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Motivate With Compliments, Not Cash

Family celebrating at dinner, Is Money a Good Motivator?

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Personal gestures, such as cooking someone a nice meal, are more effective than cash in motivating others.

Most of us probably believe the carrot in front of our nose at work is monetary. But is it really the raise or bonus that gets us out of bed in the morning? It may not be.

According to a new book, Payoff: The Hidden Logic That Shapes our Motivations, by Dan Ariely, money is actually a lousy motivator. Ariely, a professor of psychology and behavioral economics at Duke University, says "adding money to the equation can backfire and make people less driven."

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In his book Ariely cites laboratory research that demonstrated large bonuses actually decreased productivity. The lower productivity was the result of stress and fear of possibly not getting that bonus. But Ariely went beyond the lab to test the real impact on actual bonuses with employees of an Intel plant in Israel.

The findings revealed that bonuses decreased productivity overall. Though bonuses motivated on the day they were paid, productivity declined in subsequent days and more than offset them. In short, productivity was higher overall when no bonus was paid.

The experiment went further in testing other conditions and found a simple compliment from the supervisor was the one thing that most increased productivity. It appears that what truly motivates us are things such as recognition, a sense of accomplishment, meaning, connections with others and a feeling of creation.

A better way

So how do you apply this to motivating your partner, family and friends? You are probably quite aware that leaving a $50 bill for your spouse when he cooks an especially wonderful meal is likely to be confusing at best, or that giving your spouse a $100 bill as a Valentine's Day gift may not make for a wonderful evening.

But even instances where giving money is more appropriate can backfire, such as to our children or grandchildren. The expectation of receiving money, for example, may result in a sense of entitlement and perhaps prove to be demotivating for them to work. I've certainly seen many family situations deteriorate when fighting over money.

In one extreme example, a son was irate at his father when the father stopped paying income taxes on the income on the millions of dollars he had gifted the son.

So the answer to how to motivate lies in Ariely's findings noted earlier that people are more effectively motivated through recognition and a sense of accomplishment. I spoke with Ariely on the subject of motivating children and grandchildren.

Even giving a symbolic gift can motivate. Ariely said he gives a nice pen to each of his PhD students after they successfully defend their dissertations. He'll also get key faculty members to sign the dissertation using that pen and give it to the graduates during a ceremony. Ariely told me he knows his students might not actually use the pen and instead leave it on their desks as a reminder of their hard work.

What this means to you

Put the checkbook away. Recognize the efforts your spouse, children and grandchildren are making. Do something to celebrate those efforts, whether it's a nice trip, dinner or symbolic gift. Your acknowledgment will give them a sense of accomplishment, irrespective of how successful the outcome was, and improve your connection with them.

Allan Roth is the founder of Wealth Logic, an hourly based financial planning firm in Colorado Springs, Colo. He has taught investing and finance at universities and written for Money magazine, the Wall Street Journal and others. His contributions aren't meant to convey specific investment advice.

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