357: The Behaviors and Psychology of Becoming The Millionaire Next Door with Sarah Fallaw
Today, I’m talking to Dr. Sarah Fallaw. Sarah is the founder and president of DataPoints, where she provides her clients with technologically enabled financial psychology tools to enhance wealth building.
If you’ve been following the podcast, you’ve likely seen Sarah’s writing and research in our Weekend Reading for Retirees series. Her work has been featured in the Journal of Financial Planning, Financial Planning Review, and Industrial and Organizational Psychology.
In her book, The Next Millionaire Next Door, she updates her father’s classic text (and one of my dad’s favorite books) to answer the question: what does it take to be the Millionaire Next Door today?
In our conversation, Sarah shares the biggest lessons she took away from her father, Dr. Thomas J. Stanley. We explore the traits that set people up to succeed in life and business, what it means to be wealthy in this modern era, and the common behaviors we see in clients of all ages when making effective financial decisions.
GET A FREE COPY OF SARAH’S BOOK, THE NEXT MILLIONAIRE NEXT DOOR
Here's all you have to do...
- Step 1.) Subscribe to the podcast and leave an honest rating & review over on iTunes.
- Step 2.) Text BOOK, that’s B-O-O-K to 866-482-9559 for a link to our book request page, complete the form and we will ship you the book for free. It’s that simple!
In this podcast interview, you’ll learn:
- Why there’s a difference between being rich and well-off.
- How social media–and watching people drive, buy, and wear things–may have a huge impact on the next generation of savers.
- Why successful investing behaviors can be learned and improved–and how to do it.
- The difference between behavioral finance and financial psychology.
- Sarah’s advice for the millionaire next door who has more than they need, but struggles to enjoy what they’ve worked so hard for in retirement.
- "No matter how old you are and how much you make, if you are more frugal than your neighbors and you’re able to ignore things, be confident in your decision-making and you're going to be able to transform income into wealth compared to your peers." - Dr. Sarah Fallaw
- "It's harder in this environment to help your children ignore what other people are doing because they're carrying around in their pockets the spending habits of all of their friends." - Dr. Sarah Fallaw
- Follow Dr. Sarah Fallaw on Twitter
- Follow Dr. Sarah Fallaw on LinkedIn
- Follow Dr. Sarah Fallaw on Facebook
- The Next Millionaire Next Door: Enduring Strategies for Building Wealth by Thomas J. Stanley Ph.D. and Sarah Stanley Fallaw Ph.D
- The Millionaire Next Door: The Surprising Secrets of America's Wealthy by Thomas J. Stanley Ph.D. and William D. Danko Ph.D
- Money Personality Test
- Dr. Brad Klontz
- Money Scripts
DisclosureOffer valid in the 50 United States and the District of Columbia, to first-time requestors. During the offer period, receive one (1) in-stock book per request. Limit (1) book per week per household. Limit three (3) books total each calendar year, between January 1 and December 31. Offer valid while supplies last. Howard Bailey Financial, Inc. reserves the right to cancel, terminate or modify this offer at any time. Void where restricted or otherwise prohibited.
Casey Weade: This is the host of Retire With Purpose Podcast, Casey Weade. And if you are on Facebook, you are joining us live. And for those of you catching this interview later, we're sorry we missed you on Facebook. Please check it out in the future. Just check out our Facebook page and there you'll be able to join us for these live conversations and submit your very own questions live to our world-class guest. And today, we have one for you. We have financial psychologist, behavioral finance expert, and author, Dr. Sarah Stanley Fallaw. She is the founder and president of DataPoints, a company that provides technologically enabled financial psychology tools to enhance wealth building. We're going to be getting into that later in the conversation. Her research has been featured, well, in our Weekend Reading for Retirees email series for one, in the Journal of Financial Planning, Financial Planning Review, Industrial and Organizational Psychology. She's an expert in financial personality, behavioral finance, psychometric survey design, and financial psychology with a very interesting background, being that she is the daughter of Dr. Thomas Stanley. And if you aren't familiar with that name, I don't know where you've been. It's been in my library for some time.
