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

[Delawaredave]

I think people avoid addressing financial issues because these issues involve the combination of:
- Decisions
- Discipline
- Math
People don't want to face any of the above, let alone in combination !

I think people understand a lot more than they want to face.

I think there's issues I subconsciously avoid - fortunately reading this forum help me keep the big issues in front of me.

 

[BunsGettingFirm]

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

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.

Thank god that the advertising works. Otherwise, a few folks on this board (possibly including myself) may be out of jobs.

 

[BunsGettingFirm]

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.

There are dozens on Amazon. Which are the good ones?

 

[frayne]

LBS, aka, lazy brain syndrome.

 

[Zoocat]

LBS, aka, lazy brain syndrome.

I think you're right. No sure-fire cure for that either.

 

[rmark]

I suspect its a combination of early mis-education plus a lack of interest. Most of us begin a financial education with Money, Kiplingers, or Smart Money on the table of the waiting room in the dentists office. Follow this with the 25 fund choices in your 401k plan, which the employers human resources will not help you with due to fear of lawsuits (if they know any more than you do). It takes serious reading to weed out the financial porn and self promoting books.

I work in a university library and can find plenty of "tips to make you money" type books next to Grahams ' Intelligent Investor'. Plus many personal finance books are overwhelming in details the average person either doesn't need or want to know (at least to start with). It takes real work to fing Graham, Bogle, and Bernstein.

Most people have the problem of being to by the annuity salesman that they are doing the right thing and having no background to judge otherwise.

 

[audreyh1]

You know, if financial independence was lauded as an admirable goal (instead of people thinking something is wrong with you if you don't slave away earning a living), more people might be attracted to the concept.

It's a cultural thing and so deeply ingrained. Somehow our American ancestors thought work made people more worthy Christians/better people, and leisure was immoral and corrupting.

But other western cultures have seen things very differently. The Greeks thought work was debasing, and leisure time was the most precious time, and that was when a man could be the most purely and honorably productive in "noble pursuits" without the corruption of having to earn a living at it. The English "middle class" in the 1700/1800s tried to achieve financial independence because that was the key mark of the "better classes". If someone in a higher class had to earn a living they would try to hide that shameful fact.

Interestingly enough, Thoreau (1850s) rejected the American work ethic, seeing the need to earn a living as being a straitjacket on the soul. He was a major proponent of LBYM and simplifying in order to free oneself from the onerous duty of having to earn a living.

Anyway, my point is that if someone thinks you "should" work most of your life, there is little incentive for gaining financial independence, so they don't educate themselves in that direction.

Audrey

 

[bssc]

Its funny, I work for a Dow Component Financial company and they ended up cutting back on our 401(k) choices to four. One Large cap, one small cap, one money market and a group of Target funds because people thought that the 15 or so choices were too confusing. At least they still offer a self managed mutual fund account.

Even in our group, which is 1/3 PhD economists, there is little discussion of the plans. And, even though we are compensated pretty well, I helped one of my coworkers increase her percentage from 6 to 7% online. She was proud of herself until she asked how much I was saving and I told her the max.

But as everyone else has said, people have better things to do.

 

[Helen]

I don't understand this either. People spend so much of their time working to make money, yet they won't put time into figuring out how to invest so they can secure their future.

I was talking to a friend who had just turned 50. I asked him if he was socking it away for retirement. He said he didn't want to tie the money up for that long. Yikes !!!

 

[Nords]

There are dozens on Amazon. Which are the good ones?

It's 10 years old, but The Millionaire Next Door has timeless advice on the subject of Economic Outpatient Care.

There's also Gilovich's "How We Know What Isn't So", "Why Smart People Make Big Money Mistakes", and "Heuristics & Biases". You can see that Gilovich is in a bit of a rut but he's working with the founders of the field.

There's also Charles Ellis' "Winning the Loser's Game", although perhaps the only real investor psychology is his description of how most people play "not to lose" instead of to win.

 

[rmark]

"Interestingly enough, Thoreau (1850s) rejected the American work ethic, seeing the need to earn a living as being a straitjacket on the soul. He was a major proponent of LBYM and simplifying in order to free oneself from the onerous duty of having to earn a living."

but note he liked to eat out at Ralph Waldo Emersons house, plus borrrowed the land his cabin was on.

 

[2B]

but note he liked to eat out at Ralph Waldo Emersons house, plus borrrowed the land his cabin was on.

Emerson was so worried about his finances that he bought large numbers of Thoreau's books. Thoreau was actually pretty well off financially especially when his cost of living was put in the equation.

Walden Pond is still required for high school reading, at least when my kids were in high school. It was probably one of the less disliked of their required reading. It may just have been because it is a thin book. They were exposed to LBYM. It seems to have taken hold on my son but my two daughters didn't get the point from what I have seen.

Thoreau did go to jail for refusing to pay his Mexican-American War tax. I shouldn't bring that up because it will just cause this thread to be hijacked to another political rant by someone.

