna think deeply because now
I have to tell somebody something, so I've got to
come up with some answers and then um, then you're
gonna say it out loud to another human. And when

(37:32):
you do that, there's something called the saying is believing effect,
where you know, I wouldn't be giving this advice if
I didn't think it was good advice, and it would
be totally a po critical if I didn't take it.
So all those things combined are a really powerful force
to help people achieve better results when they give advice
to someone about a goal they too hope to um

(37:53):
succeed on. Absolutely, I mean and truly this is something
that has had a positive impact on both your mind
and those finances the ability too. There's a there's a
degree of responsibility. Not only are we just posting it
on social media that we've got these goals, it's like
we've got a podcast that's you know, that is also
documenting all these different strategies and tips, and we're talking
about don't revised funds in November, and I was like, Man,

(38:16):
I know about these things and I believe that they're good,
But now I'm gonna open my own. Yeah, exactly. And
when it comes to our listeners as well, I think, like,
what's so great about this is we often are encouraging
our listeners just to start talking about money. That's the
biggest reason why we started the show five years ago.
We just wanted it to be something that did not
feel like was unspeakable. And even with our listeners, as

(38:40):
do you start hearing about what you should be doing
with your money, but just taking this first steps and
talking about it with somebody else gets the conversation started
pretty soon. Yes, they They might ask you a question
and all of a sudden, it sort of feels like
you're a teacher and you always you hear the saying
that there's no faster way to learn something than to
actually teach it, And just like you said, the saying
is believe in effect, I think the same thing applies.

(39:02):
And that's I mean, we love seeing that that happened
with our listeners as well. Yeah, and I want to
know to Katie because like some of us are are
inevitably going to fail at some of the goals we set, right,
none of us is ever perfect. We just accomplish everything
we set out to do in record time. So so
how do we recover from from failure. Let's say someone
set their goal to max out their roth IRA last year,

(39:24):
but they fell short, Like, how should they approach that
goal moving forward now? In Yeah, it's a great question.
There's a couple of things that research has to say
about that. One thing that I think is really important
is an insight about the way we code failure and
it comes from work by Carol Dweck at Stanford University.
She's studied something um called growth mindset and she compares

(39:46):
it to a fixed mindset, and they're basically two extreme
ways of thinking about failure and success. In a growth mindset,
the way you perceive the world, or the way you
perceive your skill at anything, whether it's investing or your intelligence,
is that it's not a fixed set of abilities you're
born with that you can learn and grow and develop

(40:08):
over time. But if you have a fixed mindset, you
think about things just the opposite that you're sort of
born with some innate abilities and whatever they are, they are.
And so these two perspectives that people can take on
the world lead to really different ways of interpreting failure.
If you have a if you have a fixed mindset
and something goes badly for you, you fall down on

(40:29):
a goal, you're going to interpret that as diagnostic of
your capabilities, and it's gonna be really discouraging. But if
you have a growth mindset and you recognize the truth,
which is that in almost everything in life, maybe the
exception of your height, you have the ability to improve
over time with learning, then you're going to interpret that
failure as input and an opportunity to learn and grow

(40:51):
and do better next time. And it turns out these
which mindset you use, it's it's malleable. There's research showing
that we can teach people to have a growth mindset
by pointing out that basically everything in the world you
can get better with practice and and effort and and learning,
and to the extent that you can be deliberate about
adopting a growth mindset. Then when you fall short of

(41:13):
your goals, which inevitably that's what goal. If you're setting
goals correctly, by the way, you should be falling short
of some of your goals. You want to always stretch
yourself with your goals. That is what the research shows.
If you're setting wimpy goals and you always succeed, you
are not pushing yourself enough and you're not you're not
getting enough out of yourself. Um. So when you stumble though,
think about it with a growth mindset and say, what

(41:33):
did I learn from this? Not like, oh no, this
means I could never do it, but rather you know,
what can I do differently next time? What was the
obstacle that tripped me up? How could I adopt a
new strategy so that in the future when that same
obstacle gets in my way, I'll have a better outcome.
So I'd take growth mindset approach to all goals is
really important. And then the other thing is based on

(41:55):
research by my colleague Merca Sharif at the Wharton School,
who's shown that when we set stretch goals for ourselves,
which is the ideal, right, you know, I want to
go to the gym seven days a week is better
than I want to go to the gym two days
a week. Um, it's we're motivating, You're more likely to
push yourself. But when we do that um anticipating that
we're gonna need to have the ability to give ourselves

