Behind every financial decision, there’s a story we’re telling ourselves. People who overspend on shoes may be telling themselves that their footwear helps them have the confidence they need in stressful situations. People who can’t bear to spend a dime may believe an economic collapse is imminent.
A story may be true, or not. It may be healthy, or not. Regardless, the specific stories we internalize and adopt become the bedrock of our decision-making, and this is as true in the domain of finance as any other.
In fact, even when we look at large, macro trends in economics, we can see that underneath the waves of action there were simple, memorable stories that rang through the public discourse, influencing the tides of human behavior along the way.
Whether it’s the story of a market crash or a Bitcoin billionaire, popular narratives hold sway in our decision-making. Rather than tell you another story about what the market might do in the future, I want to focus on the research that shows what kind of storytelling is good for the human mind, and what kind of storytelling is harmful.
By learning to distinguish between helpful and harmful personal narrative styles, you will be able to recognize when your clients (or you) fall prey to destructive financial thinking, and then revise the narrative to one that will support well-being and resilience, regardless of the specific events in play.
Dan McAdams, an expert on the relationship between narrative style and well-being, says personal stories can be grouped into one of two categories: contamination stories and redemption stories.
Contamination stories have the following narrative arc: “I was going along just fine. Then Big Ugly Thing happened and it contaminated my life. Now things are not what they could have been as a result.”
Redemption stories have the same beginning and middle, but the end is different: “I was going along just fine. Then Big Ugly Thing happened, and it forced me to grow and evolve. Now I’m a better person and my experience adds to my uniquely valuable perspective.”
Franklin D. Roosevelt used the power of redemptive storytelling in his inaugural address in 1933, in which he acknowledged the despair and devastation caused by the Great Depression and called on the public to use the experience as one of transformation.
First, he pays respect to the Big Ugly Thing that has happened: “More important, a host of unemployed citizens face the grim problem of existence, and an equally great number toil with little return. Only a foolish optimist can deny the dark realities of the moment.”
Then Roosevelt lays out the opportunity for a restorative ending: “These dark days will be worth all they cost us if they teach us that our true destiny is not to be ministered unto but to minister to ourselves and to our fellow men.”
From this simple narrative came a vision for a national restoration by investing in one another in the form of public infrastructure. The New Deal was pitched as laying the foundation for growth and prosperity after the dark times. Whether you agree with Roosevelt’s politics or not, the effects of the story on public morale and consumer confidence were sizable.
In our personal lives, this narrative style can have long-lasting positive effects. Several studies of people who have faced traumatic events have found a positive link between the redemptive storytelling style and greater well-being later in life (measured in terms of positive emotions, life satisfaction and personal resilience after setbacks). Researchers have even found positive health effects. Clearly, the stories we tell ourselves hold power.
It sounds simple but getting clarity about the stories your clients believe about money can be a real challenge. To begin with, many people are simply unaware that there are storylines running through their reasoning. We tend to take our own views as fact rather than perspective, so asking a client to just tell you what stories they’re using to define their financial reality isn’t realistic.
One way to get clarity can be to ask them about the rules-of-thumb or basic financial principles they like to keep in mind when it comes to money or the economy. The following questions can help you get clients talking in a way that reveals some of their internalized stories and whether they are prone to a redemptive or contamination style of personal narration.
These kinds of questions are easier to answer, and they can help you tease out the stories knocking about in the client’s mind. They also make for great conversations that can help you identify goals, hopes or fears that might otherwise not have been apparent, even to clients.
Listen carefully for themes of contamination versus redemption. Are they the hero at the end, or the victim? This makes a big difference in how they will approach similar situations in the future.
Once we are conscious of the stories we’re working with, we’re in a better position to question, challenge, and if necessary, rewrite them. This also gives stories less power to lead us down destructive pathways without our knowledge.
When you recognize a contamination storytelling style, there are some ways that you can help clients revise the story to a redemptive style. Here are a few tricks I use myself that have helped me turn some very Big Ugly Things into cherished memories of positive turning points.
Whether it’s COVID, Bitcoin, an economic boom or collapse, there will always be stories surrounding us, vying for our attention. No matter what we experience, we will translate it into a meaningful story arc. We can’t avoid these stories; they are everywhere.
What we can control is the stories we choose to adopt and internalize, and the narrative style we use to tell them.
Choosing to rely on stories of redemption, positive transformation and making meaning from chaos is a way to protect yourself from the physical, psychological and financial effects of stress and uncertainty.
Just as Roosevelt did during the Great Depression, we can create a redemptive vision in the time of COVID. Listen critically to the stories you are telling yourself. Listen critically to the stories you hear from others. Then, challenge those contamination stories and become the hero of a redemption tale instead.
Sarah Newcomb is a behavioral economist at Morningstar Inc.
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