Behavior, Psychology, and Making the Most of Family Discussions
By Anthony J. Curatolo, Advisor
The holiday season has begun. With that comes the gathering of loved ones to celebrate the season and share in hopes and dreams for the New Year. It is not uncommon for families to share glimpses into idealized futures, but one area that is often left untouched is the discussion of legacy planning. Leaving a legacy that thrives and grows is a goal of many, but the undertaking itself involves a great deal more emotional strain.
Humans are complex. Unconscious psychological phenomena are ingrained into nearly every decision, whether we like it or not. Understanding the behavior behind decision making could assist you with the conversations you have with your loved ones.
One is the loneliest number
It’s in our nature to crave familiarity. Most of us have our daily routines which provide a sense of comfort and security. This can also occur with our loved ones. Within your family structure, you may have a child or family member who you have a close relationship with who you place a greater deal of responsibility.
In behavioral finances, the tendency to seek out the known is called the familiarity bias. Though it may be helpful to have an individual who can take charge when the time comes, overburdening one person, and potentially leaving out others, could lead to stress and discord within your family
Sometimes less is more
Individual autonomy and freedom of choice are important pillars of the human experience. It’s estimated that an individual makes roughly 35,000 conscious decisions a day. While having greater freedom of choice may allow you to personalize your life in ways not previously available, too many choices could become stifling.
Overchoice or choice overload is a cognitive process in which a person becomes overwhelmed with the sheer abundance of options. This typically leads people to select the easiest and least complicated option. The same principles could apply to involving your family in your estate planning process. It could be beneficial to have discussions early on with your family to layout the framework of your plan so they are less burdened with the difficult decisions surviving relatives often have to make.
You miss every shot you don’t take
The feeling of regret is a bit like a heavy, wet, wool blanket. It’s confining, uncomfortable, and difficult to shake off. The feeling is so universally disliked that many will forgo decisive action to avoid it. Regret aversion bias is a cognitive bias where a person, to avoid the emotional toll of a regretful decision, forgoes taking any action. Research has shown that in terms of financial reward, people typically feel the pain of financial loss to a greater extent than the satisfaction from a gain of equal value.
The same behavior could occur when handling estate planning discussions with your family. The fear of possible discord or repercussion could prevent you from discussing the more difficult points of your estate plan’s palliative care wishes. It may be beneficial to first discuss with a third-party mediator, such as your attorney or advisor, about your goals and desires for end-of-life care. They may be able to help you then create a guide for starting the conversation or possibly sit in on the discussion to assist.
The pen is mightier than the sword
Our teachers may have been on to something when they told us to take notes. Aside from a written record typically being essential for preventing legal difficulties, it could be imperative to full mental acknowledgment. Psychological research has demonstrated that written intention can be quite powerful. In a study done at Dominican University in California, researchers found that participants were 42 percent more likely to achieve goals just by writing them down.
When it comes to laying out your legacy, various strong emotions tend to bubble to the surface. Articulating those ideas and then conveying them to your family may seem like a difficult task. If you don’t have a written statement clearly outlining the intent of your plan, you may be susceptible to the influence of your relative’s whims. While it may be helpful to allow feedback from your loved ones, your estate plan is a reflection of you and should encompass the legacy that you hope to leave for generations to come.
Overall, the legacy planning process is often not a one-time event and may take multiple conversations over years to accomplish. Predictive models and graphs can be a great asset, but they may not include the complexities of human behavior. Utilizing the concepts of behavioral finance into your family discussions could help to bridge the gap between strategic planning and emotional biases.
Investment advisory services offered through Ciccarelli Advisory Services, Inc., a registered investment adviser independent of FSC Securities Corporation. Securities and additional investment advisory services offered through FSC Securities Corporation, member FINRA/SIPC and a registered investment adviser. 9601 Tamiami Trail North, Naples, FL. 239-262-6577.
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