 

[Lazarus]

Thoreau had no wife or kids and he died at 45. He only lived at Walden Pond a couple of years. He may be remembered more for "Civil Disobedience", than Walden.

I have been a fan of Thoreau since I was in my 20's but not everyone can live like he did at Walden Pond. If he were alive today and had the same beliefs I think we would find him on government assistance and frequenting the charity hospitals. Or living off friends which he did then.

 

[lazygood4nothinbum]

for me, figuring out finance is like reading a good book to get to sleep. i never did care much for it but i know i gotta get some rest.

it isn't my lack of math comprehension, i'd already had boolean algebra, calculus and even physics in high school (not that i remember any of that now). but i've always been more comfortable letting my brain wrap itself around possiblilties than actually providing concrete application. i took a few courses in college & did really well in economics but only fair in accounting. i never cared to keep my crayons within the lines or my numbers within the columns. my checkbook is neither balanced nor overdrawn.

it does seem many live lives insideout, quick to flaunt their most personal relationship with god before their less intimate association with cash. and then, what is the most obvious expression of themselves, their sexuality, they cover from view with sacred cloth. i'm hardly shy about any of that. so don't be surprised if you find me asking dumb questions about all this finance stuff. if you ain't caught on yet, i have no shame.

"our truest life is when we are in dreams awake" ~~ henry david thoreau

 

[Delawaredave]

There are dozens on Amazon. Which are the good ones?

I started reading "Rational Investing in Irrational Times" by Swedroe. It's been interesting - and has some "behavioral finance" topics.

I got it from a library

 

[astroboy]

May sound hokey, but a thick Sylvia Porter book that covered all kinds of money matters that my Dad gave me when I was 16, some 30+ years ago, started it all for me. I don't know it all but I think that book sparked an interest that puts me ahead of most of the crowd.

 

[ladelfina]

Hooooo boy.. Just had the in-laws over for New Year's and lots of fun arguments discussions about my Italian BIL's merceria, (a store that sells cloth, ribbons and zippers as well as socks and underwear and sometimes other clothes).

He only remains in business due to the fact that his wife works as a teacher (as well as in the shop) and they've had cash infusions from relatives, assumed mortgages, and have sold off their valuable garage in their apt. bldg.

He loves to talk about how great he is as a store-keeper and how assiduous he is about optimizing his merchandise and markups.. spending untold hours fidgeting with his (way too expensive yet poorly-designed) accounting program. His wife tells the real story about how they can't move around the store for the piles and boxes of ten-year-old pajamas that haven't sold, skirts from the 1980s in boxes where no one can see them, faded bolts of cloth in colors and patterns that are no longer in style, and so on.

He gets angry and says "you don't understand! I sold a pair of those pajamas for 60 euros, and I only paid 16,000 lire for them!!" But when I asked how long ago that really was that he paid 16,000 lire.. and what 16,000 lire could have bought back then, he didn't know/couldn't answer. He is really more happy to be accumulating and not selling. I tried to talk to him about the time value of money, but he could only see it in terms of absolutes: if he buys something for 2 and sells it for 2.50, he's happy, even if in the intervening 10 years the effective value may have doubled.

He keeps afloat through baroque and outmoded systems of IOUs and promissory notes. He brags about making his suppliers wait 90 days to get paid (for him, a victory!), while the merchandise they supplied then stays on the shelves for years.. But whoooo! he's outsmarted them, all right!

Despite being up to his elbows in the numbers and invoices, despite the evidence of hobbling along with debts, he thinks it's just a matter of luck, that this is just something every vendor suffers, and that his business savvy will win out. He is so far from being able to see the 'big picture' that it's not even funny. Everyone else stays away from discussing it with him, as they've concluded it's of no use, but I am worried for his family since now he's gotten the bright idea of expanding his empire into another shop that is now available for rent down the street, that's 2x as big. Also, I guess it just offends me on an intellectual level that an educated person is not able to put two and two together, even when his life depends on it.

It's sad to see him working 18 hours a day, along with his wife who has to spend her after-school and weekend time.. all 'unpaid' and uncounted. Who knows if they even end up making $3/hour? You can't even talk to him about it in such terms. As long as they bobble along with their heads barely above water, it's a "success" no matter what the true hidden cost.

If I had the numbers, I'd love to calculate for him the cost of just storing 5 or 10 cubic feet of old pajamas in terms of overhead --rent/mortage/heat/electricity/phone/renovations-- over ten years. I guarantee he would remain, nonetheless, in complete denial.

:

 

[Martha]

What do families do when irrational unreasonableness affects a member? If it is alcohol, families do interventions. But if it is poor business sense that can break the family bank, do you do an intervention? Live with it or get a divorce? Tough choices.