So, if you're catching us via video on YouTube or Facebook, you'll see me holding the copy that I grabbed this morning out of my library. So, this is actually my dad's copy that I remember him reading when I was a kid, passing these things on to myself and passing ultimately this book down to me, and I looked inside. It's a 1996 edition. So, he picked this up the year that it came out and it was just really neat to go back and kind of flip through some of the pages. Talked to dad before we got on the call, and he said that was just absolutely my most gifted book of all time. He loved this book and was really excited that we were going to be having a conversation. Since Sarah is updating this book or has updated this book and the latest rendition of The Millionaire Next Door being The Next Millionaire Next Door: Enduring Strategies for Building Wealth. With all of that, Sarah, welcome to the podcast.
Sarah Fallaw: Thank you. That's quite an introduction. Yeah, absolutely. I remember when that book came out as well. I was in college, so I was definitely not as attuned to that kind of what was in there at that time. But yeah, absolutely. Glad to be here.
Casey Weade: Yeah. Well, I was ten years old.
Sarah Fallaw: Okay. I won't say how old I was.
Casey Weade: I was ten years old when dad got this book and I remember him always referring back and reading at night. I noticed he had a tab in here. Why does dad have this tab in here? I flipped to the page where the tab was, and it was an analysis on the way that millionaires purchase behavior in general, but specifically highlighted the section on motor vehicle acquisition orientations of millionaires. And I thought, "Oh, my gosh." Dad talked about this so often. I remember him talking to the clients and friends and family members about just how to buy a car and how to get the best deal, just remembering and realizing that he pulled a lot of this stuff directly out of this book.
Sarah Fallaw: Yeah. I mean, we continue to hear stories like that from whether it's financial planners that used to give the book to their clients or people like that grew up with the book essentially in their household. Yeah. The stories and the procedures and the methods kind of still ring true and they still, again, make sense today.
Casey Weade: Yeah. I wonder myself, I haven't read the book for over ten years, so it's been quite some time since I've picked that up. I'm looking forward to getting deep into your new book. I'm sorry to say I haven't read deeply into it, but I have read quite a bit of it and scanned all of that. And I want to get deeper into it because I just wonder what's going to pop out there that had such a big influence on me over the years to get me to where I'm at. And I was wondering for you, Sarah, what were some of the biggest lessons that you took away, not necessarily from the book, but just growing up in that environment around Thomas?
Sarah Fallaw: Yeah. You know, I think several things. Obviously, he was very focused on understanding kind of the difference between appearing wealthy and actually being wealthy. And so, that was sort of hard-wired, I think, into my brother and certainly my brains as well, to kind of look past a lot of the acquisitions and sort of like, again, kind of the judging books by its cover and things like that, looking past those things. So, that's something that really stood out to me from our childhood and certainly from the research that he conducted. And I think also just recognizing that at the same time, those that are wealthy and that are good at kind of transforming income into wealth have certain characteristics. And not all of them are maybe the most friendly at times. You know, they are very focused on building wealth but it does take sort of a combination of personality and behavior in order to do that because there are so many things in our culture and in our environment that kind of work against a lot of that, including things like being influenced by what other people are driving, buying, and wearing. And so, those are some of the, I guess, lessons, if you will, that I still think of today.
Casey Weade: Yeah. It's interesting that you say that. And I don't know if this is, this might be exactly where this really started for my dad and how he hammered that into me and drove that home in our household, just the principle of humility when it came to wealth. And he would always be sharing with me and say, "Wow. That guy's, they're doing really well." And he'd say, "Yeah. Well, maybe not," and then he'd kind of give me a rundown of what might actually be going on in financial life. And he would often say, "We're not rich. We're just well-off." And I think those are things that really stuck with me. You know, humility has poured itself all the way into our family's values and our business values as well as being so important to ultimately achieving success. And now we have three children of our own. So, we have a six-year-old, eight-year-old, two-year-old. And I was wondering, what kind of things have you brought in? What kind of strategies have you brought in from maybe your youth or maybe some of the newer things you've been working on Into raising your own children?
Sarah Fallaw: That's interesting. Yeah. So, I would say certainly the lessons that we just talked about related to what is wealth. Is it really how much you can spend or is it how much you have in your bank account, so to speak? So, we continue to try to pass those lessons down. You know, humility is an interesting one. I would say certainly, it is good kind of from a moral perspective to be humble. At the same time, what we know is that a lot of entrepreneurs end up being small business owners are often millionaire next-door types as well. And so, there is some humility there but at the same time, the same characteristics that allow someone to be a successful business owner. You know, there's certainly some humility there but there also has to be some kind of assertiveness and so forth. So, it's kind of a balance. But, yeah, in terms of raising our own children, I think definitely, that sort of outward appearance is something that's important as well as just recognizing that.
