Financial Education VS. Financial Psychology: Which One Has a Greater Impact on Financial Behavior?

Senior Law News | Oct 7, 2019 | Jennifer S. Rossettini

According to the National Endowment for Financial Education, financial education efforts aim to provide financial information to help people “take control of their circumstances, improve their quality of life, and ensure a more stable future for themselves and their family.”[i]  Financial psychology uses a variety of techniques designed to facilitate “emotional activation” to help clients make better choices.  Emotion activation involves eliciting either a positive or negative emotion through the use of outside stimulation.  Which approach do you think has a greater impact on financial behavior? Education or Psychology?

A study published by the Journal of Financial Planning[ii] sought to answer that question by studying the effects of both approaches on an individual’s savings behavior.  Participants in the study were divided into two different sessions: (1) a session that employed traditional instruction in personal finance; and (2) a session that used financial therapy methods and a personal nostalgic item to maximize emotional engagement. In the first session, known as the financial education session, the participants were shown a power point presentation on the financial planning process, statistics regarding the unpreparedness of American households to fund retirement, the time value of money, healthy savings goals, and the different savings vehicles.  In the second session, known as the sentimental savings session, participants were asked to bring a sentimental item or a photograph of one, and participated in exercises designed to help them recall how and where they received their sentimental item, identify the feelings and values attached to their sentimental item, identify their top savings goals, and identify how similar feelings and values linked to the sentimental item can be applied to enhance their motivation to save.  Savings behaviors were measured prior to the sessions and at a three-week follow-up.

Probably not surprisingly, the study found that participants in the sentimental savings session reported significantly greater improvements in their financial behaviors three weeks following the session.  While participants in the financial education session reported a 22 percent increase in their savings rate, participants in the sentimental savings session reported a 73 percent increase.  These findings make a strong case for the role of emotionality (specifically sentimentality) in savings behavior.  “Logical awareness of the advantages of saving and ways to do so effectively clearly play a role, but providing opportunities for people to access and experience the emotional advantages of saving seems to motivate behavior much more profoundly.”[iii]

If you have a strong desire to change your financial behaviors, perhaps choosing a financial professional who embraces financial psychology would be a wise move.  In conversations with these professionals, be prepared to describe your financial planning goals in significant visual detail.  Instead of talking about “retirement” as your goal, be ready to answer questions like, “How old do you see yourself being?” “Where do you picture yourself living?” “Who are you with?” “What do you see yourself doing?” “How does it feel?”[iv]  Healthier financial decision making will take some additional work, but it would appear to be worth your while.


[ii] Klontz, Bradley T., Faith Zabek, Colby Taylor, Alexander Bivens, Edward Horwitz, Paul T. Klontz, Derek Tharp, and Meghaan Lurtz. 2019. “The Sentimental Savings Study: Using Financial Psychology to Increase Personal Savings” Journal of Financial Planning 32 (10): 44-55.

[iii]Id. at 53.

[iv]Id. at 54.

Ask Kit Kat: Fighting Dogs Redeemed

Hook Law Center: Kit Kat, what can you tell us about dogs rescued from Michael Vick’s dogfighting operation and how they are faring today?

Kit Kat: Well, this is a tremendous story with a happy ending. 47 pit bulls were rescued 12 years ago when NFL quarterback Michael Vick’s fighting/betting operation was discovered in Suffolk, Virginia. I’m sad to say, but that is one town over from where I live in Chesapeake, VA. Nevertheless, tremendous good has come from this tragedy. Previously, fighting dogs would have been euthanized when they’d be discovered as adults. But this time, it was different. Animal welfare experts decided to try an experiment, and see if dogs brutalized by being made to fight, could transition to normal lives. The experts were astounded when they realized, such dogs could transition successfully to normal living arrangements. Animal welfare has been profoundly altered as a result. Now when a fighting group is discovered, the dogs are evaluated individually to determine their suitability for home placement. Frank Battista of Best Friends Animal Sanctuary says, “While Michael Vick was a deplorable person in a lot of ways, the fact that he was the one that got caught was a really big boom for this whole topic and for these animals. It just catapulted it into the public eye.”

The Washington Post looked into how each of the 47 dogs recovered from Vick were doing today. They found they were spread across a large geographic area ranging from Rhode Island to California. Some of the dogs are still struggling with trauma, but they were either living in homes or in sanctuaries or are deceased. Best Friends Sanctuary in Kanab, Utah took 22 of the most difficult cases. Each of the dogs were given a name to begin the humanizing process. A few will be described. Layla, who died in June of this year, lived with a family successfully, but when she ate, she had to have her collar removed, because the clanging of her tag on the food bowl, brought back bad memories. Shadow, also placed with a family, is a loving companion, but he is terrified of ladders. His family doesn’t think he ever did actual fighting, but he associates the ladder where fighting did occur on the 2nd floor of a shed. A ladder was the way up to the 2nd floor.

Today’s Vick’s property in Suffolk is a sanctuary for chained and penned dogs. It is called “Dogs Deserve Better.” The sheds from past dog-fighting days are preserved, and there are trees planted for each dog that was rescued. It is a peaceful place that attests to the resiliency of all beings, both large and small. (Emily Giambalvo, “A second chance,” The Washington Post, Sept. 18, 2019)

Jennifer S. Rossettini

Attorney, Shareholder, CFP®
757-399-7506 | 252-722-2890
[email protected]

Jennifer Rossettini is a Shareholder of Hook Law where she focuses her practice in the areas of elder law, estate planning, estate and trust administration, and financial planning. Her practice includes complex estate planning for clients with a net worth over $5 million as well as simple plans for individuals with very limited assets. Ms. Rossettini rejoined the firm in 2018 after spending ten years as a CERTIFIED FINANCIAL PLANNER™ professional with the wealth management divisions of two regional financial institutions. She is a member of the Financial Planning Association, serving as Secretary for the Hampton Roads chapter and serves on the Board of Directors of the non-profit organization, PrimePlus Senior Centers. Jennifer lives in Virginia Beach with her husband and two daughters. She is active in the Girl Scout organization, serving as both a troop leader and as the treasurer for the local Service Unit.

Practice Areas

  • Elder Law
  • Estate & Trust Administration
  • Estate Planning
  • Financial Planning
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