What if the secret to financial success was less about numbers and more about your mindset? And what if achieving a balance between long-term family financial planning and short-term financial management could be easier than you think? In this third episode of the  Beyond Budgets® podcast, we welcome the remarkable Dr. Sarah Stanley-Fallaw, a personality psychometrics expert and co-author of the intriguing book The Next Millionaire Next Door. 

Dr. Fallaw uses her expertise to shatter some common misconceptions about wealth. This is no ordinary financial podcast episode; it's a thought-provoking journey into the complex world of financial psychology. Tune in, and let's challenge the way you think about money.

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Full transcript

Deb Meyer (00:01.314)

Hello and welcome to episode three of the Beyond Budgets® podcast. I'm beyond excited to introduce today's guest, Dr. Sarah Stanley Fallaw. Sarah is the author of The Next Millionaire Next Door, founder and president of Data Points, and she continues the research of the Affluent Market Institute. Her areas of expertise include personality, psychometrics, survey design, and financial psychology. If you're not familiar with Dr. Fallaw, you may be familiar with the work of her late father, Dr. Thomas Stanley, who was America's foremost expert on the affluent and author of The Millionaire Next Door. Let's jump in.

So Sarah, many Americans believe that income equals wealth … that if you have a high income like a doctor or a lawyer, you're automatically going to be wealthy. And they believe the converse, right? If you're a teacher or a police officer (some of these five-figure positions typically), that building wealth is far out of reach. Do you find that true, and why or why not?

Sarah Fallaw (01:05.184)

Yeah, I think that we, because we're so influenced by what we see out there in the world … consumerism, media, social media, whatever it might be, that myth still continues, but it is a myth. There can be, and certainly, like you mentioned, my father found that in his research of self-made, affluent Americans, and we continue to see that there are individuals who have a modest income but can accumulate wealth.

And that's from simple yet challenging behaviors like saving more than you spend and making sure you're not spending beyond your means. So it is absolutely the case that we get confused, especially for example, if we're coming out of college or grad school for the first time, we've got maybe a nice income to start off with for the first time in our lives.

And all of a sudden we feel like we're wealthy. But in reality, all we have is sort of this, if you will, kind of fire hose that's coming in. And if we spend it all, we're not wealthy. And I think that it's hard to get our heads around that as humans if you will. And so I think that a lot of the financial psychology world is finally kind of tuning into that, too.

Deb Meyer (02:09.678)

Mm-hmm. Yeah, that's good insight. And I even think back to, you know, when you and I first met, this was at the XY Planning Network Conference back in, I guess it was fall of 2016, many years ago. And at the time, I had just, well, actually, I just received approval for WorthyNest, the registered investment advisory firm that I have. And I think you were relatively new as the founder of DataPoints, right?

Sarah Fallaw (02:35.752)

Long time ago. Yeah, yeah.

Absolutely. We had just started. That was our launch. It was at XYPN in 2016. Yep. Exactly.

Deb Meyer (02:56.618)

Okay. Yeah, so it was a serendipitous moment there when we both crossed paths having these new companies. I'd love to hear more about your story prior to DataPoints. I know you got your PhD early on in early 2000s. Can you take us a little bit more through your journey and career pathway?

Sarah Fallaw (03:14.9)

Yeah, so I started off in the psychology world but focused on industrial psychology. So that was what I went to grad school for. It was called applied psychology back then at our university and really focused on personnel selection with an emphasis in psychometrics. That sounds super boring, but basically it was a focus on scientific hiring and development of individuals within the workplace. And so, yeah, you know, it was kind of like the fun business-y side of psychology, right? There's clinical psychology and that whole therapeutic world. And then there's the very applied psychologists that work in the workplace. But, at the same time, I had obviously this background with my father and the family business, so to speak, of survey research and, you know, doing what...

Deb Meyer (03:48.706)

Mm-hmm.

