One of the things I love about financial planning as a profession is that there’s no shortage of good stuff to read and ponder over, and call it work. One day it’s investing topics, the next its emerging insights from behavioral finance and neuroscience. That’s probably what I’d do with that 25th hour of the day – read more. It would certainly be better than watching the news!
Along these lines I recently read a book that, in part, invited the reader to create a relationship with their “future self”. Not some stylized version of who you hope to be, but an older version of yourself five, ten, twenty years in the future. You’d then develop a regular dialogue with Future You. Even daily.
The idea is that Future You would help you understand what to do (or not do) today to stay on track for accomplishing things that were ultimately (according to Future You) the most important. Maybe its eating better and exercising, spending more time with family, or even getting in to see your dentist more often. And Future You isn’t going to blow smoke, right? They would be honest, and even plead with you to do what you probably think is right anyway.
It turns out this concept is a growing field of research that has direct implications for financial planning. This makes good sense because having a healthy picture of one’s future self informs decisions involving delayed gratification, such as saving for retirement, for example.
The following are excerpts (emphasis and additions mine) from an article on the topic. I’m including a link to the full article below. The content is meant for financial advisors, so you’ll see some references to the target audience.
Future self-continuity (FSC) is the connection and perceived association between who you are today and who you will be in the future. The idea and theory of future self-continuity were developed out of research focused on understanding and curing the problem of future discounting, which is the human tendency to place less importance on future rewards when compared to current rewards. And because of this tendency, it can become very easy to put off (or even ignore) behaviors associated with future rewards, from simple ‘bird in the hand’ scenarios (e.g., taking $50 today instead of $60 next week), or (not) saving and investing for retirement.
As such, FSC researchers have been exploring ways that might encourage people to develop habits now, in support of achieving future rewards, versus relying on actions much later in the future, that inevitably become more urgent and potentially more difficult.
The first area of FSC research relevant to advisors examines how similar a person’s perception of their current self is to what they envision as their future self. Will the future self have the same likes, dislikes, goals, values as the current self?
The second area examines the vividness of future self. This deals with the ability to actually see one’s face aged over time, and/or how vivid a future scenario is envisioned, such as imagining what being in retirement might be like. (It turns out facial imaging technology helps people identify with their future selves by showing what they may look like at certain ages – putting face to the name, so to speak, and making it harder to let Future You down.)
And the third area of research looks at the level of positivity one has for their future self. Do you care about your future self, and/or do you think your future self will be better, happier or sadder than your current self? For example, do you see retirement as a good thing or a scary thing?
In fact, a study from 2009 highlighted that people, at a neurological level, tend to think of their future selves similar to how we might think about some other person – the results of the study showed that thinking of the future self and thinking of an arbitrary celebrity activated the same sections of the brain. As FSC relates to savings, a study from 2014 [… ] concluded that a stranger/self issue impacts savings because “…for those estranged from their future selves, saving is like a choice between spending money today or giving it to a stranger years from now”.
Moreover, researchers also know from social psychology and empathy studies that individuals are more likely to help those that they feel are similar to them. Which means if you feel that your future self is a stranger with nothing in common with your current self… it will be very hard to want to “help” that person. Conversely, increasing FSC makes it easier to relate to and empathize with your future self, and can thus help to increase savings.
Increasing FSC may also help with other more common, and perhaps more difficult, financial planning scenarios like actually transitioning into retirement, getting through a divorce, or thinking about death and other major life-changing events. For example, many advisors have had a client that says they just cannot picture themselves laying on a beach, ever marrying again, or being capable of managing a household on their own – which is both a literal expression of a lack of future self-continuity, and more broadly an example of how humans are very bad at predicting what they will be like, enjoy, or want in the future (which in turn makes goal-based investing really hard because the goals aren’t certain!).
In academic terms, humans are poor affect forecasters, which means we are bad at guessing how we might feel in the future, and unfortunately, we are also bad at guessing the magnitude of how those feelings will affect us. Essentially, we do not know what will make us happy or sad, nor do we know how happy or how sad we may be – we over-estimate and under-estimate our emotions.
The author lists a few questions that can start the FSC thought process…
- What is one trait that you value about who you are today, that you want to be sure is a part of who you are in retirement?
- What is an activity that you enjoy doing today, that you would like to ensure you can do more of in the future when you retire?
- What relationships do you value currently, that you want to be sure your future self continues to cultivate?
Here's a link to the article if you'd like to read more:
Have questions? Ask me. I can help.
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