There are two key components when it comes to effective financial planning: (a) identifying the investment goals that are important to investors; and (b) prioritizing those investment goals. However, when it comes to the first component – identifying investment goals that matter – many people, when left up to their own devices, fail to identify half of the objectives that they later recognize to be important. It’s as if people don’t know what is most important to themselves. For the second component, prioritizing investing goals, the inability to do so effectively may lead to misallocations (e.g., overweighing short-term goals over long term ones) which may adversely impact an investor’s financial well-being. However, there is no consensus in the literature on how to help investors prioritize multiple goals effectively. In two studies, we apply and test the effectiveness of behavioral techniques to improve these two components of financial planning.
Author(s): Ray Sin, Ryan O. Murphy, Samantha Lamas, Susan Sullivan