And we try to do this with our kids but recognizing that there isn't someone out there, some magical entity that's going to be handing you cash and handing you thousands of dollars, let's say, to live your life that that's something that you have to go out and do on your own. And I think that things look a lot easier on social media and on media in particular. And so, we're trying to balance what's actually true about working hard and earning a living and saving money versus what's out there. You know, going viral on TikTok is not in everyone's cards. And so, that's something that we try to talk to them about as well.
Casey Weade: Oh, sure. You know, I don't know about you but I didn't always agree with my father. I still don't. And there are some things that we disagree on. And I suspect someday there's going to be some items that my kids disagree with me on as well. You know, over the years in your research, as well as Thomas's research as that research was being done and eventually intersected, was there anything that you ever butted heads on or didn't entirely agree upon?
Sarah Fallaw: Yeah. I'd have to give that one some thought. You know, he was a marketing professor, so his background was in marketing research and my background is in industrial psychology. So, we came at things sort of differently from a methodological perspective or a research perspective. But I can't say that we disagreed on too many things other than maybe more the technical aspects of survey data collection, which that's not very exciting. I wouldn't say we butted heads about those things but just had sort of different perspectives. I will say we did definitely have a different perspective on the financial services industry as a whole because of his experience with that industry, especially like in the late 70s and early 80s into the 90s and I came from sort of the HR tech world, which was very friendly and everyone's like high-fiving each other and having fun because it's H.R. right? Like, we're trying to keep employee spirits up and things like that. But he often would tell me that financial services was going to eat me alive and I would say, "No, they're not. It's a great industry." I think a lot has changed in that industry. Unfortunately, he didn't really live to see that. The industry is shifting more to, again, like a human-first perspective. But that was something that I can recall him saying that I didn't quite agree with but he was actually right to some extent, although again, it's changing.
Casey Weade: Well, I don't want to derail us too much. It just reminds me of a conversation I actually just had yesterday with a young guy from a local high school. And so, he came in 16 years old. He's president at a local finance club. And I said, "So, how's the finance club going?" He said, "Well, we started with over 20, and just a few weeks later now we have seven kids left in the class." "And so what's going on?" He said, "Well, I think a lot of them just felt like it was going to be like the Wolf of Wall Street and it was going to be a big party and everybody's going to be yelling and high-fiving and trading stocks." That's not what finance is anymore. That was 40 years ago, right?
Sarah Fallaw: Right. Yeah.
Casey Weade: Well, let's get into the book. So, the next book, The Next Millionaire Next Door: Enduring Strategies for Building Wealth. As we get into that, this word "Millionaire" has always kind of stood out to myself and I think it was probably just mentioned in our household quite a bit due to the book and beyond. And of course, it's mentioned a lot just throughout being in this business and in our careers. And I wonder, what is a millionaire? I think a millionaire is such a broad definition. I go, is that someone that's still considered wealthy? I know when I was kid, if you were a millionaire, you were rich. You were well-off. You were going to be set for life if you were a millionaire. I don't know that that definition still holds today. What is considered wealthy today? Is it a million? Is it 5 million? Is it 10 million? Is it 100 million? I mean, even if we just applied inflation to this number from 1996 until today when the book was originally launched, at 3%, that's currently 2.2 million. It's not a million. So, what are your thoughts around that word, millionaire?
Sarah Fallaw: Yeah. I think it certainly is a marker, right? So, it helps us understand sort of where we are. It's an objective number, which of course with the change over time doesn't mean as much today as it did back then but it still, I think, has connotations of wealth. So, I think that's why it's often used still today, even though, again, it may not necessarily mean that you're set for life just because you achieve that status. So, in terms of what is wealthy today and that kind of thing, I think that really is up to the individual, right? You know, what does wealthy mean? Does it mean I don't have to work anymore? What does it mean? But, yeah, I think that that word again for some people it's just sort of a kind of a goal, right? So, like, "Hey, if I've achieved this, then my next goal is X," right? But it doesn't mean necessarily that you're ready for retirement and that you have all of what you need for the future and all the things you want for the future. That's certainly the case.
