So why do most people turn off their brains when financial issues come up?

[HobbyDave]

I'm still a worker bee... but it is Thursday during the most dead week of the year. I think I'm one of the rare people who is still pretending to do work

Anyway, on to my question. I was just wondering if anyone had any insight into why most people seem to turn off their brains when it comes to financial discussions / issues?

Examples of what I mean:

1. At Christmas, it came up a few times that my wife and I are planning on retiring in 10 years to go sailing (at age 40). A few young people asked a little about how we were going to do that, but for the most part we got two replies: "Yeah right, we'll see" and "Wish I could have been so lucky". Talking about the actual money seemed to make people very uncomfortable.

2. My parents were paying (and still are) huge fees on their managed under-performing retirement accounts. I suggested and explained why they should take a little time to move those accounts to index funds. They agreed it was probably a good idea... and did nothing.

3. A couple I know retired at around age 55 with about $250k in retirement funds. Their expenses are around $40k per year (and they have a $15k pension.. withdrawing around 25k per year). They complain that they're worried if they'll make it to social security age before the money runs out. It is mentioned that the SS money won't be enough to cover the gap, and they say they'll figure it out. They don't conserve, they don't plan, they just keep trucking along, spending that money down.

I'm sure everyone else has examples of the same types of things. So why are people so uncomfortable thinking / talking about money? I'm not trying to say this in a nasty "those stupid people" way, but because it genuinely confuses me. If someone said "My wife and I paid off our house last year", I'd certainly be interested in knowing how they did it, how long have they been paying extra, etc. I find that interesting, so it is hard for me to understand why others don't care.

Now if I was talking about woodworking, I could understand. Not everyone cares about woodworking, and it doesn't affect most people. If they don't know the difference between a maple and an oak cutting board, it probably won't make a difference in their life. However, this is money we're talking about.. a pretty important part of life. Yet people shake their head as if money were this fascinating but far too complicated thing for them to worry about.

Finally, my guesses as to why people don't like to think / talk about finances:

1. Embarrassed that they don't know much. So many people are ignorant, but assume that others aren't. So if I start talking about interest rates, and they don't understand interest rates, they want to change the subject, to avoid looking like a fool.

2. People hiding their head in the sand to avoid thinking about something terrible. Somewhat like a person with cancer who doesn't want to talk about it. They figure they're somewhat doomed, are hoping that it will just "go away", and they don't want to deal with it anymore.

3. Without a basis in math / economics, perhaps finances really are more complex than they seem to me. To me, I understand that if I have a bank account paying 5% interest, and I have a car loan charging 3% interest, I may as well keep my extra money in the bank account, rather than paying off the car loan (with exceptions of course, such as credit rating, etc). Anyway, perhaps to others, this is vastly complicated, similar to speaking in Greek about nanotechnology limitations.

4. Grew up being told that finances are "personal" business, somewhat like nudity. I know many people who have said that their parents never told them how much they earned, how much they had, etc. I know most people I know never talk about what their salaries are, bonuses, etc. I might hear "I got a good raise", or "Last year he got a 10% bonus, but it was 20% this year!!".. but rarely actual numbers. In fact, when I do hear numbers, often they say it under their breath, as if they're afraid that someone else will hear that they have a 5.5% mortgage rate.. like this knowledge is some dire secret.

Anyway, I managed to spend some of my extra time. Anyone have any ideas / feedback?

[Brat]

I have the same issue with my brother. He let his wife handle all the finances. She didn't pay bills (suspect she squirled away those monies), then deserted the family.

He hasn't invested what he got after their home was sold and bills paid. I gave him several suggestions, but no action.

[CCdaCE]

BIL starts rambling on about different financial things but can't express himself clearly. I have ten questions for every one statement he says that I can understand.

BIL: My wife and I need $1.3M ea. to retire comfortably.
Me: Based on what, and retiring when?
BIL: Well, based on...

He trails off and ends up getting frustrated.

Me: 80%? of your income now? Won't your house be paid off, and kids gone, and...

He ends up getting more frustrated.

So, I don't bring it up. ...and just sit quietly when he discusses money. Which he seems to do every time we get together.

-CC

[justin]

There's a taboo around money. It's boring to talk about it. What's the use, we're never going to have enough of it to worry about, anyway. Etc. etc.

Seriously, it just doesn't interest a lot of folks. It's like me and fantasy football. I could care less about this stuff, but most of the other guys in the office are really involved with it and discuss it frequently. If I tried to discuss asset allocation and correlation coefficients on my slice and dice portfolio, only 2 guys (who are fairly interested in this topic) would care to listen to me.

