MONEY psychology of money

The Best Last-Minute Holiday Gifts Don’t Need Wrapping!

Concert goers
Momcilo Grujic—Getty Images

A growing body of research shows that the best way to make your loved ones happy is giving them real-life experiences, not things.

Scrambling frantically to buy meaningful gifts for Christmas or Hanukah? Well, you can relax (a little). Pleasing those near and dear to you this holiday season need not involve any last-minute shopping mall runs or late-night web crawls.

All you need is a reasonable sense of what your intended gift recipients like (or might like) to do with their time. That’s because, according to a growing body of social science research, the best way to increase the enjoyment, satisfaction and general happiness of your loved ones (not to mention office mates) is to give them real-life experiences.

What does that mean, exactly? Well, depending on the gift-receiver in question, it could mean almost any kind of in-person activity, adventure, or escapade, from concert tickets to restaurant meals, from guitar or cooking lessons to museum or amusement park passes, from rafting trips to factory tours to island getaways. “The happiness we get from our experiences give us more enduring pleasure,” says Cornell psychology professor Tom Gilovich, who since 2003 has been exploring the distinction between material and experiential purchases.

Now, in a new paper, “A Wonderful Life: Experiential Consumption and the Pursuit of Happiness,” Gilovich and colleagues Amit Kumar and Lily Jampol review the considerable research into this intriguing subject over the past decade. And because few folks have the leisure to pore over academic studies any time of year—let alone while racing to cross names off holiday gift lists—I’ll summarize Gilovich & Co.’s findings. (Think of it as’s gift to you!)

Here, then, are just a handful of the many reasons why experiences provide greater satisfaction and happiness than material goods:

1) Experiences are more social. In other words, we are more likely to connect with people when we’re actually doing something, rather than simply owning something. And humans, being highly social creatures, are generally happier when connecting with other humans. To be sure, some material gifts—video game consoles, for example, or sports equipment—can effectively be owned privately and contribute to public engagement at the same time, but for the most part having something is a solitary experience. Doing something is generally not.

2) Experiences remain special for longer. Humans are prone to habituation, which is one reason why people who suffer great tragedies wind up happier than they predict they will be soon after the loss occurs. We get used to things, which is good when it comes to negative events. But the flip side of this tendency is that it applies to positive events as well. That’s especially true with material goods. As we get used to the things we own they provide us with less joy and satisfaction. As Gilovich explains: “When faced with a decision of a new sofa or taking a trip somewhere, people often say to themselves, ‘I better buy the sofa because at least I’ll always have it. But the trip will come and go before I know it.’ The material possession, in other words, seems like a better investment. But when it comes to increasing our happiness and sense of well-being, research suggests just the opposite. We quickly adapt to the new sofa, but the pleasure we get from our experiences live on in the stories we tell and the memories we cherish.”

3) Experiences are unique. The down side of being social is that we routinely compare ourselves to others — the proverbial keeping up with the Joneses. One reason experiences remain special in our memories long after they have occurred—and therefore continue to make us happy—is because they are generally not diminished by the experiences of others. You might own a fancier smartphone than I do, which detracts from the enjoyment I derive from mine; but the trip I took to New Hampshire was unique because that adventure involved me! You may have stayed in a four-star hotel, but you didn’t enjoy the quaintness of my three-star inn.

4) Experiences help us define who we are. “We are what we do, not what we have,” write Gilovich, Kumar and Jampol. And what they mean is this: While it’s true that certain material goods—a parent’s ring, a rare watch—contribute to our sense of identity, most people craft their psychological identity from their exploits and actions, not their possessions. In one study, for example, Gilovich found that people feel more similar to someone who makes the same experiential purchase than they do to someone who makes the same material purchase. In another study, participants listed the five most significant material purchases of their lives and the five most important experiential ones. They were then asked to summarize their “life story,” using one or more of their purchases in the narrative. Result: People were twice as likely to mention experiences than possessions.

This last point is especially interesting to consider when buying gifts for children. You are more likely to affect the future happiness of a child—who she becomes and how she sees herself—with positive experiences than with expensive toys.

Even better, you’ll save time and money this year by not having to wrap so many presents. A gift certificate fits quite nicely in an envelope.