Sarah Fallaw (04:10.732)

broad studies for financial institutions and things like that, that I had been a part of here and there as growing up, but certainly later in college and in grad school as well. So I worked for a financial or rather a HR tech company here in Atlanta where I am, right out of grad school, saw kind of it being bought and sold. Seeing that kind of process made me realize that I could do that myself.

And so using a lot of the data and kind of science behind what my father had begun created DataPoints, which again, uses this idea of psychometrics and measurement to understand a client's propensity to build wealth … their risk tolerance, their attitudes and things like that. So that was kind of my journey. And so, like you, I own my own business and run that and with all of the warts that go along with it, but it certainly has been a long journey.

Deb Meyer (05:08.162)

Yeah, well, it's been a great journey! I've been one of the early adopters of the software and really enjoy using it in my practice with clients, even sometimes prospective clients, just to get a better sense of where their money attitudes and perspectives are before we really dive deep into some of their finances, right?

Sarah Fallaw (05:28.808)

Mm-hmm. Yeah, and I think that's where we see, especially folks that come from a finance background or a financial planning background, up until the point where the CFP Board made financial psychology or the psychology of financial planning part of its curriculum, they didn't have a whole lot of background in that. And so we sort of bridged the gap between, hey, I'm great at financial planning, but I'd love to learn a little bit more about my clients before that first meeting, like you're saying.

Deb Meyer (05:56.942)

Thank you.

Sarah Fallaw (05:57.224)

So that you don't assume that everyone loves budgeting and that they're super excited about talking about cashflow because they're not, you know, and some of them come in with past experiences that make them very, you know, upset or concerned about talking about money. And so to know that in advance of a conversation is really, I think, where, again, kind of where we fit and why advisors use us.

Deb Meyer (06:21.398)

Mm hmm. Well, and for the clients, just having that awareness that it is a potential stumbling block. I'm going to do a whole other episode on money personalities for spouses because I use that a lot in the practice. Many spouses have different money personalities and, you know, some are stronger in some areas and others have their strengths in opposite areas, right? But I think the important part, no matter what, is just creating that awareness and then making the decision to forge a new path. So, I mean, your software in particular actually helps monitor that change over time, right?

Sarah Fallaw (06:58.516)

Mm-hmm. Yeah. And again, most of us have personalities that are pretty stable. Things don't change too much. You know, some things can …you can always think of the older person in your family that got nicer as he or she got older, whatever it might be. But generally, personality is pretty stable. But if you're working with a coach or a financial planner or someone that is encouraging you or guiding you to take on

Sarah Fallaw (07:25.512)

a different attitude or a different way of managing your financial life, that can lead to some change. And so, like you said, we're hopeful that the way that, again, all financial psychology tools, if you will, are being utilized is to help people have a different mindset, because that's what drives whether or not you're going to be successful in terms of finances.

Deb Meyer (07:49.21)

Mm-hmm. Yes, I'm glad you touched on that with the mindset. That's something I harp on quite a bit. I mentioned it in the first episode just talking about how you really have to have that abundance mentality and not see it as this scarcity kind of fear-based behavior all the time. And for a lot of people that grew up in a traumatic situation, that's really hard to move past. There are financial therapists that can assist. I'm not a financial therapist, but there are financial therapists out there that can assist with deeper problems as it relates to money. And some of what you carry in from childhood into your adult life. But it's definitely an important area to emphasize and know that for certain things, if you have that awareness and you want to make changes, you can.

I saw it in one of my early clients when we first evaluated her on budgeting; she hated the idea of budgets. And then a year into our relationship, she actually retook the assessment and was strong on budgeting where she was, “yeah, I see the purpose behind it and I understand why we're doing it.” It's not just this evil thing to avoid. It's something that helps guide the spending decisions we're making on a day-to-day basis.

