Digging Deeper: Aligning Your Financial Life to Your Values

Mar 12, 2018
Investing, Ethics, Current Events, Research

Teaching personal finance at a (very) liberal arts institution lead me to include discussions of socially responsible investing in my curriculum, tempering student activism with some realism. The title of a recent Forbes article: Social Investing: The Good, the Bad, and the Ugly kindled my interest in tackling the subject once again. The tragic experience in Florida and the massive teen response to it makes me think it may be a good time to help our students work through positive ways to channel their political leanings.

Background Data

Data confirm that Socially Responsible Investing is popular.  There are hundreds of mutual funds to choose from if you don’t want to find individual stocks that match your values.  And while financial theory purists may argue that these funds may be lacking in the diversification department, their recent returns are comparable to broader funds.  From Investment News:

  • The latest data from US SIF, The Forum for Sustainable and Responsible Investment, show that at the end of 2016, $8.72 trillion in assets in the United States qualified as social and impact investing. That total is up from less than $7 trillion at the end of 2014 and roughly $4 trillion at the end of 2012.
  • Lipper, which defines the category as socially responsible investments, counts 535 SRI mutual funds and 28,813 non-SRI funds.
  • As to competitive returns, this year through Jan. 25, the SRI equity funds averaged a 7.73% gain, compared to a 6.64% gain for non-SRI equity funds.
  • Last year, the SRI and non-SRI equity groups were a virtual tie, at roughly 21.7%. And in 2016, SRI funds averaged 8.81%, while non-SRI funds averaged 9.59%.

Defining Socially Responsible Investing

Socially responsible investing means different things to every investor.  An investor’s definition will be closely aligned to his or her values. Therefore, as an investor, you will want to take a closer look at the stocks in any given mutual fund to see if it fits your definition.  

In the early days of social impact investing, it was usually a matter of excluding certain industries, like tobacco, firearms, or alcohol.  Now investors might want to invest in funds with a focus on clean energy and companies with a positive environmental impact, or they may want to focus on a company’s policies or the diversity of its employees, management and board.  Investors are demanding options.

Beyond Investing

We cannot overlook the impact we have on business with the dollars we spend, versus the dollars we invest.  If we are serious about putting our money where our mouths (and beliefs) are, we should do more research on the companies we do business with.   Using your purchasing power can be an effective catalyst for change at the target company, because the revenue hit is immediate and direct. Some questions that might be asked about how a company’s business practices align with one’s values include:

  • Do you know how employees are treated or how the food is sourced at your favorite fast-food restaurant?  
  • Do you know where your clothes are manufactured and what the employment conditions are in those factories?
  • How does the company support local communities where it does business?

I have had to explain to students that, in most instances, selling stock (or demanding an institution divest of the stock) of a company you do not support is NOT likely to hurt the company you are targeting as your shares will be sold to another investor, perhaps at a loss.  And if there is a sell-off that is big enough to damage the company in any way, the stock price drop from the sell-off is likely to have a large negative impact on you or the institution.

Alternative Views

The WSJ runs a column occasionally where wealth managers are invited to write on a topic of interest to other investment professionals.  Kristin Hull wrote a piece contrasting her fund strategy with that of her father and concluded that her father’s generation had a difficult time accepting that this more focused investing is a good thing.  The older generation holds to traditional views of diversification. The younger generation believes that companies that are doing the “right things” today because they are concerned about the future will in fact be more successful in the long run.

The Forbes article brought up another interesting scenario.  Perhaps it is too hard to differentiate and avoid investments in large multinational corporations where 95% of their business is acceptable to you, or broad-based investment funds that include some companies you would rather avoid.  Perhaps it is riskier to invest in a smaller pool. What if, instead of divesting and realigning your investments, you take your proceeds from your not-quite SRI investments and contribute them directly to the causes you champion? Could this be a more effective way for you to financially impact the future?  Hmmmm.

Activity Idea so students can apply this concept to their own lives  

Whether we consider spending money or investing money, truly understanding all of the activities of a company might take some effort.  What if we had our students figure out which companies get most of their spending money and dig deeper into those companies’ policies, practices and investments? Are the companies’ values in line with their own?  If not, what are their alternatives? It could make for some interesting class discussions.


Here's how one teacher, Elizabeth Justema (Bend, Oregon), teaches money values in her class. 

About the Author

Beth Tallman

Beth Tallman entered the working world armed with an M.B.A. in finance and thoroughly enjoyed her first career working in manufacturing and telecommunications, including a stint overseas. She took advantage of an involuntary separation to try teaching high school math, something she had always dreamed of doing. When fate stepped in once again, Beth jumped on the opportunity to combine her passion for numbers, money, and education to develop curriculum and teach personal finance at Oberlin College. Beth now spends her time writing on personal finance and financial education, conducting student workshops, and developing finance curricula and educational content. She is also the Treasurer of Ohio Jump$tart Coalition for Personal Financial Literacy.