Surprising Lessons from the Latest Superstar Athlete to Go Broke

Columbus Blue Jackets defenseman Jack Johnson (7) during the NHL game between the Boston Bruins and the Columbus Blue Jackets at Nationwide Arena in Columbus, OH. The Boston Bruins defeated the Columbus Blue Jackets 4-3 in a shootout.
Aaron Doster—Cal Sport Media via AP Images

In Jonathan Rosen’s 1997 novel Eve’s Apple, a character describes her mother as someone who wanted to “have her kids and eat them, too.”

It’s hard not think of such parental malevolence when considering the recent bankruptcy filing of Columbus Blue Jackets defenseman Jack Johnson, whose financial woes were caused almost entirely by the financial evildoings of his parents. But despite the extreme nature of this case—and because of the surprising frequency of money troubles for professional athletes—there are two valuable lessons in Johnson’s travails that are relevant to sports fans and the rest of finance-fogged America.

Lesson 1: We should start teaching personal finance in kindergarten.

Despite a tremendous increase over the past 30 years in the number of reliable sources offering solid financial advice instruction to anyone who cares to learn—from Money magazine to to most reputable financial services companies—most Americans are woefully ignorant when it comes to basic principles of money management. As a country, we just don’t know enough about borrowing, saving, investing and insurance. And while some some states are being taken to address this problem, we’re only at the early stages of what will be a very long process.

Don’t believe me? Check out the four main recommendations of the President’s Advisory Council of Financial Capability—all of them smart—and tell me how close you think we are to solving the problem. Every school, in every state, needs to incorporate financial literacy into curriculums from the earliest stages, i.e., from the time kids learn their ABCs and numbers. The only way to overcome the inherent tedium of personal finance—a topic about as exciting as someone else’s golf score—is to make it less of a “subject” and more of a tool. I’ve been writing about personal finance, on and off, for nearly a quarter of a century and the only way to successfully educate all but the biggest money nerds is to make zucchini bread. That is, we have to hide the good-for-you-but-unappealing-stuff (apologies to zucchini farmers) in more exciting fare.

Lesson 2: Professional athletes are particular vulnerable to being ripped off.

When we look at professional athletes we see (or imagine) any number of positive qualities: talent, discipline, focus, commitment, bravery. But while most of those traits exist to greater and lesser extent in all sports stars, the one quality that must be present is what insiders call “coachability.” For every athlete MLB, NBA, NFL or NHL athlete there were dozens of others with similar skills who weren’t able to make it to the big leagues because they wouldn’t or couldn’t follow directions. I worked at ESPN for 14 years and I was struck by nothing so much as the willingness of otherwise supremely confident and self-directed men and women to listen to their coaches, trainers and managers. For good reason, too: These authority figures possess expertise that athletes respect and desire, a treasury of knowledge and experience from which they hope to achieve success and extend their careers.

Accurate, real-time salaries for thousands of careers.

The problem with this malleability is that it often applies to experts in fields outside their core sport—such as health, nutrition or fitness—but especially comes into play with complex or arcane subjects like finance. Once an athlete trusts a financial adviser, heaven help him or her if said adviser is up to no good or even simply incompetent. (Heaven help all of us if it’s a parent who’s doing the exploiting.) Most of the major sports leagues and players’ unions recognize this and try to provide guidance, protection and warning to their athetes, but they could and should do better. I write this knowing how difficult such a challenge is, not just because athletes work as hard and as long as they do to earn their rich salaries but also because they are, generally, young and cavalier about risks of all kinds. Such is youth.

If I were King of The Sports World—a development unlikely to occur any time in the near future—I would require that a majority of every pro athlete’s earnings be directed to some kind of TIAA-CREF type organization that would safeguard their fortunes until they are through with their careers. Such an arrangement might not be popular (or legal or practical) but it would ensure that far fewer pro stars are fleeced because they haven’t been taught well to handle their money and have been taught too well to follow orders.

Oh, yeah, one other rule in my hypothetical sports realm: Even after athletes retire, I wouldn’t give them control of their money until they’ve taken a few financial literacy courses.


If Women Want to Get Paid Fairly, Here’s What They Should Do

Woman CEO reviewing paper by female employee
Cultura Creative—Alamy

New research shows that high-achieving women who want to get paid fairly should work for high-achieving women.

“The higher a woman rises in Corporate America the more likely she is to be paid as much as her male peers,” said absolutely no one ever who knows anything about men, corporations, or America.

