Afford Anything - The Science of Behavioral Change, with Katy Milkman

Episode Date: May 7, 2021

#315: Do you ever grapple with the differences between your present self and your ideal self? Katy Milkman, host of the Choiceology podcast and the James G. Dinan Professor at The Wharton School of the University of Pennsylvania, shares the science of getting from where you are now to where you want to be. Her book, How to Change, is a “science-based blueprint for achieving your goals, once and for all.” In this discussion, Katy reveals Why your strategy is key to making lasting change How we can pick the right strategy for our circumstances The handful of science-backed tactics that bridge the gap between our present selves and ideal selves For more information, visit the show notes at https://affordanything.com/episode315 Learn more about your ad choices. Visit podcastchoices.com/adchoices

You can afford anything. You just can't afford everything. Every choice that you make is a trade-off against something else, and that doesn't just apply to your money. That applies to your time, your focus, your energy, your attention. It applies to any scarce or limited resource that you need to manage. Saying yes to something implicitly means, saying no to other opportunities,

even if you are unconscious about those costs. This opens up two questions. First, what matters most to you? And second, how do you align your decision-making to reflect that which matters most? Answering these two questions is a lifetime practice. And that is what this podcast is here to explore and facilitate. My name is Paula Pant. I am the host of the Afford Anything podcast.

We are normally a weekly show, but once a month on the first Friday of the month, we air a first Friday bonus episode. So welcome to the May 2021 first Friday bonus episode. And do you ever grapple with a difference? between your present self and your ideal best version of yourself. So, for example, the best version of yourself might be the type of person who saves 50% of their income or exercises four times a week or spends their weekends learning about how to analyze a stock or learning the nuances of cryptocurrency.

Maybe that, and I'm not saying that's what your ideal self needs to be, but however you define your ideal best version of yourself. You know who that person is, but your present self, not so much. You see the delta in between who you are and where you are versus who you want to be and where you want to be. And while in theory you know what to do, it's hard to motivate yourself to bridge that gap between knowledge and behavior. Today's guest is here to help us bridge that gap. Today we're speaking with Katie Milkman, a professor at the Wharton School at the University of Pennsylvania and a behavioral scientist. She currently co-directs the Behavior Change for Good Initiative at the University of Pennsylvania. And over the course of her career, she has worked with or advised dozens of organizations on how to encourage positive behavioral change, including Google, the U.S. Department of Defense, the American Red Cross, and Morningstar.

She is the host of Choiceology, a podcast about behavioral economics. She recently wrote a book called How to Change, in which she highlights research-backed, evidence-based tactics that we can use to propel ourselves towards our ideal best versions of ourselves. And in today's episode, we explore the application of those tactics towards improving our financial lives. How can we take a science-based blueprint for achieving your goals and apply it towards spending less and investing more. In our upcoming conversation, Professor Milkman reveals, number one, why your strategy is the key to making lasting change.

Number two, how to pick the right strategy for your circumstances. And number three, a handful of science-backed tactics that bridge that gap between our present and ideal selves. So with that said, here is Professor Katie Milkman on the Science of Behavioral Change. Hi, Katie. Hi, it's so great to be. be here, Paul. Thanks for having me. Oh, it's fantastic to have you on the show. Katie, you study that gap between our ideal future self and our messy present day self, why it is that we're not

able to be the people, the idealized version of who we want to be. That's what I want to talk to you about in this coming hour. To start with, can you tell us about some anecdotes from your own life where you've seen that gap and you've been able to successfully make a behavior change? that often alludes us? Sure, absolutely. I don't know. By the way, I should say the people who study this, I think, this kind of issue come in sort of flavors, those of us who've struggled with these problems and made maybe a little

progress towards tackling them, but also just find it fascinating to try to understand how we can be better. And then there are the sort of super achievers who don't struggle with these problems, look at other people who do and find it so peculiar that they end up studying it. And I definitely fit into the first category of scientists who studies behavior change. Like, I have definitely struggled with it. And that's part of why I study it because I introspect and think like, you know, this seems like it could work and maybe it could help other people. So an example that I often go to, which was one of the first things I studied actually in my career as a behavioral scientist is from when I was a graduate student.

So I was an engineering PhD student. I was not killing it. Let me just say I was doing okay. But I was struggling to stay motivated at the end of a long day and ruling classes to pick up my problem sets and really focus. What I really wanted to do when I would come home at the end of a long day of classes was just, you know, curl up on the couch with a page turner or watch TV. And on the flip side, I also found that if I didn't exercise regularly, I was just a bundle of nerves, but I found it really hard to motivate myself to go to the gym, especially again, after this long day of classes. So I realized I had these two problems, both needed solving. They were both really self-control problems. Like, I knew what the right thing was. I knew where I wanted

to be, but I was just, I couldn't get myself to do it in the heat of the moment when it sounded unpleasant. And so the way I solved this was by doing something I now call temptation bundling and that I've actually studied and proven works for other people too, which is I only let myself read tempting novels. In fact, actually, I switched to listening to tempting audio novels. I only let myself listen while I was exercising at the gym. I decided I would pair those two things, and it had this miraculous effect of leading me to crave trips to the gym at the end of a long day and stop wasting time at home when I should have been studying. So I'd come home. I'd want to immediately rush to the gym. I'd put in my earbuds. I'd listen to the next chapter in whatever

novel I was enjoying, time would fly while I was exercising. And then I would find myself lower stress, more energized when I got home, I'd gotten in my fix of entertainment and I was ready to focus. And so I realized, look, this kind of pairing of something instantly gratifying that we look forward to and crave with something that we know we should do more of can be a tool that can help us actually find a way to enjoy those chores that we need to get around to and waste less time in the bargain. And some of your early research around temptation bundling also involved giving people iPods and having some of those people with iPods listen to really interesting books at the gym like Harry Potter while others didn't. Can you tell us about that?

