Dental Practice & Financial Planning Practice Analogy #3: Cognitive Dissonance

Dental Practice & Financial Planning Practice Analogy #3: Cognitive Dissonance

Dear reader of this blog post – you have made it to the third and final installment of my analogies between dentistry and financial planning; congrats! You may be sad to find out that this mini-series of sorts is in its final stanza. But there is a reason to rejoice: you haven’t gotten to the content yet. Let’s dive in.

Both dentists and financial planners struggle with cognitive dissonance, a key concept in behavioral finance. Cognitive dissonance describes when newfound information contradicts a client or patient’s preexisting understanding and therefore someone only registers information that affirms the status quo. For example, if a patient has had solid oral health over the years (no cavities, gum disease, etc.) but continues to avoid flossing even though their hygienist and dentist have repeatedly encouraged regular flossing. The patient has already made up their mind that brushing alone will lead to sound oral health. Even with the “new” information that the hygienist or dentist has provided (flossing decreases the risk of gum disease), the patient has already come to the conclusion: brushing daily = oral health. Although brushing is critical, it alone may not set the patient up for optimal success. Patient education is a must, but is may not affect behavior. Dental practices can be an accountability partner for the patient by sending an email or text as a reminder to floss. An interactive message could be as simple as “Have you been flossing daily since your appointment with Dr. Smith?”. If the patient responds ‘yes’, have some sort of incentive or reward for them. If ‘no’, encourage them to start and include a quick reminder why it is in their best interest. Automate these interactions!

What about an example of cognitive dissonance with respect to finances or investments? Historically, financial theories assume that investors behave rationally (spoiler alert: they don’t!). And cognitive dissonance is one way that this happens.  For instance, a client owns Sears stock because it performed so well in decades past; however, Sears has become too large of a part of the client’s portfolio and exposes him to significant single company risk and this would place his future plans at risk.  The advisor suggests that he diversify his portfolio, but the client refuses.  Suddenly, “new” information comes out that Sears is going to declare bankruptcy. The investor’s portfolio declines precipitously and “work optional” lifestyle goals are pushed back for several years. Financial planners are capable of preventing this problem in the first place. Through a combination of a thorough risk analysis of a client’s portfolio, client education during their review meetings, and monthly rebalances of their portfolio, this scenario could be mitigated. However, many investors out there do not have or follow a financial plan and could very well find themselves in a similar situation as the Sears example.

Thanks for reading my three posts on dental practice and financial planning analogies. When it comes to dentistry and finances –  proactive planning, incremental changes, and utilizing what we know about human behavior can lead to impressive outcomes. Please feel free to send me a note or comment on any of the material discussed. 

Mitch DeWitt

Preventative Automation

Preventative Automation

To whomever is reading this blog post: Welcome back! I am assuming that you have already read my first blog post on dental practice / financial planning practice analogies and were so consumed by the content that you came back for more. This installment discusses the value of preventative care in both dentistry and financial planning.  

Dentists and their hygienists’ greatest value is often the preventive care that they provide. Through the fundamental schedule of cleanings and monitoring of tooth decay, plaque buildup, and gum health, they often can assess and correct problematic health situations before they grow into something far more catastrophic. Often times the diagnosis of a decline of gum or tooth health is a precursor to more grave health issues that may not be seen by a doctor or the medical professional until far later. There are over 2 million Emergency Room visits due to dental pain in the US (annually), most of which are preventable dental issues such as tooth decay. Hence why it is critical for dentists to track the percentage of patients that accept and follow through on recommended treatments. Furthermore, from a financial perspective, why tracking the dollar value of treatment recommended vs. the dollar value invoiced vs. the dollar value collected. Not every patient follows through on a recommended treatment!

I see a similar phenomenon in financial planning. Most of the people that I work with place an emphasis on advice– that’s why they hired me. However, there have been times in my career where I make a recommendation to a client (which I believe to be in their best interest) and the recommendation never gets deployed. Advice not taken can have lasting impact whether it is in the form of a patient’s long term health or a client’s long term financial health. Establishing a sound foundation with regular reviews is critical for our clients’ financial lives. Implementing a financial plan and having it monitored will help avoid catastrophic outcomes down the road (e.g. running out of money). For financial planners, systems should automatically flag them for semi-annual / annual reviews with clients (at a minimum), 401(k) or 529 rebalancing, etc. These systems are in place to back the underlying belief that having a cadence will encourage positive client outcomes. On the investor side, one of the simplest yet most effective ways to save is utilizing the “pay yourself first” concept. This means automating savings towards the most appropriate and potentially tax advantageous vehicle possible. When a contribution to an IRA is automated, it takes the temptation away to spend that money.

Mitch DeWitt

“Nudging” Your Practice Forward

“Nudging” Your Practice Forward

After working with and having conversations with several dentists over the last few years I have realized that there are many parallels between running a dental practice and running a financial planning practice. Many of these parallels have to do with behavioral finance. The first similarity between the two are that dentists and financial planners rely on “nudges” to help impact positive behavior of their patients and clients. A “nudge” is a concept borrowed from behavioral economics that essentially means building structures in such a way as to encourage the proper outcomes.

Most dental offices have already developed some sort of basic system to pre-schedule the next (usually) six-month appointment for a cleaning. A reminder card – or for the more technologically proficient – a calendar invite or text acknowledgment is provided. An email, text, or direct mail is generated sometime before the appointment to assure that they patient actually shows up, but still – a number of patients will no-show, cancel, or somehow avoid the next follow up visit.

There are ways to create momentum for the patient and improve on this number.  For instance, simply adding a small personalized story or meaningful statistic to each notification around the appointment scheduling and reminder process will nudge them in the right direction. It is important to note that these MUST be personalized to the demographics of the patient. A 55-year-old man will not find meaning in a statistic around millennials, nor will a busy new mother be inclined to keep her appointment by telling her a story about senior gum health.

An example of a nudge in financial planning is notifications and messaging around increasing a client’s savings rate. This could be a reminder to increase 401(k) contributions or to max out an IRA contribution. For example, “at your age and with the amount of time until your retirement goal, increasing your 401(k) contribution by 1% could be worth an extra $200,000 by the time you are age 67”. The more specific and relevant, the more impactful.

Whether you run a dental practice or a financial planning practice, implementing and personalizing these “nudges” can help encourage positive behavior for patients and clients whether is is oral health, overall health, or financial health. Stay tuned for a future blog post with another analogy between dental practices and financial planning practices!

Mitch DeWitt