Now comes new research to suggest that no one with even the slimmest connection to reality will be tempted to say such a thing in the near future, either. Two Canadian researchers, whose findings were just published in the journal Management Science, reveal fairly conclusively “that CEOs pay officers of the opposing gender less than officers of their own gender, even when controlling for job characteristics.”

And while such a revelation might give slight pause to gender warriors—perhaps it’s familiarity bias, not sexism, behind the male-female pay disparity in American workplaces at all levels—researchers David Newton and Mikhail Simutin found only “limited evidence that male officers of female-lead firms are paid less, or that they receive smaller in increases in compensation relative to female officers.”

In other words, male-led organizations discriminate against executive-level women via paychecks to a much greater extent than female-led companies discriminate against male officers. (It’s old news that female CEOS themselves are underpaid relative to male CEOs, although progress has been made in recent years.)

What’s worse, this pay disparity often means that high-level women are paid less than men beneath them in the org chart. Looking at data from 1996-2011, the researchers found that “male CEOs pay female officers on average $46,500, or over 12% of median compensation, less than they do their male subordinates who work at the same firm. Moreover, female officers receive significantly lower increases in compensation than do male officers when the firm is headed by a male CEO.”

Not surprisingly, this gender bias is more pronounced the older the top dog in the corner office, especially if said canine is a human person of masculine gender. “Older and male CEOs exhibit the greatest propensity to differentiate on the basis of sex.”

Put another way, given that roughly 95% of the largest American companies are run by men, there is slim to no chance (and slim is on vacation) that a female officer in Corporate America is being paid fairly relative to her male peers, either at her company or in her industry or pretty much anywhere.

The study—clunkily titled Of Age, Sex, and Money: Insights from Corporate Officer Compensation on the Wage Inequality Between Genders—is interesting for other reasons. There is a growing notion that corporations in general might be better off if led by a female CEO, not least because their share prices seem to outperform those of companies helmed by men. Many reasons have been put forward to explain this, including the idea that women are more cooperative decision-makers and possess a more rational approach to risk. There’s also a theory that women are better corporate shoppers than men, e.g., they tend to pay less when acquiring companies.

That last hypothesis is supported indirectly by the Canadian study, which suggests that when shopping for talent, male CEOs—particularly older ones—pay far too much across the board. “We find evidence that male CEOs compensate their officers more richly than female CEOs do,” the authors write. “The difference in compensation by male and female chief executives amounts to $15,210 per year on average, or 4% of the median officer total compensation.”

So, to sum up: Male CEOs likely pay more to executives who manage their companies less well than suits hired at lower salaries by female CEOs (who are also paid less). Not exactly what investors think of as enhancing shareholder value.

It’s a wonder there isn’t a raft of class action suits against American corporate boards for gross negligence—for letting men run their companies at all.


The Father of Economics Was Also the World’s First Self-Help Guru — And Can Improve Your Life!

Adam Smith (1723-1790), Scottish moral philosopher and a pioneer of political economy.
World History Archive—Alamy Adam Smith (1723-1790), Scottish moral philosopher, pioneer of political economy, self-help guru.

Adam Smith, the 18th century Scotsman best known for writing The Wealth of Nations, is widely misunderstood. His insights into technology, ambition, and friendship that are as relevant today as they were in 1759.

In his new book, How Adam Smith Can Change Your Life, economics popularizer Russell Roberts explores what may be the world’s first self-help book, which is all the more remarkable for its author: Adam Smith, a.k.a., the18th century Scotsman known as the father of economics. But Roberts—host of the popular podcast EconTalk—focuses on Smith’s mostly forgotten book The Theory of Moral Sentiments, illuminating Smith’s insights into technology, ambition and friendship that are as relevant today as they were in 1759. Here are five surprising takeaways from his research.

Adam Smith is widely misunderstood. “I feel bad for Smith. In 1776, he published The Wealth of Nations, which makes him famous forever. That’s the good news. The bad news is that everybody forgets about his other book, The Theory of Moral Sentiments, which came out in 1759. Worse, people come to believe that Adam Smith thinks that greed is good—a caricature of his real views. In The Theory of Moral Sentiments, Smith argues that the pursuit of wealth and fame and power is a fool’s game, corroding your serenity and leaving you very unhappy. Very surprising. What I think he is saying is that getting rich is all well and good. Just don’t make it your goal. He was a very wise man. One of the things I’m doing with my book is setting the record straight.”

