The Power to Succeed Financially

In business and in life, there are many forms of power. In 1960, psychologists John R. P. French Jr. and Bertram Raven developed a theory and model of social power that is used within businesses and organizations to this day. To what within the realm of personal finance can we apply these forms of leadership and social power?

The five forms originally cited by French and Raven were reward, coercive, legitimate, expert and referent power. Summarized briefly, reward power is based on the perceived ability to receive positive consequences from following a certain pattern of behavior. Positive consequences may include money, pay, promotions, a corner office, awards or titles. Conversely, coercive power arises from expected punishment if you don't perform said activities and could include demotion, ostracism, firing or ridicule. Legitimate power comes from positional authority such as that of being a division manager, bank president or police officer. A common occurrence with this form of power is that subordinates often respond to the position and not the person.

The last two forms of power carry with them the highest level of commitment from those who follow it. Expert power recognizes the distinct knowledge, ability, expertise or skill of another, while referent power is a function of esteem and respect.

Applied to your personal finances, reward power might be the promise of financial independence or lifestyle freedoms you will enjoy if you perform behaviors such as saving money, spending wisely, participating in your 401(k), etc. In contrast, coercive power might manifest itself as a fear of failure, outliving your resources or becoming destitute if you don't.

Legitimate power might be a matter of following the advice of another simply because of his or her title within an organization, such as manager of the tax division. While legitimate power is depersonalized, expert power comes out of respect for the person's recognized skills and abilities. Finally, referent power is your desire to do as or be like another. That is, if you do certain things, you can achieve respect, social approval and charisma as do others associated by reference with following such advice.

It has been said that no one can make you feel fear, freedom or inferiority, without you allowing it, nor can anyone make you do something you don't already in some way want to do. Thus, while each of these forms of power might help explain certain behaviors, perhaps the power you need to succeed financially in your life may be the power over yourself.

Scott Butera is a Financial Consultant with the Honolulu office of Smith Barney and may be reached at 543-0316 or scott.m.butera@smithbarney.com. Smith Barney is a division and service mark of Citigroup Global Markets Inc. Member SIPC.

Do you like what you read? Subscribe to Hawaii Business Magazine »