Sarah Fallaw (09:04.372)

Yeah, and I think for a client like that, again, thinking about or using kind of, again, whether it's a survey or a test or whatever it might be, questionnaire as a starting point for that self-awareness, but then the follow-up of going through and learning more about why was it that they really didn't like budgeting at first? And maybe it was, like you said, an experience growing up or something like that where...

they saw budgeting as a negative. Maybe it was a parent or a caregiver that was really focused on budgeting, but also just negative in terms of their experience growing up with them. So yeah, that's where, like you said, financial therapy can come into play. And I think the Financial Therapy Association does a good job of making that awareness for folks to realize that there are different ways to get past some of those challenges.

Deb Meyer (09:57.17)

Mm-hmm. So let's dive back into the book for a minute. The Next Millionaire Next Door talked about six wealth building behaviors. What we have listed is confidence, frugality, responsibility, social indifference, focus, and planning. Could you touch on two or three of those behaviors and just go into a little bit more detail about what they entail so listeners can really look if they're perhaps weak in some of these areas to improve their abilities there?

Sarah Fallaw (10:30.06)

Yeah, absolutely. We'll start with maybe the boring one. I don't know if it's boring or not, but the planning and monitoring one, right? So the focus on setting long-term plans, but also having a short-term perspective of really knowing what's going on with your finances. I mean, and I come by this honestly, so I can say it, that that's not something I'm great at, right?

Sarah Fallaw (10:58.304)

Particularly related to finances, is monitoring what's happening on a day-to-day basis. The reason, of course, that that's important is because you wanna be able to spot things that are trending outside of the plan that you have, right? That they're not aligning with the journey that you're on. But then also you have to have this long-term mentality to say, you know, I'm headed in this longer, you know, this direction, but I'm monitoring on a day-to-day basis what's happening. And so that is, yeah, that's one of the factors that predicts net worth, it predicts a lot of financial outcomes, but in particular, success as defined by net worth. And that's one that certainly can be coached, and we can improve on over time. But there's also tons of technologies that are out there that can help with that, too. And so I think, you know, kind of a blend of, “Hey, I'm gonna make maybe a little more effort to plan and kind of watch what's happening across accounts or across my, you know, my plan. But also, you know, with some coaching too can be helped in that way.”

Deb Meyer (11:58.998)

Are there any go-to tools you have for people that are trying to do it on their own as they're realizing “hey, I do need to be thinking more about the monitoring aspect of it?”. Anything you recommend?

Sarah Fallaw (12:08.712)

Yeah, you know, because we work mostly with financial planners, you know, the tools that I can think of are around the financial planning softwares that are out there. But you know, even if you're using something like Asana or a calendar reminder, things like that, that you can set and forget and that they're recurring so that you know, hey, for 15 minutes on Fridays in the morning, I'm going to be doing this, I'm going to check these five accounts or whatever it might be, those can be really helpful. So I don't have a specific software, but those tend to be the ones that we're that we think of and hear about.

Deb Meyer (12:40.142)

That's great. Okay, so planning and monitoring is one. What are some others that you want to touch on?

Sarah Fallaw (12:45.372)

Yeah, so definitely we'll go to the fun one, social indifference. And I say it's fun because I think that most of the folks that we talk to in the media want to focus on it. But it impacts us all day long. And that is being able to ignore what other people are doing when it comes to the way that we spend money. This has been sort of a hallmark of the millionaires next door, that they could ignore the spending decisions of their neighbors or their coworkers or their family members in order to meet their long-term goals. I think about it now, and of course it's much harder to ignore it because it's right there on your phone. If you use social media in any way, you're seeing, again, what your high school friends are buying, you're seeing what your family members are buying. You might not see them every day, but you certainly are aware of it, especially if they're posting it, which that's a whole different story about posting purchases, but we could do another episode on that later. But, you know, our ability to sort of ignore that is a predictor of financial success. So, how do you do that, right? Well, you limit the amount of that information that you see. That's kind of an easy one. But you also have to have a really clear financial plan so that you can kind of go back to that and remember and recall that you have a different plan. Those, you know, your neighbors or your family members, they have a different plan, right? And so it may be that their plan allows them to do certain things from a consumer perspective and yours doesn't right now. Those are hard to remember sometimes, but again, reminders, working with a financial planner, a coach, things like that can be helpful in that regard.