Adam Smith was a Buddhist in the making. “If you really want to be a better person—instead of hoping to be one—it helps to pay attention. Smith’s ideas on the ‘impartial spectator’—imagining someone over your shoulder observing your actions who doesn’t have a stake in the matter—is a really helpful way of paying attention. Though we struggle in the moment to recognize our failures, reflection on our conduct after the fact, with the impartial spectator in mind, helps us to face our true selves.”

Adam Smith understood consumers—in the 21stcentury. “There are surprising parallels between what Smith focuses on from his everyday reality and our own. Take technology. Smith inveighs against “trinkets of frivolous utility” that people stuff in their pockets just because they’re really beautifully designed to do what they do, not because they actually make their lives better. Consider the Apple Watch. When Apple CEO Tim Cook introduced the device, the first point he made was its accuracy; it will be synchronized to with the universal time standard and accurate to within 50 milliseconds. Well, that’s a relief! In the 18th century, Smith noticed that people would pay a premium for a more accurate watch but that it had little impact on their punctuality. They just liked the idea of an accurate watch. The more things change, the more they stay the same.”

Adam Smith was the first behavioral economist. “Traditional economics usually assumes that people are rational. Behavioral economics sees human beings as prone to various cognitive biases that limit our ability to think clearly. We are prone to self-deception and our choices suffer from imperfect or distorted information. Smith was very aware of the temptations and comforts of self-deception. He writes of the ‘mysterious veil of self-delusion’ and of our unwillingness to face up to our faults and imperfections. He saw this fatal weakness as being responsible for half the disorders of human life. I wonder if he underestimated the proportion.”

Adam Smith just wanted you to be happy. “People assume, reasonably, that economics is about money—about the stock market, GDP, interest rates, taxes, and so on. Certainly economics has something to say about those things. But what economics is really about is choice–the fact that in the real world, we can’t have everything want, we can’t do everything we’d like. So we have to choose. How should we spend our money, yes. But also how should we spend our time. The choices Smith was most interested in were those involving ethical decisions or how much time and energy to devote to friends and family. All these decisions involve tradeoffs, the essence of economics. Ultimately, according to Smith, what we really care about isn’t money or material things. They can seduce us but their satisfactions don’t endure. What we really care about, says Smith, is the mark we make on those around us—our friends, family, colleagues and then perhaps the wider world. What we really care about isn’t how rich we are but about how rich are lives are in the fullest sense of the word. And that, I think—and I like to think Smith would agree—is what economics is really about: How to get the most out of life.”


6 Simple Rules for Simplifying Everything

In their new book from Harvard Business Review Press—Six Simple Rules: How To Manage Complexity Without Getting Complicated—Boston Consulting Group partners Yves Morieux and Peter Tollman make a valiant attempt at helping increasingly complex organizations improve their performance in an increasingly complex world. We asked Morieux to be similarly valiant in boiling down their rules for readers. (You’re welcome!)

1. Understand what your employees actually do. “Most management approaches pay less attention to the day-to-day reality of how people behave and why, and instead add unnecessary functions and procedures. We use the term ‘smart simplicity’ to describe the approach of discovering what people actually do and why. The central insight? People act rationally, even if their actions create problems for the organization. They are trying to look after their own interests. The essence of smart simplicity is to understand that, and then change the conditions inside the organization so their interests align with what you need them to do.”

2. Find your fighters. Conflict is not necessarily a good thing in and of itself. But it can be a sign that people are actually doing the hard work of cooperating, which can be difficult and create tension and resentment. But the people who are resented might be the glue that holds cooperation together. We call them ‘integrators.’ They’re often not in positions of formal power. They often operate at the intersection between two groups. They have an interest in cooperation and the power to make collaboration happen.Integrators can be well-liked, but they can also be resented. They are forcing others to make hard choices. You can identify integrators by the fact that they are the focus of strong feelings, either positive or negative. Give integrators the power, incentives and authority to succeed.”

