Episode #129 “Understanding Risk Tolerance: A Key to Financial Health”

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Dr. John Grable | Professor | Researcher | Certified Financial Planner ®

Intro:

In this episode, Dr. John Grable, a professor of financial planning at the University of Georgia, discusses the importance of understanding our risk tolerance and how it impacts our overall financial health. He shares personal stories that illustrate the profound effects that personal finances can have on people’s lives and stresses that we all need to care about personal finances, from an individual, policy, and systems level. John’s research lab focuses on better assessing our true risk tolerances, including our behavioural loss tolerance, to align them with our financial aspirations. He advocates for more evidence-based research in the financial planning field and emphasizes the emotions behind risk that impact our perceived risk tolerance. John also discusses the Disappointment Dilemma (which suggests lowering our expectations might be beneficial – if you can believe it) and how we can use this knowledge to manage our financial goals more effectively.

Why You Should Listen:

This episode provides valuable insights into the importance of risk tolerance in financial decision-making, including the emotional and psychological factors that influence it. Listeners will also gain an understanding of the Disappointment Dilemma and its implications for financial goals, as well as the need for evidence-based research in the financial planning field. Furthermore, this episode explores the wider impact of personal finances on individuals, policies, and systems.

Highlights:

– Understanding the hidden emotions, such as fear, that influence our perception of risk tolerance

– The impact of personal finances on people’s lives and the need to care about financial health on the individual, policy, and system levels

– The importance of understanding risk tolerance and behavioural loss assessment to align financial aspirations and real risk tolerance

– The need to understand “risk profile” instead of just risk tolerance and the limited role of money ratios in financial discussions

– The Disappointment Dilemma: John shares how disappointment can impact our financial goals and how understanding this phenomenon can help us better manage our expectations and achieve our financial objectives.

– Psycho-physiology measures: John emphasizes the importance of considering the psychological and physiological responses people experience when dealing with money, and how this knowledge can help people make better financial decisions.

LINKS:

John’s Lab: CLICK HERE