Deb Meyer (14:26.974)

Yeah. Well, I know, at least for us, when we relocated here from Missouri, we came to Southwest Florida. And our community is a pretty close-knit community. It's a newer community, lots of people moving in all the time, but we happened to move right as COVID started. And I just remember, you know, with the stimulus payments coming, starting to see people as soon as they got in the neighborhood buying a golf cart. A lot of people putting pools in and things like that. And I was just thinking, gosh, like, I know we could probably partake in the craze, right? But for us, our kids enjoy swimming maybe once every couple of weeks, and there's a community pool. So, you know, we have that luxury of being able to use the community pool. We don't need one in our own backyard and all the expense associated with it.

Sarah Fallaw (14:55.51)

Right.

Deb Meyer (15:21.898)

Not to say people that have pools, I'm judging you. It's just, that's your goal, what you find enjoyable, right? But yeah, I think that temptation definitely exists, especially in this digital age where you're seeing it more and more in social media. I just watched The Social Dilemma not that long ago and it was eye-opening for me, especially as a parent, just seeing how as an adult you can have all these impressions, right? But then when your kids are on social media, what dangers lurk around the corner from their perspective.

Sarah Fallaw (15:55.626)

Yeah, I think one of the most, I guess, chilling examples of this I saw was when we dropped our oldest daughter off for her freshman year back in August at college. And, you know, again, brands and things like that, I'm a Gen Xer, so it was Guess Jeans and Espirit and Benetton, had to shop at those places. But there were a lot of different places like that, right? Different brands, things like that. I mean, almost, I couldn't find a single, well, again, I'm exaggerating here, but the majority of the young women that were there being dropped off were in the exact same brand, Lululemon, from head to toe. And it was almost as if there was a uniform, it was like a college uniform and, you know, if you didn't get the memo, but the memo was delivered through social media, through Instagram, through Snapchat, whatever it might be.

Deb Meyer (16:42.758)

Mm-hmm.

Sarah Fallaw (16:57.384)

Again, there's nothing wrong with that. We want to fit in. We're social creatures. We want to be part of the tribe. We want to be part of the community. But it was really interesting because I feel like, again, for the first time, everyone had to have sort of the same thing. It was just very, very interesting. And again, as we move into later adulthood and we're managing our own finances, being sort of a part of that big tribe, if you will, of consumers can derail us from our financial goals. And again, going back to this concept of income and wealth, you're not going to be able to build wealth if you are trapped by being a part of that. So it was, but it was really interesting to see, a little scary actually.

Deb Meyer (17:44.218)

Yeah, yeah. On that same line, I mean, I guess I'm curious how you deal with that when it comes to the pressures of, your kids and when they make recommendations as to: “Hey, so and so is getting this. Can I get this?” I find that a lot with my sons. I have a 10-year-old who's asking for an Xbox and a PS5 and a phone. And I'm just like, okay, one electronic at a time. And I don't even know if you're ready yet, for any of them, right? And technically we can afford those purchases. We've saved diligently. We could go out and buy a phone or buy an Xbox. But I keep on reminding him, like, just because everyone else is getting that doesn't mean that's our goal and we need to get it. And I guess any recommendations, for parents who are listening, how you rebuff that a little bit when you are trying to build long-term wealth?