3. Give more people more power… “The real key to performance is combining cooperation with autonomy. The problem with standard approaches to an increasingly complex business environment is that by creating new layers and processes and systems to deal with these challenges you also sacrifice people’s autonomy. That makes the organization less agile. One of the effects of smart simplicity is to balance autonomy and cooperation. It gives people enough power to take the risk of interpreting rules, using their judgment and intelligence. If more employees have power to make decisions in your organization, that means they can solve problems on their own.

4. …and take away resources from everybody. “Having fewer resources means people have no choice but to rely on each other, which helps to foster cooperation. Think of a household with several people living in it. If those people own multiple televisions, there is no need for them to cooperate about what to watch. But if you take away all the televisions except one, they will have to cooperate. Do they want to watch baseball or Shakespeare?”

5. Make sure your employees eat their own cooking. “People work better when they understand–and have to live with–the consequences of their actions. A car company’s products were famously hard to repair. Then the company sent its engineers to work in repairs. Confronted with the repair problem themselves, they quickly found solutions to make cars easier to fix.”

6. Don’t punish failure—punish the failure to cooperate. “If people are afraid to fail, they will hide problems from you and your peers. Reward people who surface problems—and punish those who don’t come together to help solve them.”

TIME Management & Leadership

The One Thing Business Schools Need to Start Teaching

Getty Images

If you ask 20 random grads to explain why they went to business school, a large majority will list networking as one of the top reasons. Makes sense, too, since the connections one makes in b-school can be useful down the road in finding jobs and excelling at them. Which is why it’s all the more curious that if you comb through the course curriculum of 20 random business schools, you’d be hard-pressed to turn up more than a handful that actually teach their students how to network.

I was prompted to try both experiments recently after reading an article by David Kahn, chief revenue honcho at the Wall Street Journal Office Network, bemoaning the fact that most businesses do a poor job teaching their employees how to network, especially those workers who are not directly connected to obvious revenue-generation functions. As Kahn writes:

“Sure, many companies, firms and agencies offer workshops on presentation skills, closing strategies, storytelling and the like. But these are sales tactics, not networking ones. And yes, many encourage staffers to attend conferences and other industry gatherings, if for no other reason than to collect business cards. But such efforts are Networking 0.5, as relevant to accumulating real relationship capital as tenth grade Home Ec is to becoming a Michelin chef.”

This is a serious oversight, Kahn explains:

“The instincts, skills and strategies necessary to build a vibrant and productive professional web of contacts are varied, complex and by no means natural to most people, even ‘natural salespeople.'”

For the very same reasons, most business schools should be taken to task for their inability or unwillingness to recognize the importance that networking will assume in the professional lives of their graduates. “At all levels of higher education, graduate and undergraduate, most schools do an incredibly poor job of teaching networking skills in any formal or practical way,” says Ivan Misner, author of several books on the subject. “It’s extraordinarily rare.”

But by any name—”networking,” “relationship capital,” “social capital”—the sum and substance of one’s connections and networks has value far beyond job searches. They are integral to all sorts of organizational priorities—not only sales, but also recruiting, lobbying and various types of “sourcing,” from partnerships to acquisition targets to industry experts.

A few business schools take networking seriously—most notably the University of Michigan’s Stephen M. Ross School, where management professor Wayne Baker has established himself as one of the gurus of the subject. (“There’s a lot of untapped potential in companies,” Baker contends.) And a growing number of his academic peers have started to research social networks from a variety of angles. But most b-schools and pretty much all undergraduate institutions ignore networking as a discipline entirely or give it passing attention in modules embedded in broader leadership or management sections.

Why? For two primary reasons. First, the idea of trading on one’s personal relationships for professional gain continues to strike some academics as unseemly. (LinkedIn, Relationship Science and Facebook be damned!) “Networking still has something of a bad reputation to some,” Baker says.

Second, even those who understand and value relationship capital’s role in commerce often think of it as a collections of so-called soft skills, with which some small percentage of fortunate folks were born and the rest of humankind can only admire. But while there’s truth in the first notion, the second is just plain wrong. Networking, Bakers says, “is a learnable skill.”

Which means it can be taught. As Kahn writes,

“… reciprocity, mapping relationships, intuiting the self-interest of others, prioritizing conflicting needs, professional matchmaking, normalizing agenda-free but genuine communication—these are the building blocks of robust relationship capital.”

They are also the building blocks of engaging, practical and valuable course syllabi. Let’s hope more schools—at all levels of higher education—start teaching from them.

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