Casey Weade: Yeah. When it comes to the millionaire next door, is that someone that has won 10 million? Is that a decamillionaire? Is it a centimillionaire? What is the millionaire next door on average really accumulated?
Sarah Fallaw: Yeah. So, in the latest study, which again was from like 2016-2017, I think there was somewhere in the neighborhood of 2.5 or 3 million in terms of what we were calling sort of a millionaire next door, if you will. But at the same time, that may not be enough for whatever that particular household wants to do in the future. But we have to have sort of ways of talking about groups. And so, that's often one of the ways that we have to do that is to have some median number around what is wealthy today.
Casey Weade: I mean, how much has really changed since 1996 around what it takes to become the millionaire next door? And is it still want to spend less than you make and continue to invest? I mean, we just follow some of the basics of finance then we should be able to become a millionaire. Did a lot change, I guess, from the initial book to where we find ourselves here today? Has that much changed over the last 30 years? And if so, what have been the biggest changes?
Sarah Fallaw: Yeah. I think that certainly, again, just as you mentioned, things have changed in terms of how far our dollar goes, so to speak, and what wealthy is today. But really the core sort of characteristics that lead to someone actually being able to take what they're making every month and transform that into wealth, you know, those things haven't changed. So, the things that are consistent are things like being frugal, making sound financial decisions, ignoring what your coworkers and what your friends are driving, buying, and wearing. All of those things continue to be very critical. And we find, again, through the research we've done at DataPoints that those things actually predict net worth controlling for age and income. In other words, no matter how old you are and how much you make, if you are more frugal than your neighbors, you are able to ignore things, you're confident in your decision-making, those kinds of things, you're going to be able to transform income into wealth compared to your peers, so to speak. So, we know those things haven't necessarily changed.
But what has changed certainly is the environment that we're in. You know, technology has changed. So, it's harder, just as we were talking earlier about raising children, it's harder in this environment to help your children, for example, ignore what other people are doing because they're carrying around in their pockets the spending habits of all of their friends. Literally, they are at their fingertips. And we know that seeing those things does have an influence on the way that we make consumer decisions. So, those things have changed but certainly, the personality characteristics and those kinds of things haven't changed.
Casey Weade: Yeah. It was the six traits that you incorporated into the new book, the new six traits, not the seven common traits among millionaires from The Millionaire Next Door, but the six new ones in there you had the seven myths, the ignore the myths of wealth, the seven myths. And one of those being you can judge a person's wealth by what he drives, buys, and wears. Millionaires don't always act rich. And I assumed you would say the biggest shift is just social media and the availability of seeing individuals that are driving, buying, and wearing things, having a potentially significant impact on the next generation of savers.
Sarah Fallaw: Right. Absolutely. Again, and we see this, I mean, there's already lots of research out there, for better or for worse, demonstrating the impact of social media on consumer behavior. So, we know that it's even harder to ignore what other people are doing. But again, for those of us who, I say us, I'm not necessarily one of those people but for those who can ignore those things, you have a higher likelihood of building wealth. And I think that speaks to where having a financial professional or whether that's a financial therapist or coach or planner that's working with you to help you sort of, again, improve in those areas, that's where there can be a lot of benefit from a financial services perspective in terms of helping us to improve our ability to build and sustain wealth.
Casey Weade: So, another one of the things I have been wondering that has changed over the last say 30 years, this was very true when I was younger. I've been having trouble finding the actual what I would consider an accurate assessment or survey that's been done around this particular question that I have. And it seems there's a lot of conflicting information out there. I don't think I've ever sat down with anyone that probably has access to more data around that can probably give me a better answer for it. I always heard, right, I was always told that most millionaires have become millionaires by real estate investments. And now over the last few years, I've seen some surveys, I've seen some research saying that, well, now it's actually 401(k)s or retirement programs have created more millionaires than real estate as of now where we stand. Do you have an answer to that question? It's been eating at me.
Sarah Fallaw: Yeah. No. I think not.
Casey Weade: What's the investment that's creating most millionaires today?
Sarah Fallaw: Yeah. That is absolutely, unfortunately, that's outside of my area of expertise, so to speak. So, my focus is on psychology in terms of what it takes from an attitudinal or personality or values perspective to build wealth. So, I couldn't really comment on that necessarily. I can't think of the date. You know, I'd have to go back and look at our surveys that we've done to actually pull that out.