(42:17):
some get out of jail free cards. She calls them.
Emergency reserves can be really useful. So when you set
tough goals, that is ideal, but it's also ideal to
make sure that you let yourself off the hook not
a lot. Because if you say, like, oh, you know,
I'm gonna go to the gym seven days a week
and I have six emergencies that I can take then,
but that's not going to get you very far. But
it's better to say I'm going to aim for seven

(42:38):
days a week of this this behavior and I give
myself a little wiggle room to to get out of
jail free than to say I'm going to try to
go five days a week. And the reason is you're
not gonna want to take those get out of jail
free cards if you can avoid it, So you're likely
to put yourself really hard. But if you do have
a miss um, you won't give up and you'll still
keep pushing to do quite well. Nonetheless, don't scrap it

(43:01):
all together. It keeps you from throwing everything out the window,
to having those those doovers or those Mulligan's like you're
sick for a few days, and like it gives you
the grace to say, Okay, that's cool, Like that's a
reason to miss a Jim, it's a decent reason to
not be able to make it. And I mean, I
don't think we're gonna have time to touch on it.
But you talk about elastic habits and how not being
overly rigid, how important that is to keep us on track.

(43:22):
I think the same thing applies with sort of these
doovers as well. But Katie, what yeah, what about using
peer pressure? Peer pressure social relationships? I think that there
are different ways that we can use those to our
advantage as well, because it's it's not just middle schoolers
that feel that kind of pressure, you know, like we're
we're all social animals, and so how can we harness
that reality to propel us forward with our financial goals? Yeah?

(43:44):
I love this topic. It's so important. UM. So we
are incredibly influenced by the people who surround us. They
show us what's possible. UM. They shape our beliefs about, um,
how we should be behaving. When my favorite studies showing
this is just looking at the college roommate you're randomly

(44:04):
assigned as a freshman, and shows that if you end
up with a roommate who is basically a better student historically,
you get better grades than if you end up with
roommate who had sort of less less studious nous historically. So,
you know, think about the logic of it. Your your
roommate goes out and parties every Thursday and Friday. You think, well,

(44:26):
that's the thing to do in college. I should be
partying all the time, versus your roommate every Thursday and
Friday stays in with a book, makes um, you know,
flash cards. You're thinking, gosh, I guess the succeeding college,
I should be staying in Thursdays and Fridays and making
flash cards. So we're in. My roommate is a nerd,
and I gotta get a new one. In the extreme,
that also happens. But on average, Um, you're right, it's yes,

(44:51):
there can there can be. There could be situations where
you're like, God, you're so crazy that you don't aren't
influenced by people. But on average, if there is two
much of a disparity, it turns folks off that way, Yeah,
I mean, in that way, it can kind of backfire.
And so it's it's so important to surround yourself with, like,
you know, individuals who have something in common with you,

(45:11):
but who who aren't, like at the very top of
their game, because when there is that gulf, it can,
like if I'm working out with, it can prevent you.
It's going to be it's gonna be dispparenting, right, it's
gonna make me. So you want someone who stretches you
a little bit because they are a little bit ahead
of you, but it's not hopeless. It's not a hopeless golf.
And that's also what this research on college roommates showed
was you want somebody who is, um was a stronger

(45:34):
student than you, ideally as your roommate. But you don't want,
you know, the valedictorian if you were a straight A student,
because now there's there's such a gulf that you can't
even relate. And like you said, you say, hey, this
person is a nerd. I'm going out every night. I
gotta get away from them. Um. So that but it
is important to cultivate, if you if you have big
goals in any part of your life, trying to cultivate

(45:56):
social relationships with people who share those goals and who
are frankly a little bit ahead of you and from
whom you can learn is incredibly valuable. UM. They can
be a support group. You can also offer them advice,
which we already talked about the power of advice giving. Right,
you can talk about those shared goals and you'll find
you actually do have something to offer. UM. But you
can do what my collaborator Angela Duckworth and also Katie

(46:19):
Mayor and I'll call copy and paste, which is actually
we show that when you deliberately coach people to go
out and look for friends who are using clever tactics
to achieve a goal they too want to achieve, and
say go find what they're doing and try to emulate it,
there's benefits to that people somehow, even though they naturally
soak up some of what's around them, there's still something

