Joining a co-ed soccer league. Learning to say beautiful words in Italian. Improving your woodworking skills. Starting a garage band with the neighbors. Re-reading all the Harry Potter books in order.
What do all of these things have in common? They’re fueled by intrinsic motivation. According to Healthline, intrinsic motivation is “the act of doing something without any obvious external rewards.” These are things you choose to do merely because you enjoy them, not because of any outside incentive or pressure.
So how does that apply to investing? The principals of intrinsic motivation and positive psychology can help people understand what they are working toward when it comes to their finances.
The study of positive psychology takes intrinsic motivation a step deeper. It takes a scientific approach to studying human thoughts, feelings, and behavior, with a focus on strengths instead of weaknesses and building the good instead of repairing the bad. Studies prove that when humans take an approach-based mindset versus an avoidance mindset, it helps people better achieve their goals. By helping understand what matters most to investors and allowing them to work toward investing with those interests in mind, they can achieve greater happiness in their investing.
Motivational Tactics to Avoid
While some motivational tactics in investing are fear-based – with a focus on what investors should avoid – fear is not only a negative emotion, but one who’s power only works in the short term. It’s important to evaluate and plan for risk, but fear can create vulnerability and spur rash decisions. The natural human response to fear is to take action, which could lead to “buying high and selling low” during turbulent markets.
A goals-based approach is better, but not all clients know what their goals are or can articulate them. People’s circumstances change, and they can’t always plan around what they don’t know or understand, (especially when it comes to compounding math of wealth accumulation as described here). It’s also not sustainable once goals are achieved.
Motivation and HNW Clients
One example of where fear and goal-based motivation would be less impactful is working with High Net Worth (HNW) clients. Clients with a higher level of investable assets may have less of a reaction to fear – they’ve likely weathered tough markets to get where they are and may have a higher risk tolerance – or goals, as they’ve often achieved them. They have met their baseline needs and that allows more freedom to explore self-actualization, including giving back through philanthropy or through investments. One way to understand how people’s needs change is through Maslow’s Hierarchy of Needs, which explores how our actions are motivated first by needs, and then the inherent human desire to become self-actualized prevails after basic needs are met.
Motivation should be ongoing, and one based on something bigger than fear or goals, with no expiration date. For financial advisors, working with clients to identify their intrinsic motivators can help people re-engage with their finances. Their advisor can add value by helping them invest in what matters most to them – leading to higher conversions, capturing held-away assets, and increased referrals from happier clients.