Casey Weade: Well, I'm going to keep asking every single one of our guests until somebody gives me the answer I'm looking for.
Sarah Fallaw: I'm sure someone will be able to answer it, just not me. Yeah.
Casey Weade: So, let's talk about that. So, going back to the seven common traits amongst millionaires from Millionaire Next Door, you alluded to this a moment ago, that the basic tenet of being able to become a millionaire, accumulate wealth is living below your means. That's number one of the seven common traits is living well below their means, as it says in the book. And I think we often wonder, what does that mean? What does living well below our means actually mean? We have these targets of, well, you should save 10%, 15%, 20% a year. And I wonder if is there a proper target and how do you define living well below your means?
Sarah Fallaw: Well, again, going back to what I just shared, my focus is more on the personality of someone that would allow them to live well below their means. In other words, those tend to be, you know, I say those of us, it's not necessarily us but those who are very thoughtful and conscientious when it comes to purchasing decisions, they tend to be those that stick to a budget. They know what's going on in their financial lives. All of those things play into someone that's able to live well below their means but from a sort of a dollars and cents perspective or a percentage perspective, I'd have to leave that to the financial planning experts, so to speak, or the economists. But what we do and what our assessments do at DataPoints is predict the types of clients or, again, consumers that can do those things well versus, again, giving sort of markers, if you will, for numbers and that kind of thing.
Casey Weade: Well, that makes sense. I think what I often find with the families we meet with that have become very successful is that they didn't necessarily say I'm saving 10% a year or 20% a year. They didn't draw these lines in the sand. It was more of an awareness of their finances. So, that makes a lot of sense. It's really just behavioral. We don't have to draw a lot of these lines. It's, okay, do you know how much you're spending? And most people don't know how much they're spending. So, that behavior of knowing how much we're spending, knowing how much we're saving, how we're investing and kind of where we're headed, that's really what you're speaking to, right?
Sarah Fallaw: Yeah, absolutely. One of the components that we measure is it's called planning and monitoring, right? So, it's not only planning for what's going to happen in the future but also monitoring today and knowing what's happening right now. And so, what we see consistently is that those clients or those individuals who are able to do both of those things, which they're kind of two different things, it's like I'm thinking about the future, but I'm aware of what's happening right now. But if you can do that, you tend to be someone that is able to transform and come into wealth pretty successfully.
Casey Weade: How does this tie into your new six traits? One of those being making consistent good consumer decisions, understand your mindset and its potential effect on reaching financial goals. Is this what you mean by money mindset?
Sarah Fallaw: Well, I think that money mindset can mean a lot of different things. You know, certainly when you're thinking about whether or not you're going to be able to be the millionaire next door or the next millionaire next door, there are certain characteristics that can predict that. But there are a whole host of other things that go into the way that we make decisions about money, including our values and we talked about that earlier, our beliefs about money. So, we measure that as well here at DataPoints as well as our attitudes, right? So, if I come into your office and you start talking to me about budgeting straight away, that might not be the best approach with me because my attitude about budgeting might be really negative. I may have had negative experiences growing up hearing about budgeting or maybe it was something that was a negative in my household because maybe my parents fought about it, that kind of thing. So, there are a whole host of things that go into our mindset when it comes to making financial decisions. So, we measure a lot of those, certainly. But when we're talking about, again, kind of that millionaire next door component, there's really six things that go into predicting clients that will have a high net worth regardless of their age income.
Casey Weade: How closely does money mindset tie into one of our past guests here on the podcast, Brad Klontz's Money Scripts?
Sarah Fallaw: Yeah. So, we work with Dr. Brad Klontz to publish his Money Scripts, the KMSI-R, and so it's been a great partnership between his group and DataPoints. So, we publish the Money Scripts assessment. It's wildly popular because it helps us understand the kinds of beliefs that we have about money that might be kind of impacting the way we're making financial decisions. So, for example, one of his factors that he measures on that assessment is money vigilance, which is very much tied to frugality, which is one of the positive kind of money beliefs. And so, yeah, absolutely. Again, personality is really broad. Beliefs are just one component of what makes us who we are but, yeah, absolutely tied into that.