Yeah, absolutely. So this worked so well for me that I thought, you know, maybe you could help other people too. And I'm a scientist. Let's see if I can prove it. So I ran an experiment at the University of Pennsylvania gym when I was an assistant professor. And what we did is we recruited people, staff and students from around campus, all of whom owned iPods, wanted to exercise more regularly. we're struggling to achieve those goals. And we said, you know, enroll in our study. We'll pay you 100 bucks to let us track your gym attendance and we'll try to help you. And then we randomly assign them

to get different tools to help. So some people were just encouraged to exercise more. They came in for a 30-minute workout. At the end of their workout, we gave them a gift certificate to Barnes & Noble and said, you know, exercise is good for you. Keep doing it. Another group, though, was in the temptation bundling group. That group also had to own an iPod, also had to do a 30-minute workout, was also encourage to exercise more because it's good for them. But instead of giving them a gift certificate to Barnes & Noble, we gave them an equally valued gift, which was three tempting audio novels downloaded on an iPod. And they listened to the first one. They got to choose what those were. We gave them a menu of options. So there are books like The Hunger Games and the Da Vinci Code and books that people

had rated as really, really juicy and fun to listen to. And once you get started, it's hard to put it down. So they listened to the first of those books that they had chosen for themselves on their iPod while they're doing this 30-minute workout at the beginning of the study. And then we tell them, if you want to hear what happens next, you'll have to come back to the gym because we're going to lock that iPod that we just loaned you away in a monitored locker. And you can only access it when you're exercising. And that group initially exercised about 50% more than the folks who received just, you know, they could have bought audiobooks and restricted themselves, but they didn't have that insight. We gave them a gift certificate to Barnes & Noble.

Everybody, again, did this 30-minute workout, but only one group did it while enjoying a temptation and found out that to enjoy more of that temptation, they'd have to come back. So that was really exciting to see that this could help people, not just me, but other people, too. And so with this result, I mean, you essentially take what is immediate gratification and pull it into the type of activity that you're trying to do. How can this be applied to objectives related to being better with money? For example, if a person's having a hard time cutting back in their spending, how can immediate gratification be brought into that?

It's a really great question. I think the answer probably differs a little bit for each person because it depends on what your temptations are and what will bring you joy. But I'll tell you some sort of creative things I've heard about ways that people, temptation bundle that might be inspiring. And then everyone will have to think about what works for them. So one idea is sort of what are the treats you look forward to like? maybe a fancy blended drink at Starbucks. It's not terribly good for you. And could you bundle those

with doing something that's important to your financial future, like a monthly financial planning session? If you need to sit down with your budget or sit down and pay your bills once a month, is there some treat that you could allow yourself to have only at that time that is, say, a food or a beverage? You could also imagine, I love this one from someone who was working on her dissertation and just could not bring herself to do it. She would only let herself, burn her favorite scented candles while she was working. And that somehow made it feel like she was in a spa and she played relaxing music and suddenly it became a joy and a pleasure to get that work done because this was this treat that was reserved for that. So you could think about

ambiance as another strategy. And then finally, another way you can do it is make it social. So one way that people bring joy and fun to activities is by doing them with other people who they like and maybe reserving that as something special they do with someone who's fun in their life. So if you have someone else, you know, who also has budget goals and sort of struggles and procrastinates and puts off doing them. So we're talking in the COVID era, but of course, hopefully we're all going to be vaccinated and back to normal before too long. And it'll be safe to have those kinds of gatherings again. You could get together with that friend once a month and sort of, you know, have some chit chat time, but also get some budgeting done while you're in the same room and

then maybe have a glass of wine together afterwards to celebrate. So those are a few different ways you could make, focus on your financial goals, something that you'd enjoy. Now, temptation bundling and creating that immediate gratification that fuels our preference for what is present, those are both examples of solutions to what you refer to as the impulsivity problem. You've also in your book talked about gamification as another solution to our tendency towards impulsivity. Can you describe what gamification is? Yeah, absolutely. So gamification is when you basically surround some activity that you want to make more alluring with all the trappings of a game. So there are points associated maybe with achieving more. And maybe there's

a leaderboard and you're competing with other people. Maybe there are small prizes for reaching a certain level of achievement. And it's a tactic that was really in vogue, I'd say, you know, 15 years ago where companies were thinking like, maybe we can motivate employees to do not super fun tasks more successfully if we surround them with the trappings of a game. And I'll say there's some sort of mixed results for its success when people don't buy in and their boss, for instance, says like, okay, I'm putting up a leaderboard and we're going to treat this whole situation where you're trying to achieve more sales goals as a big basketball tournament. A lot of employees roll their eyes and it doesn't always work. But where it does seem to be

