From Functioning to Flourishing: Applying Positive Psychology to Financial Planning by Sarah D

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From Functioning to Flourishing: Applying Positive Psychology to Financial Planning by Sarah D CONTRIBUTIONS Asebedo | Seay From Functioning to Flourishing: Applying Positive Psychology to Financial Planning by Sarah D. Asebedo, CFP®; and Martin C. Seay, Ph.D., CFP® Sarah D. Asebedo, CFP®, is an assistant professor of Executive Summary practice in financial planning at Virginia Tech and is a doctoral candidate at Kansas State University. • This paper introduces positive their well-being to thrive, prosper, With 11 years of practitioner experience, Asebedo’s psychology, illustrates how it and flourish in life. goal is to connect research and practice with a focus overlaps with financial planning, • Financial planning and positive on psychological attributes and household financial and provides specific scientifi- psychology align through the behaviors. cally based tools and resources notion of positive financial that financial planners can use to planning. Martin C. Seay, Ph.D., CFP®, is an assistant professor integrate positive psychology into • Two client case studies illustrate at Kansas State University. His work has been their practice. that positive psychology can published in the Journal of Financial Planning, • Financial planning has naturally be integrated within financial Journal of Financial Counseling and Planning, and evolved from helping clients planning in three basic ways: (1) as Journal of Consumer Affairs. He is the vice president function financially to helping a perspective and orientation to clients improve their well-being financial planning; (2) as a source of communications for the Academy of Financial and quality of life, as evidenced in of scientifically based information Services and a co-host for FPA’s Theory in Practice life planning, financial coaching, to bring to financial planning con- Knowledge Circle. and financial counseling. Positive versations; and (3) as a positive psychology has had a similar intervention to help clients move THE COMMON DEFINITION of flour- evolution over the past decade to through financial and life changes ish—to thrive, prosper, be in a period of explore how people can optimize to maximize their well-being. the highest productivity or influence— reflects a basic human ambition: to live a full and prosperous life. on the topic of human flourishing and within psychology has historically Given the vital role money plays in can provide valuable tools and resources emphasized the treatment of mental life, financial planning has naturally for financial planners to help clients illness, with less scientific effort focused evolved from helping clients function thrive and prosper. on developing human strengths. Positive financially to helping clients effectively This paper introduces positive psy- psychology emerged in 1998 as a field align their money with their life’s chology, illustrates how it overlaps with focused on correcting this imbalance aspirations. This shift from functioning financial planning, and provides specific (Peterson and Park 2003). to flourishing is evident through the tools and resources financial planners Positive psychology seeks to establish emergence of life planning, financial can use to integrate positive psychology scientific evidence focused on optimiz- coaching, and financial counseling. into their practice. ing well-being so that people can move Psychology has experienced a similar beyond functioning to thrive, prosper, evolution of thought within the past Introduction to Positive Psychology and flourish in life (Peterson and Park decade as positive psychology has Psychology can be broadly defined as the 2003; Seligman 2012). According to emerged to explore what makes life study of the mind and behavior (Ander- the Positive Psychology Center at the worth living. Positive psychology is on son 2015). Peterson and Park (2003) University of Pennsylvania (www.positive the cutting edge of research and practice indicated that research and practice psychology.org), positive psychology is 50 Journal of Financial Planning | November 2015 FPAJournal.org Asebedo | Seay CONTRIBUTIONS “the scientific study of the strengths Figure 1: From Traditional Psychology to Positive Psychology that enable individuals and communi- ties to thrive. The field is founded on the belief that people want to lead mean- Traditional Psychology Positive Psychology Decits Neutral Neutral Strengths ingful and fulfilling lives, to cultivate what is best within themselves, and to enhance their experiences of love, work, mental illness mental functioning ourish in life and play.” (for example, (for example, (for example, depression) absence of or improve quality As depicted by Figure 1, positive reduced mental of life, optimize psychology serves as a complement to