Do Ethical People Finish Financially First or Last?

It is almost Christmas time and the song “Santa Claus is coming to town” keeps playing over and over.  For me the key lines of this ear-worm are “He knows if you’ve been bad or good so be good for goodness sake.”  The song clearly states doing the right thing leads to more gifts on Christmas day.

I have been puzzling over these lyrics for years and wondered if the lines are true.  Outside of Christmas does being ethical and honest lead a person to riches or poverty?  While the debate has lasted a long time, only recently have actual data been gathered that can answer the question.  My recently published analysis contained results that surprised me; only a few ethical and unethical acts were associated with financial changes.

Background

People often lie, cheat or steal or think about doing these acts in an attempt to get ahead.  Unethical behavior is considered a shortcut for reaching money, power, or fame.  Television is filled with shows such as “Game of Thrones,” “Mad Men” and “Boardwalk Empire” where the main characters have reached financial success using underhanded means.  While these shows are entertaining, they are fiction, and cannot reveal if actually engaging in unethical behavior systematically improves a person’s financial situation.  Conversely, many religions preach the idea that individuals who follow ethical precepts will be richly rewarded.

Previous research did not present a clear finding on the relationship between personal finances and ethics.  Nevertheless, understanding the relationship is important. For example, if financial success leads to less ethical behavior, then society needs more rules and punishment for richer people than for poorer people. However, if the poor are more likely to break ethical standards then more rules and punishment are needed for those who are unsuccessful financially.

However, if causation runs the other way and more ethical behavior leads to financial success, then people have a reason to act ethically, without needing to assume there is a heavenly reward after death or being deterred by threats of punishment on earth. If less ethical behavior leads to financial success, then punishment should not only fit the crime but also the financial status of the guilty.

New Data

So what is the relationship between ethical behaviors and financial outcomes?  My recently published research, entitled “Ethical Behaviors and Wealth: Generation Y’s Experience” in the Journal of Financial Counseling and Planning, (Vol. 28, page 181–195) investigated the relationship between ethics and personal finances based on surveying about 9,000 randomly selected U.S. residents in their 20s and 30s.  These people were asked detailed questions their wealth, which is a person’s assets minus their liabilities, when they were 20, 25, and 30 years old. They were also asked a number of ethical questions that enabled me to create 15 different moral indicators.

Six indicators tracked unethical behaviors: stealing less than $50, stealing $50 or more, ever being arrested, times arrested, believing you are a liar or cheater, and having a parent believe you are a liar or cheater.

Nine indicators track ethical behaviors: donating money, volunteering time, returning extra change to a cashier, giving money or food to the homeless, believing people should help those less fortunate, believing that helping people in trouble is something to do, obeying societal rules, obeying religious rules, and responding honestly to questions.

Findings

What happened when wealth and ethics were looked at together?  Most of the ethical and unethical acts were not associated with any financial changes. Small ethical breaches such as stealing less than $50 or having the interviewer think you were honest appear to have no impact on wealth accumulation.  This suggests small ethical breaches do not have large financial impacts for most people.

There also appears to be no relationship between financial wealth and being honest with a cashier or helping the homeless. This suggests there is no financial penalty for small acts of kindness. If this finding is replicated in other research it removes an excuse for not helping others.

However, ethics and wealth do have a clear relationship in other indicators. Breaking rules, stealing and being arrested were associated with less wealth. Moreover, the older the respondents got the clearer the association between these unethical behaviors and wealth.  Unfortunately, the direction of causation is unknown so it is uncertain if breaking rules causes less wealth or being poor causes people to break rules.

Conclusion

Are ethical people financially rewarded or penalized for their actions?  Some, but not all, ethical or unethical acts are clearly associated with financial changes.

In the 1950s, James Dean appeared in a famous movie called “Rebel without a Cause.”  The rebel may have won the hearts and minds of movie goers throughout the world, but the results of my research suggest Dean’s rebellious character is likely to have paid a large financial penalty for his actions.

Chuck Berry in the 1950s recorded a hit song about a guitar player called “Johnny B. Goode.”  While more research is needed to confirm the findings and prove causation it appears if Johnny can “be good” then his wallet and bank account will also prosper.

So what should you do if you want to be rich?  I would play it safe.  If you want to be wealthy be honest and ethical.  Doing small ethical acts like giving money to the homeless and giving back change to a cashier if they made a mistake will not harm your wealth.  This means doing the right thing will not punish you financially, so what are you waiting for?  Act the way mom and Santa Claus expect you to act, the right way.

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Slightly different versions of this article appeared in print in the Washington Post and in TheConversation.