effective is if you have a personal goal and you opt in and say like, you know what, I want to do a program that makes this more fun and gamifies it for me and I'm bought in, then it seems to have better results because it can just, it can make it a little bit more fun and enjoyable to go through the process. And if you're bought in, it doesn't feel like this eye roll thing that someone else is imposing on you. So it could be a way we could also achieve our financial goals. If there are gamification apps that you find exciting or if you can create a game and competition with neighbors or friends or family, whoever you feel comfortable sharing your financial goals with, that could be another way. It doesn't change the task itself. That might still be unfun, but at least it's surrounded

by an aura of things that you enjoy and there's a prize to be achieved. And it might just be a little bit more enjoyable to think about and look forward to. Right. You mentioned earlier procrastination and that present bias that causes us to prefer how we feel in the present to what we want most in the future also leads to quite a bit of procrastination. What are some of the tools and strategies that you found that are effective at helping people overcome procrastination? Yeah, it's a great question. Well, all the things that we've been talking about are sort of one side of the coin of procrastination and present bias, which is you won't procrastinate and you won't give in to impulsivity if the thing you're trying to get yourself to do is itself instantly gratifying. So that's sort of the

carrot version of solving this problem. But there's also the stick. And I think the stick can be really helpful for procrastination, which is to find ways to restrain yourself from procrastinating either through punishments, like self-punishment, which sounds weird. So I'll explain what I mean by that in a minute or simply imposing rules and restrictions on yourself that won't allow for procrastination. And this is traditionally called by economists a commitment device. So when you have someone else who's looking out for you and they say like, hey, you know, I'm going to actually ban cigarette smoking in this environment because it's bad for you and I want to restrict your ability to give into that temptation or I'm going to fine you if you do this thing. That's something

that we're all familiar with when someone else is imposing those restrictions or fines or incentives and using a stick to prevent us from doing things that are bad for us. But it turns out we can actually do that to ourselves. So if we recognize that we have, the problem. We overspend a lot towards the end of the month or we tend to get a little crazy when we walk into a store that sells shoes, whatever it is that's your challenge. You can think about imposing restrictions and fines on yourself. So let me explain a way that you can do this. One way is through what's called a cash commitment device. So you can literally fine yourself if you don't achieve your goals. There's a website I like a lot that was created by some behavioral

economists called stick. STI-C-K-K-K, the second K is for contract. And on this website, you can go set a goal, say, I want to achieve $100 in my savings account, add $100 to my savings account this month. And then you can choose a referee, someone who will hold you accountable for that goal, say a partner or roommate. And finally, you can set stakes if you don't achieve the goal. So you can say, if I don't put $100 in this account this month, I'm actually going

to find myself $20. And that might seem counterintuitive. Like, why would you want to find yourself for not achieving your financial goals? But the answer is that once there's that financial penalty, you can be more motivated to say, I don't want to pay $20. And by the way, you send that money to a charity. And you can send it to one you don't like, like maybe a political party whose positions you don't agree with, just to make that really salient, that pain really, really high.

So that's one way you can set goals for yourself and create a penalty system. another that I find really interesting is something that's been studied, which is simply, for instance, choosing a bank account or maybe putting money in a CD, where it's actually hard to take your money out before a certain date or before a certain savings goal is achieved. And there's a wonderful research paper showing that when some people were given access to this kind of account in the Philippines, they were given access to an account that had a self-set savings goal or a self-set savings deadline. And other people were given access to an account. And other people weren't, but we're given exactly the same encouragement to save. They just had a standard account with the same exact interest rate, but where they could take money in and out whenever they wanted, the people with access to these special commitment accounts saved 80% more year over year. So it's sort of like a piggy bank. If you can find ways to put your money in a space where it'll be hard to access until you've reached a savings goal or a date, maybe through an arrangement with, again, a friend or a partner or a family member, that can be a really helpful tool for increasing your

savings and it's a constraint. So it's a stick instead of a carrot, but also helps with procrastination. You won't put off savings or you won't dip into savings. Those temptations will be easier to resist because of the constraints you've imposed. One of the tips that I often give to the listeners of this podcast is if they're having trouble dipping into their emergency fund, if they have a tendency to dip into their emergency fund for non-emergencies, this is something I did in my 20s, set up your emergency fund in a separate bank and then cut up the debit card, cut up the checks, intentionally lose the password so that the only way you can access that money is by getting in your car and physically driving to the brick-and-mortar establishment.

That's a great example of a commitment device. It'd be nice if our banking institutions made it a little easier for us to do that. So you didn't have to go through all that rigamarole. But I love that idea. It's a great way of creating a commitment account, sort of like the ones that have been tested and proven so useful. Right. And that really taps into our inherent laziness, like the laziness of not wanting to put on pants and put on makeup and get in the car and drive. Right. You're creating a transaction cost, essentially. You know, you're imposing a fine on yourself in the form of time and energy and hassle. So all those hassle factors impose a cost or a penalty for dipping into that fund.