Sarah Fallaw (18:44.736)

Yeah, I certainly wish I had a silver bullet or magic bullet or whatever the phrase is. I always get those phrases mixed up. But I will just say that as a small business owner and someone living in more of an affluent part of Atlanta, it is very hard to talk to your kids about this to help them understand why you're not going to be, you know, buying them a brand new, you know, Tesla for their 16th birthday when people around you might have those kinds of things. But we started early and thankfully, we certainly have this history in our family of studying wealthy people whether or not that means that we have those same tendencies ourselves, you know, isn't always the case but

My husband and I are pretty open about, you know, talking with them and trying to explain to them. They don't always like it. But again, just like building wealth, you have to be willing to say no to some things, especially when your kids are asking. And, I think setting up, for example, really expensive athletic wear … making them pay for those things. Like, hey, we're willing to give you this much for your budget for back-to-school clothes or whatever it might be, but we're not going to be spending on this. You know, those are things you need to pay for with babysitting money or lifeguarding money or whatever it might be. And I think that they may not like us right now because of those decisions, but I think when they're older, they will appreciate them.

Deb Meyer (20:06.062)

Sure. Well, and I know the book touches on that economic output, right? When you have parents that are wealthier and they're always supporting their adult children financially, it can get difficult to break that habit. So when they're young, having some financial skin in the game for the child is really important. So they can build wealth independently down the road as well, right?

Sarah Fallaw (20:34.456)

Mm-hmm. Outpatient care. Yep. I think that whole chapter, so that was back in The Millionaire Next Door, which came out in 1996, where my dad talked about the economic outpatient care that these wealthy individuals were providing to their, certainly their children, but then their adult children, and it just perpetuated. So it's like our lifestyle as an, let's say, an adult child of a very wealthy person has been ratcheted up because, as a 50 year old, let's say my parents are paying for my country club membership or buying us new cars every two years or whatever it might be. Well, you know, that's a lifestyle that is completely dependent on someone else. And so that was kind of the mindset there. I think that the way that we're seeing that from a psychological perspective is often with parents that, again, back to kind of this willingness to say no, they want to make things easy for their kids. We don't wanna see our kids suffer. We don't wanna see them sad. We want to give them the best, but at the same time, by not being able to say no or being overly what we call agreeable, “sure, I'll get you this”. Or back to your example, every electronic on your list will get those kinds of things that can lead to, again, adults that are asking for bigger and bigger toys, so to speak, as they get older.

Deb Meyer (22:19.714)

Hmm.

Sarah Fallaw (22:20.328)

And so if you're, again, you're trying to set your own, you know, you set yourself up for retirement, you've got plans of things you wanna do, well, having an adult child that is completely dependent on you is going to change the trajectory of that retirement plan as well. So it does start early, has to start early so that you're setting up kind of a precedent, if you will.

Deb Meyer (22:43.174)

Yeah, well, I'm glad you brought up both the 1996 book that your father originally published and then your book that was published in 2019. Share a little bit about what you learned or what most surprised you in that, you know, 20-year time span between the original book and in your book.

Sarah Fallaw (23:04.052)

Yeah. What was, I guess, reassuring, I'll put it that way, was that the kind of personality characteristics of people that build wealth were consistent. And so that doesn't make for great like headlines in the media. But I think for all of us that are, you know, trying to be financially responsible and have a plan, it's sort of reassuring that these things are timeless. These things actually work.

You know, if I can become a little more frugal, maybe even just for a season, that can allow me to build wealth, those kinds of things. So that was interesting. From a career perspective and things like that, there were a lot more in tech compared to 1996. I would say there were fewer scrap metal dealers and teachers and things like that we saw in this latest survey. And there are a lot of reasons for that.

And then again, from a housing perspective, the housing costs increased obviously, but it wasn't significant in terms of 1996. They were pretty even. But I would say there were fewer living in really modest homes. So that was a little bit surprising, but not given, I think, the careers that were kind of aligned in the book. So those were some of the things that were a little bit different. But we asked some different questions, too, like around investing mistakes. And so some of that was kind of interesting.

Deb Meyer (24:48.17)

Mm-hmm. Yeah, share a little bit more about that. I mean, I guess I'm curious with any of the new data that you've been analyzing, even through DataPoints, just in these last couple of years, what kind of things are emerging that you're like, “hey, I wanna make sure people know this as they're really trying to make smart financial decisions.”

