“The Knowing-Doing Gap”
By Dr. Gerald House
The “knowing-doing gap” is well known among psychologists and easily recognized by all of us. Of course, the disease of knowing and not doing is more common. In my last book, I briefly hinted at how behavioral economics affects stock market pricing and creates financial anomalies. These anomalies wreak havoc on the “efficient market theory.” However, behavioral finance, a relatively new market term in financial services but not a new concept, can also play a significant role in determining our investing and planning personalities.
To know and not do is really not to know. Stephen Covey
If we know, why do we lack the doing? Dr. Daniel Crosby, in his new book “The Soul of Wealth, 50 Reflections on Money and Meaning”, tells us we struggle because the what is easy but the how is hard. Dr. Crosby believes we concentrate too much on the what as if that will solve the mystery of the why. According to Crosby, we must change our behavior to solve the why—not a simple task. We can always come up with excuses of why the “why” is not getting done. Personally, I have mastered the art of why excuses.
The hardest part of my financial service business is getting clients to do what they know they should do. For example, paying off debt. We all struggle with this task until we make it a habit. I liken it to a project where I diligently work to get through the tasks until my goal is achieved. My plan is sound until it is not. The Great Saboteur is always lurking out there to put an end to my profitable efforts. Sometimes, all it takes is a desire to have something on my wish list that I convince myself is a need, not a desire. Bam! It happens! The discipline of postponing gratification is shattered in a moment of weakness.
Some advisory firms incorporate behavioral finance professionals into their practice. Smaller firms are finding it advantageous to add “fractional financial behavior officers” (FBO) to their third-party providers. These fractional specialists, like adding fractional Chief Financial Officers (CFOs), are sub-contractors who agree to support one or several financial service firms—mostly Registered Investment Advisors (RIAs). Are these new FBOs assuming the role of the firm’s primary communication and training consultant? The idea is to have FBOs coach the advisors to help them improve their communication skills and better understand the client/advisor relationship.
The movement to gain a beneficial understanding of the client’s behavioral motivation began several years ago with the holistic planning phenomenon and morphed into financial life planning championed by the Kinder Institute of Life Planning and George Kinder, the father of Life Planning. Kinder’s first book, “The Seven Stages of Money Maturity,” highlights the investor's relationship with money. His second book, “Lighting the Torch, the Kinder Method of Life Planning,” is designed for financial planners and advisors and teaches how to integrate a financial life plan into our client’s relationship with money by incorporating our client’s goals, values, and dreams into a comprehensive, holistic financial life plan.
Another movement, one that we promote and adopt, is grounded in the Bible. As Christians, we seek the kingdom of God and His ways before our own. By integrating biblical values into our financial decisions, we not only set ourselves up for financial success but also discover how to become trusted stewards of God’s resources. This is an authentic example of having faith followed by works.
The Apostle James in the New Testament warns us about having faith without deeds. When we give in to selfish desires, we set ourselves up for failure. How does James’s advice serve us in our personal financial affairs? Perhaps we are chasing the wrong ball. We should help and serve others instead of always pursuing our selfish desires. Placing more emphasis on our own needs instead of the needs of others is a counterproductive activity.
What does it profit, my brethren, if someone says he has faith but does not have works? Can faith save him? (James, 2:14, NKJVT)
If we believe that our individual efforts can create success for us, we have left God out of the equation, and failure is inevitable. In contrast, praying for wisdom in all our endeavors will ultimately result in success. If anything is worth doing, we must get God involved as our supreme counselor to guide us not only in the hearing but also in the doing to receive His blessings. God’s word will strengthen us to resist the temptations of our selfish desires. Remember Jesus’s message recited by Mathew, the apostle.
“Therefore do not worry, saying, ‘What shall we eat?’ or ‘What shall we drink?’ or ‘What shall we wear?’ For after all these things the Gentiles seek. For your heavenly Father knows that you need all these things. But seek first the kingdom of God and His righteousness, and all these things shall be added to you. Therefore do not worry about tomorrow, for tomorrow will worry about its own things. Sufficient for the day is its own trouble. (Mathew 6:31-34, NKJV)
The “Knowing-Doing Gap” is real. However, if we have the proper motivation to complete the task and the appropriate prioritization, we can raise our production, thereby increasing the “doing gap.”
Your servant
References
Covey, S. R. (2020). The 7 Habits of Highly Effective People: Revised and updated; Powerful lessons in personal change. Simon and Schuster.
Kinder, G. (1999). The seven stages of money maturity: Cultivating ease and freedom in your relationship to money. Delacorte Press.
Kinder, G., & Galvan, S. E. (2006). Lighting the torch: The kinder method of life planning. FPA Press.
The Holy Bible: NKJV New King James Version. (2016). Nashville, Tennessee: Holman Bible.