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network on any weekend day or holiday. for just $10. And a weekday group pass offers the same weekday travel flexibility from $30 for two people and up to $60 for five. Buy yours at go-transit.com slash tickets. In your book, you talk about how in order to play to our own and inherent laziness, one thing that we can do is set up our life such that the defaults are outcomes that we desire. Can you talk about this and how we can do that, particularly as it applies to the way that we

manage money? Yes, defaults are one of the most powerful tools and a behavioral scientist's toolkit for helping with money management. And a default is the option you end up with if you don't take any other action. I think the most famous research study that's been done on this looked at savings and specifically showed that if a company defaults you into their 401k program or their retirement savings plan so that just a portion of every paycheck will automatically be deducted and put into that retirement savings plan, as opposed to defaulting you into a system where you can opt in, you can raise your hands. I'd like that, but it doesn't happen automatically. When the default is set for savings, you see something like a 40 percentage point increase in the number of people who are

saving for retirement and dramatic increases in savings balances. This is a really powerful tool, so powerful, in fact, that in 2006 there was a bipartisan resolution passed a bipartisan law called the U.S. Pension Protection Act that makes it tax advantage for employers to default their employees into these 401K programs. It's that powerful. But we can use it ourselves. So it's a great way for a benevolent employer to take care of employees and make sure that they're setting money aside for the future. We can set these defaults ourselves too. If you open a bank account, for instance, many banks allow you to set an auto transfer so that by default every month, for instance, a little bit of your paycheck when it comes in could be auto transferred to a savings account where it'll earn interest

and won't be as easily accessible when you're thinking about spending decisions. So we can set those kinds of defaults for ourselves. And once we do, once that savings habit is on autopilot, people very rarely actually go and change it and take money out. So whenever we can do things like that, you can also try auto-escalating the amount, for instance. So there's a great paper by a couple of my colleagues, Richard Thaler, Nobel laureate, and Shlomo Benartzi showing that if those kinds of auto deductions actually escalate, meaning they grow over time, then people save even more, of course, because they never go in and reduce that auto deduction. So you can imagine starting with, okay, 3% of my paycheck will go into a savings account and then saying, but like next year,

let's bump that up to 5%. And then the year after that, let's bump it to 7. And if you can find a way to auto-escalate those, that's really helpful too. How can we set up defaults in our financial lives when it comes to the way that we manage our use of credit and debit cards? Yeah, it's a great question. I think it can be really helpful not only to do what I was just describing, which is set up auto savings, but you can also set up auto payments for those credit cards so that you'll never miss the minimum payment. And that's a really helpful way to avoid fees that you might not want to be paying. And once you've set it on default, you don't have to remember anymore. It's just going to happen. If you're having a sort of busy month, a lazy month, and you don't think about getting around to it or you

don't work up the energy, everything will be okay. So I think auto payments are a really important way to structure financial responsibilities as well. And I would assume that applies to all billing. Absolutely. Right. Your mortgage payment, like none of this should require effort from you or else you're much more likely to end up with a fee. What about the ask? of our financial lives in which we have to be involved. Like, for example, we can automatically invest money in a 401k every month, but periodically we do need to go in there and manually rebalance. I mean, I guess technically there are some robo advisory services that will automatically do it for us now. But for the elements of our financial lives where some type of manual touch is

needed, how do we set ourselves up to do that in the most effective manner possible? Yeah, it's a great question. I think one. important thing is having a plan for when you'll execute. So there's great research showing that it's really important to make plans of the form sort of if this happens, then I will, in order to ensure you'll follow through. And in terms of financial decisions, if you've got everything sort of on auto pay, it might be that you only have to do this every six months or even once a year or maybe, maybe you should do it every month. It probably depends a bit on your own, you know, how much volatility there is in the size of your your balances and and how often rebalancing makes sense for you.

But whatever that frequency is, you want to have the if then plan and figure out exactly when you'll do it and try to make it as consistent as possible so that and put it on your calendar so you won't forget to follow through. And so it'll become like a habit ideally. So maybe it's the first day of every month for you that you would have it on your calendar and, and you're, oh, I see it's a new month. That's my cue. It's time to go check a moment that you're likely to know. notice, or it could be that always a tax season is when you'll do that rebalancing because there's something else related to your finances. And so you put it on your calendar every year for April 15th. Whatever the right moment is, you know, it can be personalized, but if there's

some system that you use and there's a concrete date and trigger that will cue you to act, that can be really effective in overcoming a big problem, which is forgetting. And it's also related to laziness because it's harder to be lazy because you're now breaking a concrete commitment instead of sort of a vague, abstract one, it's going to feel worse. And when-based commitments, such as this always happens on the first of the month, or this always happens a month before tax day, if they are deeply internalized, can be very powerful. Exactly, because there's a cue. So it's instead of this vague intention to rebalance, there's a time I'm meant to do it.

There's some sort of internal accountability, because if you blow it off, then you've broken your rule. And that can be a more powerful way to get things done. And it turns out research is shown that's more powerful than just sort of, yeah, a vague intention. So, I mean, I'll tell you about a challenge in my own life where I have it set that on the first of every month, I go through all of my finances. It's on my calendar. I like all of the systems are set up. I have zero calendar compliance. I take a look at it on my calendar and then I immediately close my calendar and go to Starbucks and get a coffee.

Oh, no. Yeah. Okay, well, it sounds like you might need a commitment device. You may need someone to fine you and put a little teeth behind that if you don't, if you're not able to stick to your commitments. And actually, that is sort of the way we up the ante on these things. You know, some of us, it's enough to have a plan and a calendar reminder in order to follow through. And some of us need accountability, like another person who's going to say, hey, did you do the thing? And some of us need a fine.

That's literally a price that we pay if we don't do it. And websites like Stick can help with that. So whatever it takes, depending on your personal level of motivation and dismay when that calendar alert pops up, you have to up the ante. And I guess zooming out from that, what I'm hearing is that what we've discussed are a lot of different tactics, but it's using multiple tactics in conjunction with one another that increases the likelihood of success. I think that's right. though I also think it's a big lesson of my book and of my decades studying this is that it really, there is an It Depends feature of Behavior Change. Like, it depends what your personal barriers are.

