At a financial planners’ conference I attended last week, a dinner conversation turned to the seedy side of the industry. Namely, we were discussing the bad apples who spoil the whole bunch: those who steal their clients’ money. Ask anyone with experience in defending or prosecuting these liars, and almost to a person they will say the culprit “thought” they were acting in their clients’ best interests, or at least started out that way. Criminals such as Al Capone reputedly have said they intended to do what was best for those they had murdered, by putting them out of their misery.
In the financial world, a bad guy or gal typically crosses the line after they get in a bind with a promise or debt they cannot fulfill. They intend to “borrow” client funds, sometimes without telling them, and sometimes by offering an “investment” in a related entity which pays an attractive, but usually not exorbitant, return. They “intend” to pay it back as soon as all the chips fall back in line. But the Peter-robbing to pay Paul has begun, and as complication grows to cover the lies and promises, a Ponzi scheme is born.
Perhaps these headline-grabbers attract our attention because there is something about rationalization that strikes close to home. Maybe we rationalize a behavior that doesn’t hurt anyone but ourselves, or maybe, over time, it is the kind that rocks a relationship to its core. The clients of the criminals often state they thought their best interests were being served. They trusted the words they heard. Delivered with sincerity, they read the right intent into them. Perhaps because what was said was what they wanted to hear, they did not question whether the actions were matching the words.
Maybe we have been on the receiving end of a rationalIzation that sounded good, and chose to ignore that inner voice that told us to second guess. This is its own form of rationalization, too. Both parties want to ride the denial carousel, because getting on or off involves short-term pain or conflict. That foregone pain, though, simply compounds, whether financially, like interest on too much debt, physically, like ill health practices, or emotionally, like small slights leading to anxiety, depression, or anger. The longer we live in deferral and denial, the greater the imminent pain, and the harder it is to stop.
Only those with courage will stop the rationalization before it begins, and stand up to their own consequences. It takes similar courage to call the duplicity on the carpet the moment the inner voice discovers it and whispers in our ear. If you ever find yourself on one end or the other, remember, the degree of pain to call it, and change now, may pale in comparison to the pain you will save yourself later.
Behavior change is a funny thing. We can tell ourselves we want to change, even that we have changed, and yet still continue the same behaviors. It only takes a moment to make a choice that runs counter to our intentions, and then we have regret, or guilt, which doesn’t tend to help us make better choices next time. Because we have good intentions more of the time than we make bad choices, we can delude ourselves into believing we have been “good,” when we really have been quite bad.
For several years I was a member of Weight Watchers, one of the most successful weight loss programs in the world. The key to my progress in the program was the journal. I wrote down everything I ate. Weight Watchers assigned a number of points to food and gave me an appropriate daily points budget for my height. The program emphasizes eating whatever you want, but mostly in smaller portions. If you go over budget one day, it is ok, you can make it up the next day. You just try to stay under the budget a week at a time. Toward the end of some weeks, I would find that I hardly had any points left, eating copious quantities of clear vegetable soup to make it to the end.
Come the first day of the next week, FINALLY, I could indulge a little. It would be ok because I had every intention of doing better. But that wasn’t always the case. I would slip up again. Sometimes at my weekly weigh-in, I would actually have gained. That redoubled my intentions, but not always my behavior. The biggest changes in my behavior came not from my intentions, but my awareness. Without the journal and the check-ins to show me I was drifting, I tended to get blindsided by the magnitude I had gone off course.
There are other areas in life where different people have similar illusions. Addiction, in its many flavors, is a disease of perception. The addict perceives they have good intentions to quit, so they are continually surprised when they slip. Regret, guilt, it starts all over, then renewed intentions, and the same behavior. They think maybe their problem really isn’t that bad when they aren’t making that momentary bad choice. In the meantime, they wreck their lives and the lives of those close to them. When addicts achieve recovery, they often have daily journals, readings, or programs to maintain their awareness, to let them know they are drifting before they make more momentary decisions that threaten their and their loved ones’ wellbeing.
What about money behaviors? Spending behavior gets a lot of press, and has a lot of similarities to weight loss. But there are also more insidious behaviors that creep into our relationship with money. Sometimes we become addicted to the account balance, or we let its magnitude affect our mood the same way stepping on the morning scale can. Paying too much attention to it can produce behavioral choices we later regret – panic selling, greedy buying, or working too much, for example. Making even one, momentary emotional decision with money can take us way off course.