Casey Weade: And this could be one of those ways. Going through something like that would be one of those ways where we could assess our strengths and weaknesses being one of those six traits again and having the trait of assessing our strengths and weaknesses and improving were possible in areas such as frugality, owning responsibility for financial outcomes, and confidence to make decisions based on knowledge. And it's like, how hard is it for us to really assess our own knowledge? And I would almost want to tie that into your five distinguishing characteristics of good investors where one of those characteristics is confidence in investing. Oh, okay, that's great but we're pretty bad at assessing whether we're overconfident or not or the degree of confidence that we have just as humans, right?
Sarah Fallaw: Yeah. You know, it's hard. We bring our own biases into how we view ourselves. And so, it is hard often for us to hold up the mirror, so to speak, to think about our own personality. I mean, that's where testing comes in. Obviously, I'm biased because that's what we do at DataPoints is we have a lot of different assessments. We have a money personality test that people can take if they go to DataPoints.com/Personality. I mean, there's ways to assess who you are and learn more about yourself in sort of an objective way. But that's often where again working with, again, a therapist coach even a financial planner can help sort of help you understand maybe a little different perspective on yourself but certainly, you know, it can be challenging to do that without some kind of objective third party that's willing to tell you, hey, you might not be as strong as you think you are in certain areas.
Casey Weade: Yeah. And you'll hear at Howard Bailey it all comes down to purpose. It's called the Retire With Purpose Podcast, and that was probably why the sixth trait that you laid out there really stood out to me. And maybe I'm thinking about it a little too deeply but this is how I view this one, and I want to see your thoughts and see if I'm on the right track. Number six was recognizing that successful investing behaviors can be learned and improved and that the fruits of effectively investing, what has saved over time provide security for the more important aspects of one's life. So, when I see that, I see not so much the first part of that as really emphasizing the second part of that, understanding what money creates and creating the ability to elevate the more important aspects of one's life. So, when you think about that, number six, does that intersect very strongly with person, purpose, and meaning? And how do you gather that kind of data to understand that that is such an important trait of becoming the next millionaire next door?
Sarah Fallaw: I'm trying to understand, are you focused on the goal setting or the values of the individual? I'm trying to clarify here where you're going with that one.
Casey Weade: Yeah. It sounds like from the way it's framed as someone that recognizes their investing behaviors are all directed towards a purpose. It's not just about having these investing behaviors and accumulating wealth. It's not about just accumulating wealth and having this network scorecard. It sounds like it's deeper than that. It sounds like you're saying, no, that person understands what the wealth actually creates for them in their lives. That's more than just a scorecard. It's purpose. It's meaning. It's a softer aspect.
Sarah Fallaw: Yeah. So, I would say a couple of things about that. One is that, again, for those that can really clearly define what their purpose is and, again, whether they do that individually or they do that with the assistance of someone that can help drive certain kind of financial behaviors and maybe help to, in some ways, alter personality even though we know that generally, personality is pretty stable. So, that's certainly something that we have seen that advisors use and financial coaches as well as sort of that goal-setting mentality or process to define purpose and then tie why they're making those financial decisions or investing decisions to that purpose. That can be a very strong link but not all of us are wired that way. So, some of us are wired to really just want to achieve goals. And those goals may be some level of return or some number, right? Going back to our conversation about achieving millionaire status or decamillionaire status, some of us are wired to just want to achieve goals just for the sake of achieving those goals versus having some broader purpose. But I think going through that purpose clarification process can be really helpful and useful, really, regardless of what kind of goal you're trying to achieve.
Casey Weade: So, what you found in your research isn't so much that we have individuals that tend to be more successful if they're focused on the, not the accumulation of things. It seems like most of the goals that are put around finance when you're meeting with a financial advisor, especially earlier on in your life, tend to be about, well, I want to get a house or I want to have a nicer car, or maybe I want to have a plane someday, or maybe I want to fly first class someday. It's just about these levels of that that we're achieving over time in order to gather more things or more stuff. And when I look at your research, it sounds like those individuals that are purely goal focused around getting a higher rate of return so that they can get that thing tend to be less successful financially over time than those that are focused on how that provides security or some of the more important aspects of their life.
Sarah Fallaw: Yeah. I'm not sure that we have researched that points to that necessarily. I think, again, what we know is that even if someone doesn't view goals through the lens that we talked about like, again, I want security for my family, I want to be able to sleep at night, all those kinds of things. Now, again, there are certain characteristics that drive accumulating wealth. And again, those can have really meaningful kind of origins but they may have just kind of achievement-oriented motivations as well. So, yeah, I don't know if I... I'd have to think a little bit more about that one.
