Applying Positive Psychology to Financial Practice

By Barbara O’Neill, Ph.D., CFP®, AFC® boneill@njaes.rutgers.edu.

A major focus of Personal Finance Managers (PFMs) is helping military families thrive financially and reach financial goals. The field of positive psychology, with its emphasis on utilizing personal strengths and attaining greater happiness in life (a.k.a., flourishing), is strongly aligned with the work of financial educators and counselors. This post will describe the basics of positive psychology, research findings, and practice applications.

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Positive psychology is a branch of psychology that focuses on positive emotions and individual character strengths and behaviors that enable people to live a life of meaning and purpose and achieve their goals. In simple terms, the heart of positive psychology is to “build upon what is strong and right” about people (assets) as a substitute for, or complement to, “fixing what is wrong” (weaknesses and problems).

A key feature of positive psychology is the PERMA framework developed by psychologist Martin Seligman and colleagues.

PERMA is an acronym for five core elements of well-being that help individuals flourish in life:

  • Positive Emotions
    The specifics of what elicits a positive emotion vary among individuals. Examples include spending time with others, being outdoors, attending certain events (e.g., theater and concerts), listening to music, physical activity, and trying new things. Experts generally agree that people who live positively in the present moment are happier than those who focus negatively on past events or the future.
  • Engagement
    Psychologists often describe this element with the word “flow,” which is a mental state of being fully immersed in a personally enjoyable and meaningful activity. Flow activities can be work, volunteering, creative works (e.g., blog posts, works of art) or any activity that produces positive emotions.
  • Relationships
    Research results consistently show that people need other people to achieve personal well-being and happiness. This requires ongoing activities to cultivate and maintain relationships. Ways that people do this include volunteering or traveling together, giving each other gifts, and sharing hobbies.
  • Meaning
    Individuals who spend their time and money on meaningful activities increase their level of happiness. Like other PERMA elements, individual specifics vary and can include helping others, religious services, working, volunteering, donating to charities, creative arts, and self-growth activities.
  • Accomplishment (Achievement)
    Setting goals and taking action to achieve them is another source of happiness and satisfaction. This often involves setting progress benchmarks along the way. Successful goal attainment often results in improved personal abilities and requires discipline, focus, and self-regulation.

How do all of the above relate to financial practice?

Very simply, positive psychology is a lens to apply to interactions with clients. Practitioners can use positive psychology techniques with clients alone or in groups. Exercises developed by Seligman and others can easily be adapted for financial education and counseling. Three examples are:

  1. Signature Strengths: identify the top five strengths and try to use every day
  2. Three Good Things: write three good things that happened daily for seven days and possible reasons why
  3. Gratitude Letter: write a letter to someone to tell them why you are grateful for something that they did or said

If you are wondering if these techniques work, there is empirical evidence. For example, researchers from Texas Tech University found that the Three Good Things intervention elevated respondents’ happiness and financial satisfaction. The following are three ways to incorporate positive psychology into client interactions:

  1. Discuss client spending habits related to PERMA categories. Are spending choices making them happy?
  2. Discuss financial and life decisions that could increase clients’ positive emotions, flow, and meaning.
  3. Use questions and assign tasks that focus clients on positive aspects of their lives (e.g., “I did” lists).

For additional information about applying positive psychology to financial practice, with case study examples, review the Journal of Financial Planning article “From Functioning to Flourishing: Applying Positive Psychology to Financial Planning” by Sarah D. Asebedo and Martin C. Seay.

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