How can we have awareness of whether our aggregate behaviors are matching our intentions with money? An accountability partner, like a financial professional, works for some people. Others have family or friends with whom they can share their situation. A journal, or workbook, for our money behaviors, is the best choice for others. The self-assessment exercises in my book coming out next month, The Mindful Money Mentality, aim to fill this awareness for that kind of reader.
In Weight Watchers, there is a goal weight range for each member. Ideal weight has an upper limit, but it has a lower one, too. Taken to the extreme, overdoing weight loss past the lower limit stresses the body, and can threaten your life. In money, we mostly focus on staying above some lower limit, but we should be careful about stretching to exceed an upper limit, too. Too often the behavioral choices made in those moments can threaten, not necessarily our physical life, but the life we profess we intend to live.
A reader recently discovered a terrific online financial resource – http://www.mrmoneymustache.com. Mr. Money Mustache controverts conventional thinking (or rather, lack of it) about spending and saving. The co-authors, husband and wife, reached financial independence at the age of 30 by saving aggressively in their 20s. They are raising their kids and spending time as and where they wish. They are by no means “deprived.”
Of course, “deprived” is a self-determined definition. Related to our self-definition of “deprived” is our self-definition of “enough.” What is enough for some might be deprived for others. What is enough at one point in our lives might be deprived at another.
However, even for those who by everyone else’s standards seem to have “enough,” defining the tipping point between enough and deprived remains one of the toughest parts of constructing a useful plan for their financial future. (Our calculations would be so much easier if we only knew on what day we were going to die, and how. Once the human genome is mined sufficiently to provide that, financial planners will be out of business.)
In fact, the more work we do on becoming mindful of what is “enough,” the richer we become. One reason is that our society encourages us to confuse consumption of “more” (more money, more stuff, more status) with the pursuit of enough. Unfortunately, enough becomes like the end of a rainbow – the closer we get, the farther it seems to move. Was there a point in your life where you were on the path of acquiring “more,” but stopped and realized you had “enough”? Did you change direction? If so, did you then feel deprived? Or, was it not so bad, maybe even better, after all?
Ironically, our pursuit of more can often be accomplished by doing with less. Let’s look at three money behaviors and see how this applies.
1) In spending: Examining what fulfills needs, what fulfills comforts, what fulfills luxuries, and what becomes clutter. The tipping point between luxuries and clutter is where more unhappiness is caused to acquire, own, maintain, insure, upgrade, or sell something than happiness is created by having it.
2) In investing: Understanding the unhappiness caused by taking unnecessary risk, or costs and fees, in order to reach for return. The tipping point between appropriate and inappropriate risk happens when “enough” return has not been clearly defined and maintained with discipline.
3) In sharing: Discovering the satisfaction of having helped another human, free of expectations of reciprocity or thanks. The more we stretch to share in this way, the better we feel. The tipping point between a mentality of scarcity and abundance is one of the most difficult to define, which makes it one of the most gratifying to discover.
Finding our tipping points can be a little scary, like stepping onto a tightrope and wondering if there is a net. When we think about it, few opportunities to stretch ourselves come without a fallback plan. But many opportunities come with rewards we can’t yet fathom.
Share your “less is more” experiences in the comments here, or email me at email@example.com.
It’s summertime, which, for many families, means time to go to the beach. Being a Florida kid, summers at the beach were almost mandatory for me. Every year we saw the same families at the same beach and played with their kids. All day, every day we kept busy making sand castles, collecting coquina shells and sand dollars, fishing with sand fleas, and swimming in the bathtub temperatures of the Gulf of Mexico. I enjoyed playing with my sisters and the kids, but it was really cool when the moms and dads would get in the water, pull us around on rafts, bait our hooks, or race to the sandbar with us.
“Jaws” came out in June 1975. Because I was only nine years old, I was not allowed to see it. When we got to the beach that year, the kids were in the water, but not as many adults. We asked them why they wouldn’t come in, and some admitted, laughingly, that they were scared because they had seen the movie. “BUT IT’S JUST A MOVIE,” the kids screamed. Yet, because the adults were so scared, I began to worry if I should be scared, too.
Later in life, I came to know the source of the adults’ fear as “probability neglect” stemming from “availability bias.” In better words, if it is emotionally intense, vivid, and easy to imagine, we view it as far more probable than it really is. When we obsess about its possibility, we reinforce our imagination, and make the problem worse. I also came to know the source of my own fear as the herd mentality – if they are all running from something, then I better run, too.
Movies are in the business of vividness and emotional intensity. So is much of today’s media. The danger in this is that many of us are led to believe that unlikely events are far more likely than they are, simply through the suggestion of a scary image or scenario. While shark attacks still loom larger with beach goers than they statistically should, what other fears do Internet bloggers and some media outlets prey upon? World domination by China. Collapse of the dollar and widespread mayhem. Hyperinflation.