If the reason you're not getting around to going to the gym is forgetting, then you need reminder systems. If the reason you're not getting around to going to the gym is that you hate it, then you need to make it more enjoyable to work out. And I think the same applies to personal finance, of course, right? If the reason you're not doing it on the first of the month is that it's a hassle and you'd rather go to Star, then you probably need to figure out how to reduce the hassle factors and you can increase the pain of not falling through by finding yourself. But if it's like, you know, if it's just forgetting, then you just need a better reminder system. By the way, I also think you mentioned these sort of

auto systems, the robots that exist that can do the rebalancing for you. I am a big fan of automation, especially, you know, I know a little bit about you, not a ton, but I gather you, you know, you've got a lot going on. You're a busy professional. And so I suppose, that people in that category like you, for a lot of us, these robo advisors are just a godsend because life is so busy. It's easy not only to forget, but to feel overwhelmed and lazy and not wanting to deal with another thing. And so when we can lean on them, we should. It's not a crutch. It's a solution. And so I do think everything that can be put on autopilot, so there's as little to do as possible is great. We've talked a lot about behavioral tactics, but what should a person do

if they lack the confidence to believe that they can do some of these things. So, for example, if some sense of imposter syndrome or if some sense of fear of failure is at the root of what is keeping them from putting money into their IRA or 401k or buying some other type of investment. It's a great question. And there are a lot of different answers that I think could be useful. So one actually is a social answer. So one way that we figure out what we're really capable of and what's likely to work for us is by looking at people who resemble us in important ways, maybe, you know, demographically or in a similar career, same neighborhood, friends, people who we think, like, you know, I could do what they could do and try to figure out

what's working for them. Because often your confidence will be built when you see someone else who doesn't feel like a stretch, you know, it's not Elon Musk or Jeff Bezos who's setting money aside for retirement, right? It's somebody who's like, oh, yeah, they're earning about what I'm earning living in a similar kind of situation. They have a similar family life and they're doing it or they're figuring out how to achieve their financial goals. So once you find some role models like that who really look like you, figuring out what works for them is going to build your confidence. Hey, I can do it. This is someone like me and someone like me has figured it out and you may feel that you could emulate. I call this sort of copy and paste exactly what they're doing. That can be an effective

tool. So going out and looking for those kinds of folks who won't feel out of reach and have figured it out, that can build your confidence. Another thing, and this might sound a bit counterintuitive, but another thing that helps people and builds their confidence, helps them achieve more, is actually coaching other people with similar goals on how they can achieve more. So you might find it helpful, and I do this in my own life, to have sort of an advice club. If there are other people who have a similar set of financial goals, you can reach out to. And, you can reach out to. when you want advice, you might be able to get tips and tricks that you can copy and paste, as I just mentioned. But also, when they reach out to you and you're in the role of the advisor, it's going to help you

because it's going to build your confidence that you can figure things out and you're going to introspect about what might solve a particular problem for them. And then once you've said, hey, maybe this could work, you're going to feel like, oh, maybe I should try that too. And wouldn't it be a little hypocritical if I didn't also cut out my Starbucks habit or, you know, whatever, that's a commonly used example, and I agree with the critique that like maybe cutting out your Starbucks habit is not the key to financial security in your older years. But whatever it is that you're trying to change, if you give someone else some coaching on it, it can help motivate you and make you feel more confident that you can achieve it. So anyway, I'm a big fan of advice clubs because I think

there are two-way street. You benefit both from the advice you get and from the advice you give. And my research has shown and research led by Lauren S. Chris Winkler is about to start a faculty job on the Kellogg School of Management faculty at Northwestern has done just brilliant work showing how powerful it is when we advise other people because it makes us feel more confident and helps us figure out things that will work and we're more likely to follow through and achieve goals when it comes to quitting smoking or exercising more. Those are mostly through self-report studies, but we also showed in one really large experiment that this could help students get better grades in math and in the class they were most struggling with when they were just asked to advise

a peer on how to do better themselves. That makes sense to me for a number of reasons. I mean, partially for the reason that sometimes the best way to learn is by teaching. But also, as you talked about earlier, the social dynamic, you know, when you're in a community of people, like-minded people who are all trying to achieve that same goal, the social support and the peer pressure, frankly, that comes from putting yourself into that community. Absolutely. And peer pressure is really powerful. So I focused on sort of the information we clean from other people about what's possible. But there's also an element of just, you know, not wanting to be the odd man or woman out. You want to fit in, right? The same way that you wouldn't want to show up wearing casual clothing at a formal wedding and you'd feel like, ah, oh no, this is so awkward. You don't want to be the one person in your social group who's struggling with financial goals. And so that peer pressure can be really powerful. And, you'd feel like, ah, oh, no, this is so.

