Nature Vs. Nurture:
The Role of Genetics in Financial Decision Making
Nature Vs. Nurture: The Role of Genetics in Financial Decision Making
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There is research suggesting that our DNA ultimately defines our
spending and savings patterns, essentially implying that financial advisors
may find it futile to change their clients’ financial decision making.
But it doesn’t tell the whole story.
Genetics May Load the Gun, But It Doesn’t Pull the Trigger
In the early 1970s, an aspiring behavioral researcher, Martin Seligman, discovered that he could induce
helplessness in dogs by administering random shocks of electricity that persisted regardless of the dogs’ effort
to avoid the discomfort. Barbarism aside, he found that some dogs became helpless quite readily—making no
effort to avoid the shock—while others attempted to evade the pain for a much longer period before ultimately
giving up. Seligman called this phenomenon Learned Helplessness—when an animal believes that no action on
its part can change a situation, it stops trying—and applying this notion to humans, it seems to indicate that
some of us may be predisposed to give up sooner than others.
Several years ago, an article published on AdvisorOne.com took the concept of behavioral tendencies
several steps further. The author of “Genetics ‘Single Greatest Determinant’ of Financial Behavior” cited a
study positing that between one-third and one-half of financial behavior is predetermined by our genetics, and,
thus, we might not want to try changing it.
The study looked at the financial behavior of 15,000 sets of twins in Sweden (some identical, some fraternal;
some raised together, some apart). It showed that, on average, identical twins raised apart seemed to exhibit
the same spending and savings patterns. Further, any effects of socialization disappeared over time. According
to one of the researchers, “The innate is what prevails.”
Of course, what we don’t know, and what the study ignored, is whether spendthrift twins would have exhibited
markedly different behavior had they been given some financial education or worked with a financial advisor
who could moderate their behavior and help them focus on their long-term goals. Certainly behavioral finance
research would suggest that, had auto-enrollment in 401(k)s (or whatever Sweden’s equivalent is) been utilized,
it would have had a stronger influence over the twins’ collective behavior than mere genetics.
One could argue that looking at a specific behavior or genetic predisposition in such isolation ultimately misses
the bigger picture, just as looking solely at Seligman’s early research would tell only a portion of the story.
Nature Vs. Nurture: The Role of Genetics in Financial Decision Making
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Indeed, Seligman went on to discover that not only can helplessness be learned, but so can optimism,
resilience, and a slew of other desirable traits. Although our genetics may predispose us to certain undesirable
financial behavior, it does not predestine us. In fact, Seligman was recently awarded a $4.2 million grant to
further his latest notion that we are more powerfully pulled by our thoughts on the future than we are by our
genetics or even our past habits.
So What Do We Do with This Knowledge?
It’s probably fair to say that some of your clients are spenders, but whether their DNA made them that way
or it’s a learned behavior isn’t the central issue. What is key is whether or not those clients have a vision for
the future that is sufficiently clear and motivating that it helps them save for their goals. Further, if you want to
help these spenders, you can offer them strategies that help move them through moments of weakness.
For example, if a spender frequently blows money at the mall, ask if he would be open to an experiment:
Suggest that, for a few weeks, he leave his wallet in the car; then, if he really wants to buy something, all he
has to do is walk back out to the parking lot to get his money. Or, maybe another client has a friend or two
who have spending patterns similar to hers. Suggest that these friends form a “goal attainment” buddy group,
where they can call one another when they’re about to make a big purchase to talk out whether the impulse
is worth it.
Making it personal. Just as genetics can be blamed for our weaknesses, it can be thanked for giving us our
strengths—the things that come naturally to us. As you seek to help clients successfully pursue their goals, a
fun and valuable technique is helping them zero in on those strengths (see table).
24 Personal Strengths
Researchers have compiled a list of 24 strengths that are valued around the
world and help people thrive:
• Creativity
• Curiosity
• Open-Mindedness
• Love of Learning
• Perspective
• Bravery
• Persistence
• Integrity
• Vitality
• Love
• Kindness
• Social Intelligence
• Citizenship
• Fairness
• Leadership
• Forgiveness and Mercy
• Humility
• Prudence
• Self-Regulation
• Appreciation of Beauty/Excellence
• Gratitude
• Spirituality
• Hope
• Humor
Nature Vs. Nurture: The Role of Genetics in Financial Decision Making
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Have your clients choose three to five strengths from this list that seem to fit them, and help them brainstorm
ways in which they can use those strengths to accomplish their goals. Suppose a widowed client chooses
Kindness, Spirituality, and Gratitude, and she’s currently giving more to her kids and church than she can afford.