Sarah Fallaw (25:09.32)

So the investing mistakes I think were interesting. I think that, when we kind of look backwards at some of the decisions we make in life, and again, we were asking specifically about investing, we can kind of see, okay, I can now see that I was trying … I was sort of following the herd, I was doing things because I read about it on Wall Street Journal or saw it on CNBC and things like that.

And I think, again, what was most compelling about looking at the investing mistakes of millionaires was that despite the fact that they made those mistakes, it wasn't like they just jumped out of the market and said, you know, I'm not gonna do this anymore. They learned from those things. And so they continued on, you know, I think about a third of them, you know, rely heavily on a financial planner or investment manager for their investments. And so they kept going with that strategy. Instead of saying, “I'm just going forget about it, I'm gonna do something else.” So I think that was pretty interesting in terms of learning from past mistakes.

Deb Meyer (26:21.494)

Okay, so I'm also curious, because I know you and I have had a few discussions just on the Christian aspect of finances. I'm in a little bit of a study group as you're trying to have this new evaluation come. And for a lot of Christians, we believe God owns it all. So when you think about this dichotomy between building wealth on your personal net worth or financial side of the balance sheet and really being generous with the wealth that you've been given, how do you balance those two concepts … especially as it relates to all of your research data? I can ask the question, because I believe you're a Christian, right?

Sarah Fallaw (27:17.704)

And so it's a good question. Just going back to the project that we're working on together, it's been really eye opening for me to kind of see that play out. So thinking about, how do you balance this very sort of individualistic or household-focused financial goal with being generous and having an attitude that says that we're just a steward of what we've been given?

I think that those things aren't incompatible. I think that you can have a goal for yourself of being financially successful in terms of, again, kind of that number, but also be generous and have a mindset that this isn't really mine, that this is, you know, that what I have and what I've created belongs to God. And I'm able to give that back.

Our assessment, the building wealth test, is based on The Millionaire Next Door, and is agnostic to why you're trying to build wealth. You know, kind of the value statements that would go along with building wealth, because those behaviors are the same. And I think that kind of what you're focusing on there is more...how do I view that wealth once it's built or while it's being built and what will I do with it? So I do think that they can be separated. And, again, depending on, you know, your personal views about stewardship and things like that, that sort of guides what you actually end up doing with that wealth, if that makes sense.

Deb Meyer (29:06.386)

It does. Thank you. I know it was an interesting question and probably one you haven't received before on a podcast. I know many of our listeners are Christians or Catholics, but are trying to figure out what's a good pathway. And just to add on to that, I mean, I do think as you build more financial wealth for your family, you have the ability to be more generous in your giving.

Sarah Fallaw (29:10.664)

Yeah, absolutely.

Deb Meyer (29:32.966)

It's very hard to make substantial charitable gifts when you're always struggling to pay the bills and have lots of debt and it's extremely difficult, but when you're at a point where your earnings are good, you guys are being frugal, you're, you know, saving a good amount, you have that opportunity to not only tithe, but maybe go above and beyond that tithe or tithe on the net worth in addition to the income. There's an idea.

Sarah Fallaw (29:59.5)

Mm-hmm. Right.

Deb Meyer (30:03.25)

So there's a lot of possibilities there. Well, I really appreciate having you on the podcast. Please tell listeners where they can find you and connect with you.

Sarah Fallaw (30:12.936)

Yeah, absolutely. So I would say on LinkedIn is probably the easiest way. So Sarah Fallaw. And also if, you know, if anyone wants to take one of our tests, we have a couple on our website. So if you go to data points.com/personality, you can take our money personality test. Or if you go to data points.com/retirement, you can take our retirement attitudes assessment, which can be really eye-opening if you've never talked about retirement with your spouse or significant other. It might be a good one for both of you to take and have a little conversation about how you view things in retirement.

Deb Meyer (30:50.542)

Great. Well, thank you so much again. This was wonderful. I really appreciate having you.

Sarah Fallaw (30:55.256)

Absolutely, thank you for working with us and thank you for what you're doing.