motivating. Right. I think we've touched slightly on habit stacking, you know, using cues to trigger new behavior. Can you describe that tactic and, you know, how and why it's useful? Yeah, absolutely. I think you're using James Clear's terminology who popularized it. Yeah. So academics who study it have called it piggybacking and what it means. And actually, it isn't as well studied as some of the other techniques out there for building habits. But there's some really interesting data and it's an intriguing idea, suggesting that it may be more effective if instead of just trying to build a habit in a vacuum, if you try to tack it onto or piggyback it on a habit you already have. So the study that's out there that's actually been done was a study trying to get people to floss. And it showed that if

you encourage them to floss after they brush their teeth, that's more effective than just encouraging them to floss, say, before they brush their teeth. Now, those both sound similar because either way, you're attaching it to toothbrushing, but the stacking or the piggybacking is the second thing. So the toothbrushing is the cue. You've already got that down. And then, oh, now here's the next thing I do. So I would actually love to see more evidence on this than is out there in the academic literature. But there is a little evidence and it's very intuitively compelling to think that rather than just in a vacuum trying to build a habit, putting it on top of something could be useful. What's better established is that there are cues in our environment that trigger once we build a habit that trigger us to think about doing it. So there's a great study by Wendy Wood of USC showing that when you give people popcorn to eat in a movie theater, if they have a habit of eating popcorn in movie theaters, even if that popcorn is stale and disgusting, these people will still eat it.

Whereas people who don't have that habit in a movie theater won't eat stale disgusting popcorn. They'll stop and be like, this is gross and spit it out and they won't eat the whole bucket. But people who have that habit, they just go into mindless mode. The movie theater cues the act. And in similar studies, she's shown that if you give movie theater popcorn eaters, stale popcorn outside of a movie theater, like in a classroom, they don't eat it. So the environment triggers that habit. And if we can build cues and environments by repeatedly doing a behavior in that environment so that it becomes second nature, it becomes habitual, you just go straight to your automatic response,

then that can be helpful. So for example, if we're thinking about it in the financial domain, you might want to build a habit of using cash instead of credit because actually we spend less freely when we use cash rather than credit cards. So you could think about really deliberately trying to do that for a while, say every time you go to your favorite, we've done a lot of coffee shop examples, but I'll stick with it when we're on a theme go with it. Every time you go to your favorite coffee shop and you do that every day, say you pay with cash and maybe that leads you to be a little less free flowing with buying all the goodies and extras. If you do that for a few weeks really deliberately, say maybe even with a friend and you tell them, hey, don't let me

without my credit card here. I'm going to be, I want to pay in cash. It's going to help me. Once you've done that for a little while really consciously and deliberately, you can actually build a habit so that it starts to be like second nature. You don't have to think about it anymore. So we actually only have to focus on building new routines for a little while, and then they can go into autopilot. And so paying with cash can be one of those things you might say, as a New Year's resolution, I am going to start paying with cash in these environments. And then if you focus and work on it and remain vigilant for just a few weeks, it's probably enough that it'll carry you forward. And then the queue of the environment and the consistent routine can carry you forward. And again, I'm hearing a use of a number of tactics in combination with one another.

So you've got the New Year's resolution. So you've got the when, which gives you that internal motivation of a sense of a fresh starter, a new beginning. You've got to flip back to the flossing example. If there's a minty flavor on the floss, then there's the immediate gratification of that nice flavor. So you're more likely to use a minty or a well-flavored floss than unflavored floss. Sure. Make it fun. Yeah, exactly, exactly.

Temptation bundle. Exactly. And then there's the piggybacking of the habit. So yeah, I'm hearing a lot of different tactics in combination with one another that all work together to, I guess really what it is is that it works together to solve a variety of problems. It solves the impulsivity problem. It solves forgetting. Like if there are a number of problems that are interfering with a habit, then it makes sense that you would need a number of solutions working together. Absolutely. And again, everyone can be different. You might say like, you know, this part I don't need because I already enjoy it or I I already put it on autopilot. So I don't need that solution. So you can pick and choose. But if I were to just try to solve a problem for someone I didn't know, I would say, let's throw everything at it. We'll return to the show in just a moment.

You've mentioned changing your environment and how powerful of an effect an environment can have on habit formation. You do mention in your book, though, that that can work either for you or against you. So if you already have a great habit and then you change your environment, you, you, go on vacation, for example, that can actually work against you. You can end up losing some good habits that you have if you move to a new home or you even do something as simple as just go to a conference and it breaks your exercise habit. That's exactly right. So I think a key lesson from research is that our routines, our behaviors, our patterns are often more fragile than we appreciate. Unfortunately, it tends to be that the most fragile ones are the ones that are good for us

and that sort of overcome some challenge or limitation. And then we have to figure out, okay, if there's going to be a disruption, how can we get back on the wagon? How can we make sure that it doesn't take us off track and be really deliberate about that? But on the flip side, there's a little good news, which is that those moments that break our usual routines and sort of divide up life and stand out as markers and new beginnings, they also give us an opportunity to build better ones. So to the extent that there are things we want to do better in our lives, those disruptions like moving or ending up in a new job or even the start of a new year or celebration of a birthday or a Monday, they tend to make us feel more motivated that we could

achieve our goals. We step back and think bigger picture. We feel more separated in an identity sense from our past self. We say like, oh, that was the old me that didn't achieve their financial goals. And like, yeah, okay, last year I didn't do it. But this year, the new me, I can do it. So we have that extra motivation. And then also if you literally have a physical change, right, a new job being a physical change, a new home being a physical change or a routine change that comes with, say, becoming a new parent, it detaches some of the old habits physically from your life, right? Like maybe you used to go to Dunkin' Donuts every morning on the way to work. But now you have a new office.