Remember the markets in 2008? Many retirees sold their portfolios in a panic, believing the financial world had truly ended. Media didn’t give them much else to consider. Herd mentality – how could the rational thinkers have had their voices heard? It was nearly impossible. Some days, it still is.
How do we check our fears at the door and strive for wise, rational decisions? One way is to gain experience. The best experience is the kind that repeats similar sequences of actions and provides immediate feedback on outcomes. Think of firefighters and emergency physicians. They get repeated exposure to similar events, with constant feedback on their progress. After a while, they know too much to be scared.
What are you scared of? Can you jump in the water and gain enough experience to learn about it?
Another way to reduce fear is to tune down the mainstream media. Check their sources. Choose your channels mindfully. Do your own research. As a nine year old bookworm, when I got home, I looked up “Sharks” in my Encyclopedia Junior Brittanica. I also read “Jaws.” Great whites are rare in the Gulf of Mexico. There was extremely little chance that one would darken our warm, shallow swimming zone. But on my first beach day the next summer, toes inching from the sand to the surf, I still thought about it.
Perhaps there is something about middle age that spurs the urge to examine. At my 25th college reunion a couple of years ago, I had breakfast with a friend I hadn’t seen since graduation. She works for our alma mater, Davidson College, and therefore had attended lots of reunions. She said, “At the 10-year mark, everyone’s kind of comparing notes – who has how many kids, who has graduate degrees, what they did for vacations, etc., but by the 25th, nearly everyone has experienced some kind of life event, and they are a lot more mellow. The other stuff must not seem as important.”
It does seem that there are points in life when we question what is important, and this begins a process of examining our own attitudes and behaviors. One of my first experiences with examined behavior change was through Weight Watchers. I was 35 and about 20 pounds too heavy. I lost 15 and kept it off. Twelve years later, I fluctuate between 5 and 10 pounds over where I want to be. I still call it a successful behavior change. How did I do it? Tracking and accountability. Whenever my clothes get too tight, I go back to the WW method of writing down everything I eat. If that ever fails, I will go back to the accountability of meetings. In the meantime, I have developed much healthier dietary habits.
Lately I have been examining healthier conversational habits. For example, “listening” does not mean “wait until the other person is finished talking so I can say what I want to say.” Listening means to suspend all noise and chatter in my head and simply absorb and reflect on what I am hearing. To eliminate the noise and chatter, I have a rule: anything that I want to say while someone else is talking, I am not allowed to say. Like any other habit change, it has taken conscious effort at first, but now is becoming close to second nature. When I think of something I want to say, I tell myself to let it go, be present, and listen. If it is that important, it will come back up again in its own time. Being completely present with people, when I am able to achieve that listening nirvana, is freeing.
It is easy to underestimate how difficult behavior change can be. We rationally believe, for example, that the next time, we will just tell ourselves to act differently, and we will. We may have every intention to say no to cookies after dinner, to quit interrupting, or to quit worrying about things we cannot change. The more parts of life I examine, the more I realize I could spend the rest of my life developing new habits and undoing old ones. Behavior change is hard, but rewarding. If done in tiny increments, it takes longer, but isn’t as painful. Before we know it, changing one behavior has brought about a little more happiness. Little changes, over a decade or two between reunions, end up making a big difference.
Many people have a spare change jar, where they accumulate change until the jar fills and then take it to the bank or change machine to turn into bills. For them, this works as a kind of forced savings. Banks’ keep-the-change programs, where debit charges and checks are rounded up to the nearest dollar and the difference is transferred to a savings account, are based on the concept that saving in small increments adds up to big balances over time.
Ricardo Young, a 55 year old assistant grocery store manager I met recently, found the jar works better than a bank account. Every week, he purchases ten-dollar rolls of quarters from his employer, takes them home, and empties them into his change jar. For Ricardo, this works as a way to save an extra forty dollars a month. At today’s interest rates, he is hardly missing out on having the money in the bank. If this kind of discipline is what helps him not spend it, I am all for it.
Many of us have tricks we have used to keep us from doing what we should not do, and to encourage us to do what we should do. Richard Thaler and Cass Sunstein wrote a book on this subject: Nudge.
In the 2000s, a bank in the Philippines offered a quit-smoking nudge. Smokers who wanted to quit would open an account with a dollar, then for six months would deposit the money they would otherwise have spent on cigarettes. At the end of six months, the account holders were given a urine test. If the test was negative, the smoker got the money back with interest. If the test was positive, the money was donated to charity. A study by MIT’s Poverty Action Lab showed those who wanted to quit were 53 percent more likely to achieve their goal using the bank’s program.