I've talked to some junior engineers at our company about fund selection in our company's 401k. It's hard to get them interested in 0.1% expense ratios on Fidelity's index funds vs. 1.1% expense ratios for similar actively managed funds. The response at first is "who cares about 1%"? They don't care when they are talking 1% of a few thousand dollars. Then I explain that after a few years they will have $10,000, then eventually $100,000. 1% savings on $100,000 all of a sudden makes some sense (that's $1,000 I can save just by picking one fund over another!?!). But it takes a good imagination for people to convince themselves that they can actually get $100,000 in a 401k when they are starting with $0 and only start putting in 5 or 10% per year plus the match.

People have other issues to worry about that are prioritized higher on their list than learning more about money issues and investing. Illnesses, family drama, paying bills, which new car to buy, what the latest celebrity gossip is, who's dating whom in the office, what the resolution of the latest plasma HDTV set is, what's the spread on the big game tonight, etc.

[mickeyd]

Quote:

Yet people shake their head as if money were this fascinating but far too complicated thing for them to worry about.

So true, so true. I can't tell you how many professional people I have encountered who have not a hint of a clue about investing. They will usually attribute it to not having the time to get involved (too busy with their careers) however, if you drill down just a bit, they will generally admit that they just don't know enough about the subject so they choose to do as little as possible and are afraid of making a mistake by investing in the "wrong thing at the wrong time." This makes them prime targets for many pimp/advisors.

[BUM]

Quote:

Originally Posted by Ceberon Anyone have any ideas / feedback?

Forget the oak (open grain) cutting board. Go with the maple!

[MikeD]

nm

[maddythebeagle]

I guess that I note some of the near absolute truths of the people that I have known....everybody wants to think they know it all and few want to be lectured by others... ....

[haha]

Quote:

Originally Posted by Ceberon Anyway, on to my question. I was just wondering if anyone had any insight into why most people seem to turn off their brains when it comes to financial discussions / issues?

I'll answer your question if you will help me to understand the enduring popularity of posts like this.

I guess it is the same appeal as fundamentalist religion. Why are most people (not us!) such dirty sinners/infidels/wastrels?

Ha

[pjdaddy]

Most people aren't very good at math, and aren't comfortable with their own spreadsheeting and modeling skills.

Most reading the monthly financial magazines targeted at the masses cannot distinguish between information and infomercials.

Most people don't question underlying assumptions. They continuously hear the mantra "80% of your salary must be replaced in retirement" and never stop to ask why, or to run the numbers themselves. They have grown up knowing that the retirement age is 65, and never stop to ask why.

Lots of people don't know what they want. Lots have asked me what I will do with myself when I early-retire. Lots are defined almost solely by their jobs.

And in general, most focus on short term issues. Too much of life to worry about to consider retirement now. We can plan for that later - got lots of time till 65...

[Sandy]

Some of the answers have been said but I would add three things:

Money is power. If you say what you have and the next guy has more, you are weaker. Better not to discuss or say anything.

Also, most people are terrible at planning. Getting a handle on this $$ stuff requires planning skills. How many people do you know who had kids by accident, fell into the jobs/careers, stumbled into and out of relationships, etc.? They don't plan for anything big or significant. There are lots of reasons - some are just not planners - ce sera sera and others are afraid to do the introspection that comes with planning, for fear they will come up short to their own standards.

And finally, since these other unplanned things generally work out, well, this $$ stuff will work out as well, so why worry.

[Alan]

Let's face it, long term financial issues ARE boring to the vast majority, given that the attention span of the vast majority is incredibly small. Lot's of things that are very interesting to many are boring to most. My daughter bought my wife and I a tee-shirt each this Christmas to reflect our age plus how "nerdy" we are. Mine says "Insufficient Memory", and wife's says "There 10 types of people in this world - those who understand binary and those who don't"

I find that it's a bit the same with finances - you either are interested and keen to learn and talk about it or simply ignore it. DW and I were in the ignore it crowd. Although we always did LBYM, we looked at long term financial needs through a telescope. Then one day about 15 years ago we happened to pick up the telescope and looked through the other end and suddenly it was right in front of us.

From that point one we have learned as much as we could and are keen to discuss finances, although like reformed smokers we are in danger of over-doing it and BORING folks.

