Truth, Lies, and Financial Decisions

It’s a bold claim, but stick with me: Humans are liars.

Not just some of us, but all of us. At some point, in some way, everyone bends the truth.

It’s not a personality flaw; it’s a wiring flaw. We’re socially conditioned to massage the truth to fit in, avoid judgment, and keep things running smoothly. We’ve all done it.

Take, for example, a visit to the doctor. For most of us, it’s not an anxiety-inducing event because it’s predictable. You know the drill: answer some questions, step on a scale, and maybe get a quick lecture about healthier habits. But then there’s that question—one that almost everyone fudges a bit:

“How many drinks do you have per week, on average?”

It doesn’t matter if you have a glass of wine with dinner or someone who occasionally gets carried away with friends—most people offer a safe, comfortable answer like, “3 to 5 drinks per week.” It’s close enough to reality but sanitized for minimal judgment.

The number might’ve been a bit higher in my younger, pre-kid days. But like most people, I’d stick to the socially acceptable range. Why? Because no one wants to be labeled in a way that could lead to judgment. It’s human nature.

This behavior is driven by what behavioral scientists call social desirability bias. It’s the instinct to answer in a way that aligns with what we believe others find acceptable or respectable. We all want to be seen in a good light, even if it means glossing over the complete truth.

This bias taps into a more profound psychological concept called the looking-glass self. Essentially, we imagine how others see us and the judgments they might pass, and based on these imagined perceptions, we build a version of ourselves that we project back out into the world.

But here’s the kicker: while we’re busy constructing this image, the reality is that people spend very little time analyzing us. Most of us are too preoccupied with our lives to scrutinize others the way we imagine.

In today’s hyper-connected world, social desirability bias is amplified. Whether it’s social media, news outlets, or even casual conversations, we’re constantly absorbing cues about what’s “right” and “wrong,” often without realizing it. These cues shape our perceptions and ultimately influence how we respond in situations where the truth might not be flattering.

For instance, when that doctor asks about alcohol consumption, our minds immediately associate heavy drinking with alcoholism. And because we don’t want to be perceived as alcoholics, we answer in a way that feels socially acceptable—like “3 to 5 drinks per week”—even if it’s not the whole truth.

So, what does all this have to do with wealth management?

Well, just like at the doctor’s office, when clients sit down with us, they aren’t always forthcoming with the whole story, especially around topics that could carry judgment—like their spending habits, debt, or financial literacy. Money remains a profoundly taboo subject.

• 63% of people don’t talk about money with family.
• 75% don’t talk about money with friends.
• 46% don’t even discuss money with their spouse or partner.

These are staggering numbers, but they point to a critical reality: most people avoid conversations that could confirm their undesirable financial realities. They might know they’re not as financially savvy as they’d like, but facing that truth head-on is uncomfortable. So, they dodge it or offer polished versions of the truth.

This creates a unique challenge for wealth managers. We can only work with the information clients give us, and when that information is incomplete or selectively presented, it’s hard to give the best advice.

I had a client who perfectly illustrated this. They were wonderful people—kind, family-oriented, and community-minded. After a significant payout from a startup they worked at, they found themselves sitting on nearly $1.5 million after taxes. On paper, they were set for life, especially with young kids and manageable expenses.

But over the years, there was a constant demand for more cash. It was something new every month—overspending blamed on the kids’ growing needs, rising grocery bills, or more extracurricular activities. The story was always the same: this is just temporary.

Then came the desire for a bigger house and a pool because the kids need more space, and the pool will add value. The rationalizations continued, even as their financial picture became increasingly strained.

When the kids eventually went off to college, their spending didn’t slow down as they once assured me it would. In fact, the requests continued because “life happens,” and the temporary nature of their financial strain became more permanent.

It wasn’t about them being bad with money—they were rationalizing their choices to protect their image as financially responsible people. This is a classic case of cognitive dissonance, where there’s a conflict between their belief (“We’re responsible with money”) and their reality (constant overspending).

This is where understanding human behavior becomes crucial in our industry.

It’s easy to assume that clients are fully honest with us because money is important, and they’ve hired us to help them manage it. But that assumption ignores the complex dynamics at play in these conversations.

Researchers in behavioral science have long recognized these biases and have developed strategies to gather more accurate information. Two of the most effective techniques are indirect questioning and face-saving response options.

Indirect questioning allows clients to reveal their beliefs without feeling directly exposed. For example, instead of asking, “Do you ever drive after drinking?” you might ask, “How common do you think it is for people to drive after drinking?” This method helps clients share their perspectives without feeling personally implicated.

Face-saving response options work by framing questions and answers in a way that acknowledges the difficulty of certain behaviors. Instead of asking, “How often do you exercise?”—which might lead to inflated answers—you could ask, “Many people find it challenging to exercise regularly. Which of these best describes your situation?” Then, provide answer options like “I exercise regularly as recommended” or “I try to exercise when I can, but it’s not always easy.” This softer approach encourages honesty by reducing the pressure to provide an idealized answer.

Both techniques can be useful in our field, helping us understand whether a client’s responses are influenced by social desirability or genuinely reflect their situation.

One interesting tool that could be adapted for our industry is the Marlow-Crowne Social Desirability Scale, a 33-item questionnaire that gauges how much social approval influences someone’s behavior.

Incorporating something like this into our early interactions could give us insight into how much weight we give to the initial information clients provide—and how we might need to adjust our conversations to dig deeper.

As wealth managers, we need to accept that human dynamics are at play in every interaction, especially when it comes to sensitive topics like money. The more we can recognize and account for these dynamics, the better we can serve our clients—not just by managing their portfolios but by understanding the complete picture of their financial lives.

Behavioral science is already making inroads in our field and will only grow in importance.

We’re seeing more firms embrace roles like Chief Behavioral Officer, which signals a shift toward acknowledging that humans are not purely rational beings. Our strategies must reflect this reality to truly succeed in helping clients navigate their financial journeys.

In the end, understanding the quirks of human nature isn’t just a nice-to-have—it’s essential.

Our job is to help people make the best financial decisions possible, even when their instincts might lead them astray. And that requires an approach grounded in both numbers and human behavior.