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Mindfulness meditation might be good for your well-being, but the process of non-judgmentally focusing on the present instead of, say, the future as most long-term investors are encouraged to do, could be bad for your wealth.
Or at least so say the authors of a new research report, Being Present: The Influence of Mindfulness on Financial Decisions.
For one, individuals who practice mindfulness meditation are more likely to spend more now rather than save for later, according to new research on the subject. In fact, they allocate 20% more to near term consumption relative to a control group
And two, they are more disposed to selling their winning stocks, and that by doing so they generate about 4% less wealth relative to the study’s control group.
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“We find that individuals who meditate regularly report shorter financial planning horizons and allocate 9-14% less of their liquid wealth to investment assets,” wrote the authors of the paper, Carina Cuculiza, a professor at Marquette University and William Bazley and Kevin Pisciotta, both professors at the University of Kansas.
And that should give folks who have embraced mindfulness (some 65 million have downloaded mindfulness apps — Headspace and Calm) some pause.
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Self-help therapeutics, the authors wrote, “have negative financial consequences.”
Experts, however, are not convinced. They say the study’s conclusions are contrary to their expectations and other research on the topic. And they take issue with the study’s methodology.
Read on CNBC: Billionaire Ray Dalio credits his success to 40 minutes of meditation per day — here’s how he does it
“I’m actually surprised at these results,” said G. Kevin Spellman, a senior lecturer and director of investment management at the University of Wisconsin-Milwaukee. “I’d expect that meditation could reduce anxiety and therefore increase the influence of the logic part of the brain versus the emotion side and result in better investment decisions.”
Indeed, other research on the topic does suggest that meditation can be beneficial to one’s personal finances.
“There is research with evidence that positive emotions lead to success in a variety of life domains and mindfulness is one of many intervention tools – positive psychology, therapy, and counseling fields for more tools – that can aid in managing emotions that otherwise might hinder productive behaviors,” said Sarah Asebedo, an assistant professor at Texas Tech University, editor of the Journal of Financial Therapy, and co-author of two articles on the subject: Three good things or three good financial things? Applying a positive psychology intervention to the personal finance domain and From Functioning to Flourishing: Applying Positive Psychology to Financial Planning.
Also read Mindfulness in financial literacy.
Not statistically significant
The researchers conducted their experiments on Amazon’s Mechanical Turk (MTurk). “The online platform is being quickly adopted by finance and economics researchers that utilize experimental techniques because it provides efficient access to participants with heterogeneous demographic characteristics,” they wrote. “Moreover, MTurk operates as a double-blind platform and facilitates random assignment of individuals into treatment and control conditions.”
Terry Odean, a finance professor at the University of California, Berkeley, practices Vipassana Meditation for 40 minutes a day and attends a week-long silent retreat about once a year. “So, to me, asking people on mTurk to listen to a five-minute audio recording isn’t precisely mindfulness,” he said. “Relaxation maybe.”
In the study, the researchers induced a state of mindfulness in randomly selected participants by having them engage in a meditation session. The session consisted of a five-minute guided audio recording developed by the University of California Los Angeles (UCLA) Mindful Awareness Research Center.
Individuals who were randomly assigned to the control condition listened to a five-minute mind-wandering recording and then the researchers compared the financial choices of participants who complete the mindfulness induction (i.e., treatment condition) to those of individuals in the control condition to provide causal insights.
And what they found was this: “Individuals who are in a state of mindfulness apply higher discount rates to future cash flows. Based on a quasi-hyperbolic discounting model, the average treated participant is willing to accept $82.87 today instead of $150 in 60 days. The average control participant requires $88.29 to complete the exchange.”
But, Odean said, the discounting effect is not strongly statistically significant. “Personally, I think that for modest sums it is quite reasonable to accept a small payment today and close out the mental account,” he said.
What’s more, Odean said, “it’s quite possible that mindfulness has a different influence on meaningful and trivial choices.”
That’s something the research doesn’t address but does merit further study that might disprove the author’s original conclusions.
For instance, Jason McCarley, a professor at Oregon State University and a contributing author to Client Psychology, credits the authors for putting together a long series of experiments to test their ideas but he’s not fully convinced by the data either. “Findings like this—short interventions causing big effects on human behavior—don’t always hold up well to further research, so I think it’s wise to regard them cautiously,” he said.
Mindfulness beneficial to one’s wealth
In fact, future research might show that mindfulness is beneficial to one’s wealth.
“The idea of applying meditation to financial decisions and encouraging individuals to develop a positive psychology about their finances is very powerful,” said Victor Ricciardi, a visiting finance professor at Washington and Lee University and co-editor of Investor Behavior and Financial Behavior. “Meditation potentially helps avoid the negative emotions and bad mistakes many investors suffer from by creating a healthier relationship about money-related decisions.”
There are certainly hurdles to asking folks to meditate.
“One major obstacle is certain investors and financial professionals might not be comfortable or open to applying techniques such as meditation,” said Ricciardi. “Many individuals with a financially related personality that make decisions on numbers and objective criteria might not be willing to consider the value of mindfulness.”
Ricciardi, for instance, is comfortable using meditation for his personal finance decisions. But does not feel comfortable or qualified to use mindfulness with his students in the behavioral finance course he teaches.
The authors of the research did not respond to requests via email for comments about their study before press time.
So, what’s the takeaway for average investors?
“These are intriguing ideas, but it’s too soon to draw actionable conclusions from them,” said McCarley. “If I were an investor who practices mindfulness, I wouldn’t be too worried about this until more research comes in to confirm the findings.”