[justin]

I usually talk about money/investing stuff with like-minded people. Most of my work buddies are smart with money in the general sense (they all save it to some degree, invest it, take advantage of our company's benefits, get good deals on home and car loans, etc.). When a 24 year old fresh on the job new hire (who I already know is money-conscious) says "oh yeah, I just got an email saying I'm eligible to sign up for this 401k thingy - should I? What is a 401k?" I figure I can take a few minutes to explain what it is, that you get a FREE 6% match from the company just for putting in 6% of your pay (which only costs you about 4% because of tax effects). Wow, 12% of my pay and I only lose 4% from my paycheck? Cool! Sign me up!

Some folks you can tell don't really care about money issues or investing. No need to bother trying to learn about low cost passive investment issues or index funds. It's the folks that seem interested and want to learn more that I like to "lecture" as some would say. Maybe send em a link to a good book on finances/investing. Answer their questions about our benefits (what's a 401k? Now how is that different from an IRA? Does our company do IRA's too? What about this FSA thing?).

I certainly depend on others for advice. If I have a question about sports, sports gambling, the spread on tonight's big game, pros and cons of DLP vs. LCD vs. Plasma HDTV's, the latest computer/video games or systems, or the newest electronic gizmos, I have a fountain of knowledge between the 4 other 20-somethings in my department. If I want to know where the hip college age bars are, I ask our college intern.

[2B]

I am and work with engineers who understand the math stuff. Some are focused and on track but very few. I talked with one guy who basically said that he understood all that but hasn't saved anything. He's 65. Another guy is really plugged in and I tease him about him retiring to his private island. He just laughs especially when I ask if he's taking his wife with him. Unfortunately, most people haven't prepared.

[JustCurious]

Some very good answers have already been provided (including those suggested in the OP), but I'll add my 2 cents.

1. Most people don't have the aptitude or the attention span and are simply not willing to put in the time it takes to research and learn about investing. It mystifies me that people aren't willing to take the time regarding such an important part of life, but it's true.

2. As a society, we don't teach or young people how to handle money. We teach them geography and history and woodworking, etc., but not about money and investing. So either you learn it on your own, or you are lucky enough to have a parent teach you, or you remain ignorant.

3. Most of the financial industry's advertising/sales force is designed to convince people that they are better off just handing their money over to a high paid advisor who knows exactly what to do. This message is very effective because it is reinforced by #1 and #2 above.

4. Many people simply don't have the discipline to LBYM, so they don't save enough money to invest in the first place.

[jazz4cash]

I think all too often the subject is overwhelming to many folks (for all of the reasons listed above), whereas I think it's pretty simple to save 10-12% in a tax deferred account, use index funds and fahgettaboutit.

Full Circle
I feel lucky to have always enjoyed crunching the numbers, sometimes too much. I recall working with a fellow engineer that had a bit of a chip on his shoulder and claimed he "could not afford" to invest in the 401k. I showed him how with the tax benefit he could actually borrow the money and come out ahead, but that was not enough to knock that chip off.........He retired a bit early several years ago and we recently exchanged emails......now he's griping about being "stretched thin" and looking to go back part time. I could almost hear him thinking "wish I had used that 401k thingy"

[brewer12345]

There is an entire field of academic enquiry into just these types of questions: "behavioral finance." If you are interested, tehre are some fairly readable books on the subject. Interesting stuff, and knowing about it helps you avoid the same stupid mental traps people tend to fall into all the time.

[Arc]

Quote:

Originally Posted by JustCurious 2. As a society, we don't teach or young people how to handle money. We teach them geography and history and woodworking, etc., but not about money and investing. So either you learn it on your own, or you are lucky enough to have a parent teach you, or you remain ignorant.

BINGO! It's not rocket science and - to many - is as important as reading, writing and arithmetic.

[LeatherneckPA]

I find this VERY frustrating. I already know that I am a "throw-back" to a bygone age. I believe all that brainwashing the Marine Corps gave me about how a good leader cares for his troops. So when I try to talk to my younger officers about their TSP and retirement I get so frustrated when I here statements like "That's so far away, I've got plenty of time." And how about "Our retirement sucks!" This from kids who have never even held real jobs before. They are mostly college educated nowadays. They've never attended an agency retirement seminar or compared what they have to what is NOT available out there in the real world. How would they know? They listen to disgruntled old-timers who think we got screwed when the Feds went to FERS from CSRS. Handled correctly, I believe FERS is the better system. Unfotunately for the majority of these kids nobody teaches them how to handle it the right way. And they never take into account that one of the BIGGIES is we are law enforcement, which means we have less time to get it together before we are forced out the door. Even if some sick individual wanted to work beyond 57 he is not able to stay in the agency. But like you said, their brains are turned off.

[Brat]

The sad part about this is their lack of preparation becomes our problem when they become indigent. Families are much smaller today, they can't count on their kids taking care of them in old age.