illness; in other well-being) traditional psychology with a focus on words, less depressed) building strengths. This continuum can easily be applied to understanding the evolution within financial planning. As illustrated in Figure 2, traditional Figure 2: From Traditional Financial Planning to Positive Financial financial planning has primarily focused Planning on meeting financial needs so that clients can function in life and meet Traditional Positive Financial Planning Financial Planning their future goals (for example, debt Needs-focused Neutral Neutral Strength-focused pay down, adequate insurance, suf- ficient savings for goals, etc.). Financial nancial needs nancial ourish in life stability and security are typically seen (debt, bad credit, functioning (eectively use as signs of financial health and indicate lack of savings, (for example, money as a tool success in financial planning—a no emergency nancial health to optimize fund, under and security, well-being) growing balance sheet, steady income, insured) savings plan, adequate financial ratios, a solid credit improved credit, etc.) score, consistent savings, etc. It is at this neutral point that the traditional financial planning process indicates monitoring is needed to ensure financial (2012) suggested life planning is a based approaches are needed to health continues. growth model with a goal to move “the expand the body of knowledge used Positive financial planning moves client’s well-being from functional to in financial planning. In this spirit, beyond financial functioning and health optimal” (p. 55), clearly overlapping positive psychology provides a variety of to ensure a person’s money is maximized with the goal of positive psychology. scientifically tested tools and resources as a tool to optimize well-being, such This overlap has previously been that can be applied to foster client that a flourishing life is possible. Posi- observed. Weber (2012) proposed that well-being. Well-being is defined and tive financial planning (from the view basic positive psychology skills may assessed through the lens of well-being of positive psychology) is focused on become essential for financial planners theory. Well-being theory states that an how money is related to topics such as to acquire given the prevalence of individual flourishes in life when they purpose in life, meaning, achievement, behavioral finance and life planning. experience the following five key ele- supportive relationships, happiness, joy, Thus, financial planners who aim to ments (see Figure 3): Positive emotion, gratitude, use of talents/strengths, and extend their services beyond traditional Engagement, Relationships, Meaning, optimism, for example. financial planning can benefit from the and Accomplishment—abbreviated as Positive psychology has gained wealth of scientifically based tools and PERMA (Seligman 2012). prominence, both directly and in spirit, resources from positive psychology. Positive emotions reflect an indi- within the financial planning, financial vidual’s subjective emotional evaluation coaching, and financial counseling From Psychology to Planning: of the past (for example, life satisfac- fields over the last decade. This is Tools and Resources tion), present (for example, pleasure, often evidenced through the concept Buie and Yeske (2011) noted that happiness, comfort, and joy), and future of life planning. For example, Hogan scientifically grounded and evidence- (for example, optimism). FPAJournal.org November 2015 | Journal of Financial Planning 51 CONTRIBUTIONS Asebedo | Seay well-being. For example, assuming fixed Figure 3: Well-Being Theory (PERMA) expenses represent basic needs, a cash flow statement could organize discretion- ary expenses according to the PERMA elements to determine how spending is Relationships supporting and optimizing well-being. Table 1 illustrates common goals and related spending categories organized Meaning Engagement according to the PERMA elements, which may naturally overlap (for example, a hobby may provide a sense of engagement, positive emotion, and accomplishment). Positive Emotion Accomplishment Flourish Measuring Client Well-Being An understanding of PERMA is only useful if it can be applied easily in prac- tice. A variety of resources are available Adapted from Seligman (2012) for measuring and evaluating well- being. The University of Pennsylvania’s Table 1: Financially Related PERMA Categories Authentic Happiness website provides a series of user-friendly questionnaires Positive Emotion Travel, sporting events, concerts, dining out, clothing, jewelry, spa, to evaluate an individual’s well-being theater, etc. Engagement Hobbies and activities (for example, reading, playing a musical based upon psychometrically validated instrument, gardening, exercise, etc.) scales (see www.authentichappiness.sas. Relationships Gifts
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