 

[Nords]

It's sad to see him working 18 hours a day, along with his wife who has to spend her after-school and weekend time.. all 'unpaid' and uncounted. Who knows if they even end up making $3/hour? You can't even talk to him about it in such terms. As long as they bobble along with their heads barely above water, it's a "success" no matter what the true hidden cost.
If I had the numbers, I'd love to calculate for him the cost of just storing 5 or 10 cubic feet of old pajamas in terms of overhead --rent/mortage/heat/electricity/phone/renovations-- over ten years. I guarantee he would remain, nonetheless, in complete denial.

:

If he had an eBay store, maybe he'd spend more time on that than on his accounting programs and other distractions. And if he puts things up for auctions, he'd actually have to sell them!

 

[lazygood4nothinbum]

grandpa had a haberdashery in the downtown of an upper-middle-class town. he had done very well for many years but then malls came into fashion, downtowns went downhill but grandpa would not give up his store. after a while of losing money my uncle talked him into closing shop and retiring to florida. i was a little kid and don't know the details but i remember it was a traumatic time for my mom & her brother. grandpa wound up being very happy playing tennis year round here.

 

[ladelfina]

I love that word "haberdashery"! I guess you would call this a "dry goods" store?

BIL started out selling wholesale fabric to tailors. When there started being a lot fewer tailors that aspect dried up, so he went retail about 15 years ago. DH points out that BIL hasn't changed his selling methods, though; it's one thing to 'chat up' a customer for a half-hour if he's going to place a thousand-dollar order, quite another thing when you are selling a pair of socks or a zipper.

It's still just wierd and frustrating to know that he LOOKS at the numbers, but he just doesn't SEE them. 18 hours may be just the slightest of exaggerations, but I think they'll pry the keys to that store out of his cold, dead hands. He's got a thirty-something daughter with one foot in the biz, but can't comfortably delegate either to her or to the wife. Blocked from any responsibility, the daughter is naturally discouraged from displaying an ownership-type commitment, which is then another sore point in the family!

IF he had the money to retire and play tennis (which by all rights he should have) it might be another story? Instead, it's been downward spiral (now stabilized in kind of a transverse spiral) since the more he "applied" himself, the more twisted things got, so he had to "apply himself" more.. Rinse and repeat. Sigh.

LGFNB, your grandpa was lucky in that he finally saw reason!

 

[lazygood4nothinbum]

LGFNB, your grandpa was lucky in that he finally saw reason!

my memory is to the contrary. like your bil, grandpa could not see times had changed. no more sales, no more customers downtown. he wasn't blind but he just couldn't see it. his children had to do an intervention per martha & pry him out of there with one of those shoe horns he sold. he loved that place. but ya, i like calling grandpa a haberdasher; so much more upscale than merchant.

 

[2B]

Inertia is a powerful force particularly in people's lives. People resist change. As people age the resistance becomes even stronger. Change means failure to some people or admitting they are not who they once were.

 

[HobbyDave]

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.

Oh, I really like this reply. First, the power thing is really good. I think that is probably a big part of why people don't like to talk about it. I know if someone finds out a co-worker makes $500 more than they do, it's cause for endless trouble.

The planning thing is also really interesting. A neighbor of ours was talking about having kids soon. Now I happen to know their house costs almost exactly the same as ours, and she and her husband make almost the exact same as my wife and I (all equal salaries). I said we were still going to hold off, as we want to stay home with our kids if we have any. She said that she agreed, she was planning on staying home with the kids. I asked how they could afford it, as our home payments along with utilities were equal to one of our salaries. She somewhat shrugged, and said they'd figure it out. I asked if she was planning on quitting her job, or leaving for a few months. She said they'd figure it out once she was pregnant and closer to needing to take time off.

I guess that's what a lot of people do with big decisions, they just don't plan for things. They figure that things will "work out". Now certainly things can work out.. perhaps they'll get a huge bonus before she quits, or perhaps her mother will come live with them to take care of her kid, or perhaps they'll sell their house. I suppose my personality requires that I plan things before making a big decision. I suppose that's one of the reasons many of us are here on this board.

 

[SecondCor521]

I think it has to do with immediate versus deferred gratification.

Some can look at a spreadsheet they have built and nearly see, feel, and taste the freedom and opportunities that those numbers represent and be willing to defer gratification to make those numbers a reality. Others, even if you show them the spreadsheet or otherwise communicate the FIRE/LBYM message to them, either won't understand it or won't be interested in it. The former would rather have a hamburger a week for the rest of their life starting in 20 years than a hamburger now; the latter would take the burger now.

I think it is partially related to a person's personality makeup in terms of whether they live in the world of ideas or whether they live in the concrete world. I think that is why so many on this board are *NT*'s in Myers-Briggs typology -- the FIRE idea is more real to them than most. Personally I am an INTJ and I think that group is only 3-4% of the US population. I think the *NT* grouping is similarly small -- perhaps 16% IIRC.

2Cor521