(46:40):
left on the table because just that nudge to copy
and paste leads people to go looking for um mimicable behaviors.
And that is really important and valuable because other people
have approached and tried to pursue most of the goals
that you want to achieve, and some of them have
found a degree of success. And particularly people in your
social net work. They have more in common with you,

(47:01):
their lifestyle might resemble yours in many ways. Um so
they probably the things that they're trying maybe quite effective
for someone like you too, So ask and try to
figure out. What can you learn from others who have succeeded.
No need to reinvent the wheels. Start from scratch, not
rocket science. But we often forget it right, like we forget, hey,
somebody else already did this, and I should go collect

(47:23):
that data like we're used to, you know, trying to
learn from experts and so much of life I you know,
I teach it to business school people go look at
an accounting textbook when they have to figure out accounting.
But sometimes with goal setting, we forget that there are
other people who've come before us, and that there's expertise
there too, for sure, and you don't have to just
figure it out all on your own, and other people
are a great resource. Katie, thank you so much for

(47:44):
joining us today. Not only do you have your book
How to Change, which you've also got a podcast, You've
got a newsletter in addition to all your work being
a professor. So where can folks learn more about you
and what you're up to. Yeah, thanks for asking and
thanks for having me. Um, best place to find more
about me is that Katie Milkman dot com. It's Katie
with a while like Katie Perry, and you can subscribe

(48:05):
for Milkman Delivers if you so choose to get monthly
tidbits or yeah, listen to my podcast, check out my
book or read the nerdy research papers. If that's your thing,
that's definitely my thing. You love it all, Katie, thank
you so much for joining us today. We really appreciate it.
Thanks for having me. It was a blast. Well all right, man,
I only wish we just had more time to actually

(48:28):
talk with Katie. Yeah. Well, maybe our new goal in
three is that our interviews are more Joe Rogan from
even going one hour, I think sometimes as long, but yeah,
maybe we should take it to like two four hours long. Now,
this this really was an awesome conversation though, that we
had with Katie. What was your your big takeaway from
this conversation? And she's smart, She's got a depth of
knowledge that's fascinating. But she also researched all the different

(48:50):
examples and stories as you and I were talking about
before we started chatt with Katie, she just she not
only has the head knowledge, but she's done all this
practical work with companies that give us the ability to
connect to to everyday human actions, which I think is
super helpful. But you get from consulting like you have
to make that connection. Otherwise you're not really a consultant, right,
You're just a professor. You're just a research exactly. They're like,

(49:11):
I would have taken your class if that's what I wanted.
I want the practical application to this. But I think
my biggest takeaway was when she talked about making it
fun and that you know, even if progress takes longer,
you're gonna be more likely to stick to it. And
I think, yeah, when we're talking about budgetings, she said,
do it over a class and wine or something like.
That's kind of advice we've given over the years, like
incorporate something fun into that money management. Set little rewards

(49:33):
for yourself as you do make gains, as you do
accomplish those smaller goals that you've set out for yourself.
It doesn't need to be all drudgery, and ultimately the
goal is that you're you know, hitting on all cylinders
your your budget reflects the biggest goals that you have
for your life, and so that when you achieve those things,
it's like it's fun and it's energizing. But the more
that we can make what seems boring to be fine.

(49:55):
Like when I thought about working out, Matt, you decided
for CrossFit, I said, you don't what sounds fun to me?
A water rowing that splashy, splashy. Yeah, I wanted to
sound fun while I was working out, and I was like,
this is gonna be like kind of a whole body thing,
but it's also there's something enjoy I find enjoyable about it,
or riding my bike on the path and then up
our local mountains like that kind of thing. I was curious, though,

(50:16):
did you Did you make it fun though, in the
way that you were able to um temptation bundle, Like,
I assume that's well, actually I do. I listen to
a podcast for music typically when I'm working. But like,
I just tried to set out instead of signing up
for the most hardcore workout I could, I found something.
I was like, I know this is gonna be less intense, right,
and I'm not going to see results as quickly but

(50:37):
it's going to be the thing that I find enjoyable.
I feel like I can stick to seem more appealing
to you. Yeah, and I think that's really important. I
think if it allows you, it's like playing the game
of basketball versus going for a run. I'll sign up
for a game basketball any day of the week, but
I'm not going to go on to find out run
like just not gonna happen. I hate it, and so
find the things that's gonna stick to know yourself a
little bit. That's so true, man, This is like one