Casey Weade: Sure. When it comes to what you do there at DataPoints, you talk a lot about financial psychology. What is the difference? Well, I think most of us think about financial psychology, we think about behavioral finance. What's the difference between financial psychology and behavioral finance?
Sarah Fallaw: You know, behavioral finance, I think, gets more attention or has historically because it is primarily focused on biases and investment decision-making. It's like all the ways that we make really bad investing decisions, herd mentality, and all of that kind of stuff. So, that's kind of a, I would say, an area underneath the broader area of financial psychology, which has to do with applying everything from psychology to the way that we make money-related decisions, investing decisions, or saving and spending decisions. And so, financial psychology is very broad. It has certainly origins in clinical psychology. So, again, think about money as a source of conflict and marriages and things like that so individuals were going to psychologists again several decades ago now saying having all these, "We're having trouble, We are not getting along," and then they come to find out that the origin of that is in the decisions that they're making about money. And so, there's certainly that aspect to it, like financial therapy and so forth. But it's broader than that. You know, there are a lot of different aspects, including things like how we grew up and how we were socialized. Again, going back to Money Scripts, kind of the beliefs that we have as well as, again, into how we're raising children or how we're making decisions about our careers in light of money. So, all those things play into financial psychology. It's a very, very broad area.
Casey Weade: Well, one of those areas of financial psychology that we often see individuals struggle with as they step into retirement, it tends to be the ability to really enjoy retirement, enjoy what they've saved and spent, and what they want to spend in retirement or what they've saved. And now they want to spend those dollars. It seems to me like it's the millionaire next door that has the biggest challenge with turning off that piece of them that's always about saving and being frugal to now actually enjoying and spending those dollars. What's your advice to the millionaire next door that is finding themselves with more than they need, but they're still struggling to enjoy what they've worked so hard for?
Sarah Fallaw: Gosh, yeah. You know, I don't have a clinical psychology background, so I'm not sure I have advice necessarily, but I can certainly echo what you're saying. You know, if you've spent your entire life being very frugal, being conscientious, holding on to things, not spending lavishly, then to kind of all of a sudden move into retirement and decide it's time to turn on the spending, obviously, that's very hard. It'd be hard for any of us to sort of adopt that new mentality. And we see that consistently, whether we're talking about research that we've done as well as academic research out there, looking at those of us who are more conscientious, let's say. So, we certainly see that. I think that one of the ways that we're seeing especially, again, financial therapists, as well as others, work with clients is to help them understand their approach to retirement, what do they view, what do they want out of retirement, and then help them align their spending decisions with what they want for retirement.
And so, that's why it's very important to understand attitudes about retirement as you're thinking, as you're planning for retirement. Hey, if I want to go on an adventure every three months and I want to go on this lavish vacation, what does that mean for what I need in retirement as well as what I'm going to have to spend to actually achieve those goals? So, if you can start that process early before you're in retirement, then your mindset becomes more able to consider a different way of spending.
Casey Weade: Yeah. It's a different conversation than maybe you've had in the past, if you ever had the conversation at all. On the way to retirement, you may just be thinking about, "All right. I need to get to $1 million, $2 million," or whatever your number is, "And I need to make these investments, get these types of returns." You're not thinking about that end result, which is really going back to that sixth trait. You're not thinking about the more meaningful aspects that that's really going to bring into your life. So, now carrying that over to not becoming a millionaire, but now you're in retirement working with a financial psychologist or therapist or counselor or financial planner.
Sarah Fallaw: They can plan it. Yeah.
Casey Weade: Yeah. They can start having those conversations to bring to paint a more colorful picture of what the money should be used for.
Sarah Fallaw: Yeah, absolutely. We recently created we watched it in data and assessment that looks at retirement approach. And so, of course, I make my husband take all of the tests that we create here at DataPoints. He loves that. He's a recovering tax attorney. So, the psychology side is kind of a different thing for him but we took that. We both took it and then we kind of compared our results side by side. And it was interesting to see we even had and again, we're not quite near retirement yet, but we had different kind of things that we were anticipating for retirement. And so, that led to a conversation that we probably wouldn't have had if we, again going back to the point about kind of the objective third party, like looking at our approach and measuring our attitudes about what we want for retirement. So, that was a really kind of interesting outcome that I didn't expect from taking the test that I created, right? But it led to, okay, this is really what I want for retirement. This is what you want, that kind of thing. So, it was an interesting conversation.
