Renowned behavioural finance expert Meir Statman, the Glenn Klimek Professor of Finance at Leavey School of Business in US Santa Clara University challenges the one-sided perceptions of standard finance in his latest book, "A Wealth of Well-Being: A Holistic Approach to Behavioral Finance."
In an exclusive interview in 'Wealth Wizards: Money Maestros in Conversation with Nidhi Sinha' series, Statman talked about the intricacies of his latest work, on the much-neglected landscape of behavioural finance which he found central in his lived experience, his personal challenges.
At the heart of his exploration in the book 'A Wealth of Well-Being: A Holistic Approach to Behavioral Finance' lies the interconnectedness of financial well-being with the most important aspects of life, such as family, friendship, religion, health, work, and education. ' Through an analysis of global cultures from India, China and Mexico and drawing from personal stories, Statman illuminates the readers on how finance influences life choices and relationships.
During an interview with Advisor Perspectives, Staman had earlier shared a story about meeting a financial advisor during one of his public talks. The advisor was deeply moved by Statman's remark "It is better to give with a warm hand than a cold one." The advisor had lent her son USD 27,000 for college tuition but was now insisting that her son pay her back according to an agreed schedule. Although the mother had enough savings to forget the loan, she believed that paying by schedule would teach her son financial responsibility and help him in the future. However, the son was financially struggling at the beginning of his career, when he could not even afford to buy his girlfriend an engagement ring. Thus his mother's demand soured their relationship.
He even goes far into traditionally unexplored areas on how the relationship between parents, children, and their friends changes as their financial situation changes. The teaser of his book on Amazon also shows how his research even extends to how finances affect choices of educational institutes for youth and how these choices vary across different cultures around the world.
Rejecting the notion that human beings are irrational in financial matters, he says his concept is that we are normal, but acknowledges that individuals make mistakes on account of cognitive biases and emotional changes.
Building further on his earlier work and expanding his circle of finance from his book "Finance for Normal People," Statman reaches out into the concept of the holistic concept of life well-being. "I see family, friends, health, education, religion and other factors like a portfolio. In a portfolio, some stocks are up, some are down, but eventually, it is the total that matters. So, it’s life well-being that matters," Statman said.
In his interview with Outlook Money, Statman elaborates on the concept of four capitals he talked about in his book. They are cultural, social, personal, and financial capitals that shape individuals' interactions with other people and thus their overall life experience.
“Of course, financial capital matters a great deal. We need financial well-being to enjoy life well-being, but it is life well-being that we seek," is the central theme of the book.