(50:59):
of the ways where you are so different. I guess
for me, like hearing a five mile run like up
the mountain or something, I'm like, oh, yeah, that sounds awesome.
Basketball not so much jammed way too many fingers playing basketball.
But so my big takeaway, I'm gonna do something completely new,
which we've never done with an interview before. But I
want to say something like literally entirely new. This is
something we didn't get to but in her book as well,

(51:21):
I just want to be able to present more information
because Katie has so many great ideas, but she talks
about how these different strategies, these different tactics they're not
something that you can awesent times just do once and
then completely forget about it and have your problem solved.
And oftentimes some of these strategies that they may not
work as well as they used to maybe when you
first started. And so she had talked about when you

(51:43):
do see some growth stalling out, just considered new ways
to reach your goals, because a chore for one person,
like running five miles, that might be fun for somebody
else like me. And so I know that that really
stuck with me as well, because she was encouraging folks
to think about these different problems we're faced with more
as a disease rather than a rash. So, for instance,

(52:04):
like doctors wouldn't give insulin to a diabetic for a
one month and then be like, all right, you're set
you now, that's not how it works. It's something ongoing
that you have to revisit. Uh. And so in the
same way that is how you would treat a rash,
you know, something that is more temporary. But oftentimes with
some of these larger goals, especially the financial goals that
we have in our lives, think about it like a disease.

(52:26):
It's this thing that is going to be with you
for a really long time, and it is up to you,
like you said, Jill, to know yourself and to adapt
and figure out how it is that you're going to
accomplish that goal because oftentimes there isn't somebody outside of you.
There isn't that external pressure who is encouraging you to
reach that goal. Oftentimes, like I mean, this is what
you should try to thank that happen, because that's a

(52:46):
helpful way. It is helpful, but oftentimes, like these are
internal things that we have to figure out ourselves, and
so I just found that really helpful. The disease of
money management will be with you forever, but we want
you to be able to implement some of the things
that Katie talked about on this episode, so you can
stick to the goals that you have just created. Like
now is a brilliant time. It's the the fresh start

(53:06):
effect that Katie talked about. Now is the best time.
And one of the things that I've heard Katie say
before too, she didn't say today, but like like so
many New Year's resolutions fail, but there's a huge percentage
something stick to it. We should take the positive side
of that and say, you know, what, There's no better
time of year that more people make lasting change than
right now, and so hopefully you can incorporate some of

(53:26):
the things Katie talked about and make some lasting change
moving forward when it comes to your personal finances, because
focus on the brighter side of things for sure. Well,
let's mention the beer that we had speaking of the
brighter side of things that we enjoyed on this episode.
This one was called half of Vised Guy by Mutation Brewing.
It's a helf of vising and yeah, Matt, what we
your thoughts on this beer? It was great? Yeah, this

(53:47):
was another delightful beer by the guys by Jack and
friends over there at Mutation. But yeah, light, pillowy wheat beer.
It had a little bit of sweetness. I feel like,
maybe maybe for a half of Eisen, it was a
touch sweeter than some of the ones out there, Like
we've had some that are quite dry. But this is
the kind of beer I would drink with a pizza

(54:09):
in particular, one that's got maybe some some spicier sausage
on it. And if you're looking for something to cool
you down, Yeah, this is if you're normally in the
pilsner crowd, like if you're like Budwise or bud Light,
that's what I drank occasionally blue Moon. This is like
the better version of Blue Moon kind of thing, right, Like,
if you want, if if you want to helf of
vising moving too that craft beer realm and you haven't

(54:30):
really gotten there, find a good helf of Vising from
a local brewery. That's a good thing to to start
off with. I still remember one of my first craft
beers was win were Brothers in Portland oregan helf of Easing.
They make one of the better ones out there. This
one wasn't shocked top No, it was not. This one
rivaled it though, I think I really like this beer.
Even though helf of Visins or not my go to style,
this was a good version of it. So exactly, that's

(54:50):
gonna do it for this episode. For show notes links
to some of the resources that we mentioned that Katie
mentioned on this episode, you can find those up on
our website at how to money dot com. Right man,
So that's going to be it until next time. Best
Friends Out, Best Friends Out,

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Matthew Altmix

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