Casey Weade: Well, now you can bring your husband into this. So, I don't have to ask. Yeah. So, you wrote in the book about having a household CFO. Who's the household CFO?
Sarah Fallaw: Yeah, absolutely, my husband. Again, tax attorney, personal finance enthusiast. I'm definitely more the entrepreneur, psychologist, liberal arts major. And so, I very gladly give that role over to him.
Casey Weade: Yeah. And do you view it as a joint venture in your household? If he is the CFO, how do you ensure that you're both on the same page?
Sarah Fallaw: Yeah, you know.
Casey Weade: Maybe this is tactical too, that you want to answer this from a tactical standpoint.
Sarah Fallaw: Yeah. And again, I wouldn't say we're the role models for other people but some of the things we do I think are useful and helpful. You know, we meet pretty much every week to talk about what's going on large-scale decisions. Obviously, we're both involved, but things like the day-to-day kind of investment type stuff he's really responsible for. But again, we're both like aware of what's happening and meet together frequently. Obviously, we run the business, too. So, we're doing that as part of that as well but just good communication, which can be really hard because money is hard. It's hard to talk about. There's a lot of emotion that goes into it but thankfully, we've been able to do that. But that can be challenging.
Casey Weade: To what degree in your research, now, you said being on the same page as your spouse when it comes to spending and saving has been found to be crucial for millionaires. You know, to what degree do we have to be on that same page? You know, when I come home and I see those Amazon boxes, I tell you what, we're not on the same page, right?
Sarah Fallaw: So, we have Amazon boxes here.
Casey Weade: We're close enough.
Sarah Fallaw: Yeah. We've got the Amazon boxes. Yes. Yeah.
Casey Weade: But we wonder how far apart is too far apart? We're never going to be perfectly aligned. What have you found as the results of being aligned and how closely aligned and ultimately the impact of that alignment?
Sarah Fallaw: Yeah. You know, I wish I had some kind of marker or some kind of rule of thumb or something like that. I think if you're at the point where you're having, you're worried about talking to your spouse about money, whether it's because you're the one that's managing everything or you're the one that's the chief procurement officer, right, having all the Amazon boxes sent to your house, that could be kind of a red flag that maybe there's some that you're not really on the same page. Because if you're having to even think about like financial infidelity, right? So, I'm out maybe I've got, you know, I opened up a new credit card and I didn't tell my spouse or I'm making purchases and not telling them. There may be other things that are going on in your relationship that are leading you guys not to be on the same page. So, those would be some red flags. I don't have a marker necessarily of what being on the same page looks like but I guess I know it when I see it. And again, there are some kind of red flags there that you could think about as well.
Casey Weade: And there are a lot of takeaways from The Millionaire Next Door. What do you hope your legacy is in what you've created and what you're going to continue to create in the future?
Sarah Fallaw: Yeah. I think that just simply helping people understand that regardless of really where you come from, your background, there are certain things that lead to, again, transforming and come into wealth. And those are behaviors that may be hard to adopt but they can be adopted. And so, I think that that's what I want to continue to talk about and help people understand but part of that is understanding yourself. And so, that's kind of where it has to start is understanding your own unique ways of making decisions and your values and attitudes and everything else related to money. That's really the first step.
Casey Weade: That's awesome. Hey, well, I enjoyed having you here and I really look forward to seeing what you're creating in the future. But in the meantime, I want to give away some copies of your books so you have a box of your books sitting in here, The Next Millionaire Next Door: Enduring Strategies for Building Wealth. And if you'd like to get your free copy of that book, all you have to do is this, going over to iTunes or hop in the podcast app and write us an honest rating and review on iTunes for the podcast and then shoot us an email. Shoot us an email at firstname.lastname@example.org with your iTunes username or you can just simply shoot us a text and we'll send you a link to that page. You can text the keyword "book" to 866-482-9559. We'll send you a link to get your free book.
Sarah Fallaw: Nice.
Casey Weade: Dr. Sarah, thank you so much for this opportunity. It's been a true pleasure.
Sarah Fallaw: Thank you so much for having me.