A simple but powerful example for me was a time management nudge suggested by my husband, Skip. I used to have a big long To-Do list that I carried with me everywhere I went, like luggage. One day I was complaining about how long it was and how I never seemed to get everything done. He took one look and said, “Well no wonder – you have a year’s worth of work there.”
He suggested I calendar each task, and schedule more time for each item than I think it will take. I had more than 120 items and started trying to put them on my calendar. I found out I could realistically only put 3 to 5 per day. This forced me to prioritize, but also to recognize that many of the tasks were not that important. My time was my limiting factor.
Now when a calendared task is staring me in the face, I am more likely to do it. I think his exercise helped me recognize I have to choose my tasks wisely, because I don’t have forever. Funny how all my life I have recognized money is finite, but often failed to remember that time is, too. In fact, we can find ways to make more money, but we can never make more time. We can only make more life with the time we have.
Are you as good at saving your time as you are at saving your money, or could you use a nudge in one direction or the other? What time or money nudges have worked for you? Comment here or drop me a line at firstname.lastname@example.org.
Optimism bias. I would not label myself as “optimistic.” But I am not pessimistic, either. To me, “optimism” conjures up the chorus from the R.E.M. song: “Shiny, happy people holding hands.” Not the image of how I approach life. No, I do not believe things will get better and better, but I do not believe they will get worse and worse. I believe, like most human beings, that they will stay the same. This is one version of what behavior experts call “optimism bias.”
If it was sunny yesterday, it will be sunny today. If I am healthy today, I will be healthy tomorrow. In fact, I will be healthy forever. Ok, not forever, but for the foreseeable future. Well, ok, maybe not. But probably nothing will go wrong. I am 47 years old and in good shape.
In December I had my checkup. Everything was sailing along as the doctor checked my blood work. Normal, normal, normal. (Yeah, yeah, yeah, why do I even get physicals? I am normal and have been all my life. Things will stay the same.)
Then she paused. “Ok, Holly, so what we have here is an elevated….” (What? Wait, this sounds permanent. As in chronic, but not life-shortening. Great, I have to take a pill now.) Things will stay the same. Until they don’t.
At a symposium last Monday, I heard Dr. Lisa D’Ambrosio from MIT’s AgeLab describe her research on aging and driving. Imagine you live 200 miles away from your 81-year-old father. When you visit, a few things seem a little off. Maybe he shouldn’t be driving that clunker he loves so much. But you have to get back home. Surely things won’t get worse. And you won’t have to confront him. Things will stay the same.
Lately the Dow Jones Industrials have climbed to record highs. People are piling in. Stocks went up yesterday. They will go up tomorrow, right? Things will stay the same.
It is not possible to hedge against every unforeseen event. However, we can look at the stats on what events are more likely than others. You live in Florida on the water, you are more likely to have wind and flood damage. Both of your parents and their parents had cancer, you are more likely to have cancer. Afraid of flying? You are more likely to be killed on the way to the airport than on the flight. Have longevity in your family? Dementia is more likely to be part of your future.
One of the areas I receive the most resistance from is long term care insurance. I do not sell long term care insurance. I just try to get people over 50 to buy it if a $500,000 – $900,000 dent in their future net worth might impoverish them. It is difficult, though, to plunk down premiums of $4000-$6000 now for some unknown so far in the future. This is optimism bias at its worst. Once you begin to show small symptoms, it is too late. You cannot get coverage. Got a parent or spouse with optimism bias? Insurance coverage may not be the prettiest gift, but it may bring the most gratitude later.
For the middle stages of Alzheimer’s, when we can dress and bathe ourselves, but cannot be left alone, there is no caregiving coverage from Medicare nor Medicaid. Asking a family member to serve in this role is asking a lot.
Long term care insurers are the only outside source available for covering in-home caregivers, who will be in high demand by 2030. At $15 per hour, even twenty hours a week in the early stages adds up to $1200/month (in today’s dollars). The average life expectancy from diagnosis is eight to ten years. (See the website of the Alzheimer’s association: http://www.alz.org/alzheimers_disease_stages_of_alzheimers.asp for the seven stages of dementia). And insurers are getting more picky.
If you can’t imagine yourself needing a caregiver, a wheelchair, or even a daily pill, that’s human and that’s ok. Just think about the statistics, though, for those you love. Might it make sense to spend something now to avoid regret later? One thing I know: things stay the same, for a while, until they don’t.