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Can Maslow’s Hierarchy Help Investors?

HI4-11-14Can a core theory of psychology help investors find success? Turns out it can. Psychologist Abraham Maslow’s hierarchy of human needs describes the stages of basic human motivation, with insight for investors hoping to build wealth with income property.

Maslow published his groundbreaking work in 1943, and it’s been used in all kinds of settings to provide insights into human behavior and why people make the decisions they make. Here’s how it works: Maslow divided the “needs” that drive people into categories, from the most essential, physical elements to more abstract, emotional or spiritual ones. According to this theory, people have to satisfy those basic needs first before moving up the pyramid to meet the less immediate ones.

At the most fundamental level are essential needs of the body like food, water and sleep. Next come needs of safety and security, such as a safe place to live, employment and health. After those needs are met, an individual can turn to satisfying needs of love and belonging, such as friendship and romance. And once those are taken care of, people can strive for esteem (achievement, respect, confidence). Finally, at the top of the pyramid, comes self-actualization, when an individual is able to focus on spirituality, creativity and contributing to others.

What’s important is that these basic human needs are sequential. If your main worry is getting enough food to eat or finding a secure job, you probably won’t be too worried about winning an achievement award or helping the planet. But if you have a stable home and income, with the respect and love of family and friends, you can devote more of your time to volunteer work or art lessons.

The hierarchy helps explain motivations in the housing marketplace, and can provide a framework for getting priorities straight. As Jason Hartman says everybody needs a place to live. And for income property investors, housing falls for most people into the second level of Maslow’s hierarchy: security and safety – a pretty fundamental one that most everyone needs to satisfy in one way or another.

It’s what contributes to demand for housing in some areas and not in others, and why some neighborhoods just don’t attract renters. Housing can be other things too – big flashy properties are probably meeting an “esteem” need more than one of safety and security. And recognizing those distinctions can be useful for investors as well.

Maslow’s paradigm isn’t perfect, and it’s by necessity very general. But for everybody involved in income property investing – buyers, sellers and renters alike – that hierarchy can be a handy tool for explaining – and targeting – decisions about housing, that basic human need. (Top image:Flickr/betterbiz)

Read more from Heroic Investing:

Tax ID Theft Puts Taxpayers At Risk

Can Housing Crash Again?

The Heroic Investing Team

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