So you don't have that bad habit and you have the opportunity to say like, oh, I'm going to bring breakfast and I'm going to bring something healthier. So with the change comes both a mindset change and in some cases a physical change that gives an opportunity. But as you noted, it does have this sort of ugly underbelly, which is if you've got something working really well, you have to be really vigilant about making sure that you instill those same patterns. It's not going to just happen naturally once there's the disruption. For the past year, ever since the pandemic began, a lot of people have quite literally found themselves in new environments where people have moved, maybe moved back in with family or friends or moved out. There's been a lot of transition in the past year. What should a person do, if they're listening to this, if they've entered into a new environment, a new physical environment,

and then they observe themselves forming certain bad habits in this new environment? Yeah, it's a great question. Well, there's a few things. One is the that it can be helpful to look for a fresh start or a transition point and choose that as sort of a goal. Okay, I see this thing has happened. This is going to be my deadline or my moment when I really attack it. They could try to make a transition if it's like I'm working in my kitchen and that's leading to really bad outcomes in terms of eating. Like you might want to decide, oh, I'm going to stop working in my kitchen and I'm going

to start working in my bedroom. Like, I didn't think that was the place to work, but actually it'd be better because I won't be getting up with snacking every second. So you can think about, you know, very deliberately altering the circumstances that are creating the bad habits. You can think about a moment when you may be extra motivated to make a change and try to set a goal then. But, you know, really my book and all of the conversation we've had is full of techniques that could be useful and that could be applied depending on why things have slipped. Is it because the temptation is too great in the environment or in general, like the things that used to be enjoyable about, say, staying focused on work are no longer there because there's no water cooler breaks and there's no person sitting in the cube next to you to chat with. And so now you just can't stay focused in the way that you used to be able to because there aren't breaks and enjoyable things. And then how can you recreate that? So there's a lot of thinking that is required to figure out what tactics might get you back on track. But hopefully, that's given you some ideas. Excellent. Well, we're coming to the end of our time. Are there any final tips, tricks, takeaways that you would like to leave us with? I think a really important

thing I want to leave you with is that change does not simply happen after working on something and using one of these new tactics for a couple of weeks. It doesn't then sort of magically last for the rest of your life because the things that you're trying to solve for don't go away. You've just become clever about how to make sure they don't win and that what does win is what you think is best. But you really have to keep using these tactics rather than expecting if you have a burst of energy around New Year's or move to a new home or a new job and you set some good systems in place that that will work and you can just sort of throw up your hands and it'll magically be a habit. I do think there's a little bit of a tendency, especially in some self-help bestsellers,

to treat these problems as sort of one and done type solutions. And over and over again, what I've seen in my work is that if we try to solve a problem with tools for people for a month, say, and then end our programming, bad habits start to creep back in. So it really is that if you want to make a change, you will have to keep using these tactics, not once or twice or for a month or a year, but really consistently for as long as you want that change to last. So I think that's really important to keep in mind. But I don't, I don't think that should be discouraging because a lot of the ways that we solve these problems are enjoyable, right? If it's by making it more fun to do something or making it more social, I don't think doing that for a lifetime should be a drag. That's kind of good

news. But it is important to keep that in mind and have that expectation that there are small setbacks along the way. Consistently, you have to be prepared for them and think about and plan for how you will, you know, get back on the wagon after something goes wrong, using your advice club or, whatever systems you build, but it's not one and done. Right. It's a lifetime practice. It is a lifetime practice. Well, thank you. Where can people find you if they want to know more about you and your work? Best place to find me is on my website, katiemilkman.com. There's lots of information there about my book, my podcast, Choiceology, my research and the research center I run at the Wharton School called the Behavior Change for Good Initiative, where we do work to try to advance the science of behavior change. It's all on my

website, and I hope that'll be a useful resource. Thank you, Professor Katie Milkman. What are some of the key takeaways that we got from this conversation? Here are five. Number one, make challenging tasks, tempting. Professor Milkman describes what she calls the temptation bundle. This is a great tactic to use if you know what you need to do, but you just can't push yourself to do it.

In her example, she knew she wanted to exercise, but she would come home. home tired and never make it to the gym. So she decided to tie her goal of going to the gym with a treat something tempting like an audiobook. And it worked. I realized, look, this kind of pairing of something instantly gratifying that we look forward to and crave with something that we know we should do more of can be a tool that can help us actually find a way to enjoy those chores that we need to get around to and waste less time in the bargain.

You can do this with your finances in a variety of ways. Professor Milkman told the story of a student who needed to finish her dissertation, who burned her favorite scented candle only while she was working on her dissertation. And so if you need to sit down once a month, to look through your budget, look through all of your credit card statements, your debit card statements, look at where your money has gone and plan out where it's going to go, if you need to get yourself to do that, but you keep ignoring that in order to watch Netflix instead, you could burn your favorite candle, go ahead and get that latte and drink your favorite

Starbucks, get something that is tempting, listen to your favorite music. And only do that, only drink your favorite latte or listen to your favorite music or burn your favorite candle while you are working on this thing that you're procrastinating, while you are creating your budget for the month. So that this immediately gratifying thing is tied to this other thing that you need to do, and they're both bundled together, the temptation bundle. alternatively, if you need social accountability, invite your friends over. After the pandemic is over and after you're all fully vaccinated, invite your friends over and see if they want to bring drinks and snacks and you can all sit down and spend some

time clacking on your keyboards together, reviewing your budgets together, and then top it off with some guacamoleon chips. So bringing this dose of immediate gratification into tasks that you need to do but that you tend to put off, that is temptation bundling, and that is key takeaway number one. Key takeaway number two, create a concrete commitment. Perhaps treats or temptation bundling isn't motivating for you, or perhaps you don't want to restrict yourself to only drinking the latte, listening to the audio book, listening to the music at a time in which you are doing X.