Ask her to rethink the situation and see how her altruistic actions could ultimately become a burden if she runs
out of money and has to rely on her children for financial support. More positively, ask her in the long run what
she could do to really flex those Kindness, Spirituality, and Gratitude muscles.
Couples often have very different strengths, which can sometimes lead to arguments—especially between
spenders and savers. Rather than allowing them to blame each other, you might try reframing the situation
so the couple can align their strengths for the good of the family. For example, if the wife’s Appreciation of
Beauty/Excellence has her wanting an expensive kitchen remodel, but the husband’s Prudence means that
he’s a penny-pincher (even if he doesn’t have to be), perhaps this couple could adopt a strategy that has them
setting aside a certain percentage each month into a “kitchen remodeling fund.” It might not be quite what
each spouse wants, but if they can appreciate what the other brings to their life, their choices will ultimately be
better aligned with the financial planning work you’re doing with them.
Drawing a line—and leveraging partners. If you have discussions with clients about their taxes or their estate
plan, it’s likely that you also have some trusted resources to whom you can refer clients when their needs veer
away from your expertise. Just as you’d refer a client to an estate attorney to get a will drafted, you can refer
clients to a coach or therapist to help them move past inner obstacles.
If you’ve already tried, unsuccessfully, to help a client make a behavioral shift on his own, and you’re ready to
seek outside assistance, the conversation might go something like this:
“Jim, if I understand your goals, we’re working together to help you achieve the retirement you said you
wanted, with plenty of time to hang out with your kids, a bit of travel to warm spots in the winter, and time
to work on your boat. To achieve that, you need to be saving $2,000. You’re saving $1,200 now, and that’s
great. But, at the same time, if you want to stay on track, we need to find a way to save more. Some of my
clients have found it really helpful to work with a coach. In the same way that you might use a personal
trainer to reach a fitness goal, you can tap a coach to help you figure out how to remove obstacles that may
be preventing you from moving forward financially. Do you have someone in mind that you could approach
in this capacity, or would it be helpful if I referred someone I value?”
Having a trusted therapist or coach among your strategic alliances makes this kind of referral a much easier
task. Advisors have told me that referring a client to an outside coach also helps them keep their practices
running more smoothly, as they don’t have to spend time playing therapist and stretching themselves too far
outside their own comfort zones.
Nature Vs. Nurture: The Role of Genetics in Financial Decision Making
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The Anti-Conclusion
In the end, although it may be simpler to believe that we are merely products of our genetics, the truth is far
more complex—and far more within our hands. Consider a study published by Dean Ornish, founder of the
Preventive Medicine Research Institute in Sausalito, California, which revealed how certain changes in diet and
exercise could turn off 453 cancer-promoting genes and simultaneously turn on 48 cancer-fighting genes!
We are only at the forefront of understanding what role genetics plays in our physical and financial health, but
until the final study is published, what is clear is that we have significant power to improve our own situations.
With that in mind, enjoy helping your clients articulate powerful dreams for their future—and working with
them to align their actions with those dreams.
Written by Kol Birke, CFP,® vice president of business systems strategies and a financial behavior specialist at
Commonwealth Financial Network,® member FINRA/SIPC, an independent broker/dealer–RIA. With the firm since
1999, Kol fosters technology innovation by working with individual departments to design and implement their
most impactful ideas, and he helps advisors align their clients’ actions with their goals, including calming emotions,
reconciling risk tolerances, and facilitating life transitions. Kol received a BA in economics from Brandeis University
and a Master of Applied Positive Psychology degree from the University of Pennsylvania.
Nature Vs. Nurture: The Role of Genetics in Financial Decision Making
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Founded in 1979, Commonwealth Financial Network, member FINRA/SIPC, is the nation’s largest privately held
independent broker/dealer–RIA, with headquarters in Waltham, Massachusetts, and San Diego, California. The firm
supports more than 1,487 independent advisors nationwide in serving their clients as registered representatives,
investment adviser representatives, and registered investment advisers, as well as through hybrid service models.
For more information, please visit www.commonwealth.com.
Waltham Office
29 Sawyer Road
Waltham, MA 02453-3483
Toll-Free: 866.462.3638
Phone: 781.736.0700
Main Fax: 781.736.0793
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110 West A Street, Suite 1800
San Diego, CA 92101-3706
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Phone: 619.471.9700
Main Fax: 619.471.9701
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Commonwealth Financial Network®
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