Friday, October 10, 2008


A widely accepted fact of financial planning, as a profession, is that it is two-thirds moral and ethical skills; from fields such as psychology, sociology, and philosophy; and one-third technical and analytical skills; stemming from finance, economics, and mathematics. If this is true for financial planning professionals, shouldn’t it be equally true for each of us as we work through our financial lives?

On Monday, I was again privileged to hear Douglas Lennick, CFP® address the Annual Meeting of the Financial Planners’ Association in Boston, MA. I believe his insights into how our cognitive, neurological, and emotional “parts” work together is very relevant to our decisions stemming from the current financial malaise (i.e., mess!). First, he asked us to draw the diagram to the right on our notepads. Then, he indicated that every time we are stimulated to act; the cognitive, neurological, and emotional facets of our mind work together to decide on our reaction to the stimulus. If we do not like our actions in response to certain stimuli, we must consciously try to change the paths our decisions take between and among the three spheres. (He used the analogy of the mind being a large grassy field, where trails have been worn by our repeated reactions to stimuli. If we consciously try to use a new path, eventually a new trail will be present, while grass grows over our old behavioral pathways.)

Then, he said the punchline, “ Everytime we receive a new stimulus, we first react emotionally” which, at times, can be quite distant from cognitive, rational thought. Certainly, the current stimulus of the credit collapse has had its share of emotional reactions. The question is, What do we do next? He gave us two rules and four skills to practice. First the rules, then the skills.

Rule #1: Always be prepared for the certainty of uncertainty.

Rule #2: Always make financial decisions based on personal values.

If you want to change your responses to stimuli, you must be guided by your personal values. He encouraged us to work with our “clients” to help them create new pathways in their response to stimuli.

To begin, one must recognize one’s own experiences of the relationship between one’s emotions and cognitive thought. Do you see the current situation as a threat or an opportunity? Are you running from it, sticking your head in the sand, or embracing it and trying to learn from the situation? What is your emotional response?

Second, reflect on the degree you are meeting your responsibility to prepare for periods of uncertainty. Reflect on the big picture. Consider your goals, your current financial plan, your portfolio’s diversification, your insurance coverages, your family, and get yourself ready for the long-term. Is your plan consistent with the values and the principles you wish to display to others?

Third, reframe your self-talk to look for possible biases that might exist. Ask youself if you’re being too emotional in your response and strive to create a construct for your future decisions that can exist without these biases.

Finally, respond with a decision that is consistent with your moral principles and implement a plan that is consistent in supporting your goals.

The best place to start revising your emotional, cognitive, and neurological makeup is to decide on the rules that will guide your journey. Have you listed your primary values? Have you written them down? Do you reflect on them daily? Take a moment and list your primary values and periodically ask yourself if you’re making decisions that are consistent with those values. Mr. Lennick listed his: family, happiness, wisdom, integrity, service, and health.

If our fellow citizens on Wall Street and in the mortgage security business would have done this exercise and lived by it, my guess is that the decisions rocking the world may never have been made. Think about it. If a lack of principles and values can create financial distress for millions, couldn’t it be the case that an abundance of principles and values has the possiblility to create Financial Success for one?

- Robert O. Weagley, Ph.D., CFP(r)

Chair, Personal Financial Planning

University of Missouri

Columbia, MO 65211

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