if that's the case, and if you are working on something that cannot be automated, then schedule the intention with as much specificity as possible. So, for example, schedule something in your calendar and in the event description, spell out exactly what you need to do, break it down step by step. You can also try using any task management system that you currently use. So for example, if you use Asana, you can create a main task and then break down all of the subtasks, put different dates to each of the subtasks, and if you need to, then use an accountability system such as Stick, STIC-K-K-K-K that she discussed, use that accountability system

in order to keep you on track. If there's some system that you use and there's a concrete date and trigger that will cue you to act, that can be really effective in overcoming a big problem, which is forgetting. And it's also related to laziness because it's harder to be lazy because you're now breaking a concrete commitment instead of sort of a vague, abstract one, it's going to feel worse. And so scheduling something in a concrete manner while breaking it down into its subcomponents and then layering in some accountability to it, that is another way to get yourself to actually do the thing.

And that is key takeaway number two. Key takeaway number three, impose a constraint or a fine. If temptation bundling was the carrot, the reward, the immediate gratification for doing a thing, the tactic of imposing constraints or fines are the stick. So if nothing tempting will make you follow through, then try imposing a fine or a punishment on yourself. Find ways to restrain yourself from procrastinating either through punishments, like self-punishment, which sounds weird. So I'll explain what I mean by that in a minute. or simply imposing rules and restrictions on yourself that won't allow for procrastination. One of the suggestions that Professor Milkman made was that you can create an accountability group within a community or within your friends and family,

and you can have someone appointed as their referee who will impose a mandatory fine on anyone who doesn't meet a predetermined goal. In fact, she gave the example that if you don't follow through on X commitment, then your peer group, your referee, will find you $20, $30, whatever amount it is, and will donate that money to the political party that you oppose. And so the very thought of that, the very thought of that punitive measure being taken against you that some of your money would go to a cause that you do not support or a party that you do not support, that can also be a very powerful motivator that forces you to follow through on whatever promise you've made to yourself.

Another softer iteration of doing this is to introduce friction in other ways, such as making it difficult to raid your emergency fund. So if you create a transactional cost, for example, if you have to physically drive to a brick-and-mortar bank in order to access your emergency fund, you can't just access it online because you've intentionally lost your username and password

and cut up your debit card. If you were to do that, then you are introducing a transaction cost. You're introducing a time and effort cost. And so by creating that friction, you essentially impose a fine, impose a punishment on yourself. And by virtue of doing that, you make it much harder for yourself to access that emergency fund, to tap it for non-emergency purposes. So imposing fines, penalties, and creating sources of friction, those are all ways that you can, force yourself to follow through on the goals that you set for yourself and on the actions that you want to take. And that is key takeaway number three. Key takeaway number four, both learn from

and teach others. Sometimes the best way to learn is by teaching or by coaching other people. The key is to find others who are in a similar enough situation to you such that you'll be able to speak to their situation and reflect on how your advice might apply to your own situation. If you can teach someone who is maybe one year behind where you were or two years behind where you were, you'll be close enough to their experience level that you'll remember what it was like and yet you'll be just a few steps ahead enough that by virtue of teaching, you yourself also learn. If there are other people who have a similar set of financial goals, you can reach out to when

you want advice, you might be able to get tips and tricks that you can copy and paste, but also when they reach out to you and you're in the role of the advisor, it's going to help you because it's going to build your confidence that you can figure things out and you're going to introspect about what might solve a particular problem for them. And then once you've said, hey, maybe this could work. You're going to feel like, oh, maybe I should try that too. You can also learn from others who are in a similar situation as you. Seek out people who resemble your situation, people who share your common circumstances, and see what they're doing, what's working for them, and can it work for you? You might gain confidence simply by seeing others who are in relatable situations who are accomplishing the same things that you're after.

And so that is key takeaway number four. Finally, key takeaway number five, tailor your strategy to your situation. Throughout this interview, Professor Milkman introduced a long list of tactics. And a list of tactics is great, but you want to choose the best tactic for your situation. Because there are a variety of problems that might be getting in the way, and not every tactic solves every problem. So match the tactic to the problem. If you're someone who simply forgets to do something, then having a reminder on your phone or putting it in your schedule could be an adequate solution. But if the problem is not forgetfulness, if the problem is the motivation to follow through,

then simply putting it on your calendar, that act alone is not going to solve the problem because the problem isn't forgetfulness, the problem is motivation. So make sure that you're matching the tactic to the issue. It depends what your personal barriers are. If the reason you're not getting around to going to the gym is forgetting, then you need reminder systems. If the reason you're not getting around to going to the gym is that you hate it, then you need to make it more enjoyable to work out. And I think the same applies to personal finance, of course, right?

If the reason you're not doing it on the first of the month is that it's a hassle and you'd rather go to Starbucks, then you probably need to figure out how to reduce the hassle factors and you can increase the pain of not following through by finding yourself. But if it's just forgetting, then you just need a better reminder system. Those are five key takeaways from this conversation with Wharton Professor Katie Milkman. on the research around behavioral change. If you want a synopsis of today's episode that you can refer to at any time, you can get that for free and synopsies of all of our other episodes for free

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