A Wealth of Well-Being

Unravel the complex relationship between finances and life well-being

In A Wealth of Well-Being: A Holistic Approach to Behavioral Finance, Professor Meir Statman, established thought leader in behavioral finance, explores how life well-being, the overarching aim of individuals in the third generation of behavioral finance, is underpinned by financial well-being, and how life well-being extends beyond financial well-being to family, friendship, religion, health, work, and education.

Combining recent scientific findings by scholars in finance, economics, law, medicine, psychology, and sociology with real-life stories at the intersection of finances and life, this book allows readers to clearly see how finances are intertwined with life well-being. In this book, readers will learn:

• How dating, marriage, widowhood, and divorce are all affected by finances and affect them
• Why the relationship between parents, grandparents, children, and friends changes as finances fluctuate
• How finances affect choices of education, such as colleges, and how these choices vary across different cultures around the world

A Wealth of Well-Being: A Holistic Approach to Behavioral Finance earns a well-deserved spot in the libraries of financial advisors, financial planners, investors, and all individuals looking to move beyond standard finance and enhance both financial well-being and life well-being.

Introduction 1

Chapter 1: Financial, Social, Cultural, and Personal Capital 7

Chapter 2: Financial Capital 19

Chapter 3: Saving and Spending 35

Chapter 4: Investing 51

Chapter 5: Dating and Marriage 61

Chapter 6: Widowhood and Divorce 81

Chapter 7: Parents and Children 91

Chapter 8: Elderly Parents, Grandparents, Siblings, and Pets 115

Chapter 9: Friendship 135

Chapter 10: Health 153

Chapter 11: Work 169

Chapter 12: Education 197

Chapter 13: Religion 227

Chapter 14: Society 235

Chapter 15: Conclusion 263

Notes 269

About the Author 367

Author Index 369

Subject Index 381

MEIR STATMAN is the Glenn Klimek Professor of Finance at Santa Clara University. He attempts to understand how investors and managers make financial decisions and how these decisions are reflected in financial markets. Meir’s research has been published in the Journal of Finance and many other journals.

A Wealth of Well-Being: A Holistic Approach to Behavioral Finance explores how financial well-being can lead to life well-being through the third generation of behavioral finance, which broadens the lens of finance to see people as whole persons and show them in life well-being domains beyond finances, including family, friends, health, work, education, religion, and society. This book is unique in combining the scientific findings by scholars in finance, economics, law, medicine, psychology, and sociology with real-life stories that provide insights beyond adding “color” to otherwise dry scientific findings. It provides the underpinnings of the practice of financial well-being, addressing the relationship of day-to-day life to finances.

Moving on from standard finance, which describes people as “rational,” the first generation of behavioral finance describes people as “irrational,” the second generation of behavioral finance describes people as “normal,” while the third generation of behavioral finance also describes people as “normal,” but broadens its lens to see people as whole persons. It focuses on well-being as people’s primary want, clarifying tradeoffs within and between each life domain.

For financial advisors, financial planners, and investors, A Wealth of Well-Being: A Holistic Approach to Behavioral Finance is an important guidebook to the third generation of behavioral finance, ensuring that finances are integrated into lifestyle to achieve both financial and life well-being.

Praise for A WEALTH OF WELL-BEING

“Meir Statman is a leading proponent of using the insights of behavioral finance to help investors achieve financial security. In this delightfully written book, laden with real-life stories, he shows that these insights are even more important in helping us achieve a meaningful, purposeful life. Everyone can benefit from this wise and helpful guide to life well-being.”
—Burton G. Malkiel, author of A Random Walk Down Wall Street

“Behavioral finance has never been more important and more accessible as it is now, thanks to Meir Statman’s wonderful synthesis of the subject for the non-specialist. By taking on some of the biggest issues each of us face in our daily lives—friendship, health, dating, parenting, and religion—Statman makes a dry academic subject come to life and, in the process, provides life-altering advice that will make us all better off.”
— Andrew W. Lo, Harris Professor of Finance at the MIT Sloan School of Management, author of Adaptive Markets

“Meir Statman is one of the wise souls of the financial world — because he knows that finance is about so much more than stocks and bonds, greed and fear, promotions and paychecks. Dollars are important, but not nearly as important as most finance books suggest. Instead, as Meir makes clear in A Wealth of Well-Being, financial well-being is just one of the pillars that supports life well-being. And, in the end, isn’t the goal not a fatter portfolio, but a richer life?”
— Jonathan Clements, former personal finance columnist for The Wall Street Journal and founder of HumbleDollar

“Finances and well-being are, of course, deeply intertwined. Ideally, they are complementary. But mistakes in either can do great harm to the other. All readers can appreciate the wise and thoughtful check list provided by this book.”
—Charles D. Ellis, author of Winning the Loser’s Game

"There are few people in the world better situated to help us make better decisions about our financial well-being than Professor Statman. He has already taught us what investors really want. Now, more importantly, he is teaching us how to make better decisions about our life well-being.” – Barry L. Ritholtz, Chairman and CIO of Ritholtz Wealth Management, host of Masters in Business podcast

“In gripping chapters on such subjects as parents and children, education, and even religion, Statman demonstrates both money’s importance and its limitations. Financial advisors will give better and more thoughtful advice, understanding the fundamental importance of family ties and attachments to the community.” -- George A. (Sandy) Mackenzie, author of The Decline of the Traditional Pension, Founding Editor, the Journal of Retirement

“Few people understand the evolving nature of financial planning better than Meir Statman. Ultimately, it’s not about investing, or even about money; it’s about enabling us to live authentic and fulfilling lives that reflect who we are and what we value. That’s why, all over the world, financial planning is morphing into holistic life planning. Anyone wanting to succeed in this exciting new profession should read this inspirational book.” -- Robin Powell, journalist, author, and Editor of The Evidence-Based Investor

Aspects of well-being are not only explained but are then tied to life circumstances, making it easy to relate personally to the many stories told, and learn from them. This is a wonderful book for ordinary people, never mind academics. -- Don Ezra, Former Co-chair, Global Consulting, Russell Investments and Author of Happiness and Life Two

I wish my parents had the opportunity to read A Wealth of Well Being; finances created stresses to other parts of their lives that were simply irreconcilable Meir’s ability to take complex behavioral economic theory and distill it into practical life advice is second to none, with idea after idea to help the reader create and improve their own model for personal well-being. A Wealth of Well Being should be required reading for all financial advisors. -- Alex Potts, President Emeritus, Buckingham Strategic Advisors

“As humans, we know that wealth and its quantitative nature underlies well-being, but we also know that well-being depends on the qualitative nature of family, friends, health, education, religion, and more. As financial professionals, however, we are tempted by our knowledge of math and modeling to focus on wealth and its quantitative nature. In “A Wealth of Well-Being” Meir integrates quantitative and qualitative in a holistic approach, guiding us, even financial professionals, to reflect on our well-being and enhance it.” -- Eduardo Repetto, CIO, Avantis Investors

“Yet again, Meir Statman has written a book which could well be called “revolutionary,” offering a holistic approach to behavioral finance. Clients will see themselves, their joys and sorrows, in the book's many studies and life stories, and bind themselves more closely to their advisers.” -- Jean Brunel, Managing Principal of Brunel Associates, author of Goals-Based Wealth Management

"Meir’s book is a must read for those of us fascinated by the intersection of finance and psychology, that is behavioral finance. His amazing insights continue to enlighten wealth advisors as he helps us guide clients to life well-being, beyond financial well-being." -- H.F. “Rick” Pitcairn II, Chief Global Strategist, Pitcairn