Personal finance ignorance among the otherwise intelligent

[JRon]

Years ago I went to a conference with 2 doctors I worked with (I was in Admin) - both were very intelligent and very nice men, not ego-maniacs. One night at dinner they talked to each other about investments, what they were doing and what others had told them to do. Not once did they include me in their conversation. I’m guessing they assumed I couldn’t add anything and didn’t have any money.

I knew about what they made and I made only about $10,000 less than them, but my expenses were far less. I just listened and by the end of dinner I realized I knew more than they did about investing and had more money than they did. I just smiled and ordered another beer.

 

[Amethyst]

I have a question. If you know them well enough to know they are intelligent and nice, why not hop into the conversation?

They may not have thought others would be interested, and been pleased you could add something.

Years ago I went to a conference with 2 doctors I worked with (I was in Admin) - both were very intelligent and very nice men, not ego-maniacs. One night at dinner they talked to each other about investments, what they were doing and what others had told them to do. Not once did they include me in their conversation. I’m guessing they assumed I couldn’t add anything and didn’t have any money.

r.

 

[finnski1]

Years ago I went to a conference with 2 doctors I worked with (I was in Admin) - both were very intelligent and very nice men, not ego-maniacs. One night at dinner they talked to each other about investments, what they were doing and what others had told them to do. Not once did they include me in their conversation. I’m guessing they assumed I couldn’t add anything and didn’t have any money.

I knew about what they made and I made only about $10,000 less than them, but my expenses were far less. I just listened and by the end of dinner I realized I knew more than they did about investing and had more money than they did. I just smiled and ordered another beer.

Great story. Love those. It reminds me of a commercial I used to see where 2 self important guys dressed in suits are in some small diner. There is a classic very expensive car(I think a porsche) in the parking lot and the waitress runs out and tells someone to get away from her car. The 2 guys look dumbfounded. Priceless. I think the ad was actually for a brokerage or wealth management firm but nevertheless...

 

[JRon]

I have a question. If you know them well enough to know they are intelligent and nice, why not hop into the conversation?

They may not have thought others would be interested, and been pleased you could add something.

I tend not to offer people advice that don’t ask. They were clearly not looking for me to join the conversation, but that doesn’t mean they weren’t nice guys.

 

[Lawrencewendall]

I have a question. If you know them well enough to know they are intelligent and nice, why not hop into the conversation?

They may not have thought others would be interested, and been pleased you could add something.

Advice is often given but rarely taken. Why waste your breathe?

 

[ncbill]

I always remind DW:
"Rich people are rich as long as they have a paycheck coming in. Wealthy people are wealthy without one."

IMO, more wealthy people understand personal finance better than rich people; that's how they stay that way.

"We don't get money, we have money" Bill Weld

I think the above nails it.

There are plenty of high income earners not much worried about the future because working another month means another $50k (or more) in income.

Plus they think they'll never be forced into involuntary retirement.

"What, me worry?"

 

[Nick12]

I think the above nails it.

There are plenty of high income earners not much worried about the future because working another month means another $50k (or more) in income.

Plus they think they'll never be forced into involuntary retirement.

"What, me worry?"

During the 2008 , 09 recession , dealerships in my area were flooded with low mileage luxury cars for sale when car owners had to sell their toys to raise cash.

 

[Blue531]

In the Millionaire Next Door Book, the author points out the research shows doctors are notoriously some of the most under accumulators of wealth (UAW), btw. They typically don't spend much time learning financial matters and rely much on their incomes.

 

[Dtail]

In the Millionaire Next Door Book, the author points out the research shows doctors are notoriously some of the most under accumulators of wealth (UAW), btw. They typically don't spend much time learning financial matters and rely much on their incomes.

In general, I am not surprised.

 

[Markola]

The MND authors called it “Being great at offense, terrible at defense,” and it certainly is not just doctors but more like, “Americans”.

 

[martyp]

I have degrees in physics and mechanical engineering. I had a successful science career. I understand quantum mechanics and general relativity but I don’t understand investing. It is not for lack of trying. Otherwise smart & successful people can be unsuccessful when it comes to money. I was only able to ER because luckily I had a career that lead to a great pension. I am also very good at saving and living below my means.

 

[jollystomper]

One interesting aspect that I believe contributes to personal finance ignorance are how things like market drops are headlined in the general media. It gives the impression that investing is a scary thing. For example, searching for "S&P 500" for today comes up with these headlines:

"Dow drops more than 250 points amid global economic recovery concerns, S&P 500 slides"

"Why economists think bond yields are falling, slamming the S&P 500 and the Dow"

"Stocks pull back from records as growth concerns reignite"

"Dow, S&P 500 and Nasdaq log worst day in 3 weeks amid unrelenting slump in Treasury yields"

"S&P 500 Closes Lower as Volatility Returns Amid Growth Jitters"

Nothing along the lines of "markets have minor pullback but are still much higher for the year" or even "market down today, but that is nothing unusual, ups and downs are normal". It can easily impact the view of someone assuming these headlines are by the "experts" and who is not willing to delve deeper.

 

[CyclingInvestor]

.

 

[RobbieB]

Bad news is good news.

 

[freedomatlast]

I always remind DW:
"Rich people are rich as long as they have a paycheck coming in. Wealthy people are wealthy without one."

IMO, more wealthy people understand personal finance better than rich people; that's how they stay that way.

"We don't get money, we have money" Bill Weld

Great post, marko, IMHO, one of the best of the year!

 

[Major Tom]

One interesting aspect that I believe contributes to personal finance ignorance are how things like market drops are headlined in the general media. It gives the impression that investing is a scary thing. For example, searching for "S&P 500" for today comes up with these headlines:

"Dow drops more than 250 points amid global economic recovery concerns, S&P 500 slides"

"Why economists think bond yields are falling, slamming the S&P 500 and the Dow"

"Stocks pull back from records as growth concerns reignite"

"Dow, S&P 500 and Nasdaq log worst day in 3 weeks amid unrelenting slump in Treasury yields"

"S&P 500 Closes Lower as Volatility Returns Amid Growth Jitters"

Nothing along the lines of "markets have minor pullback but are still much higher for the year" or even "market down today, but that is nothing unusual, ups and downs are normal". It can easily impact the view of someone assuming these headlines are by the "experts" and who is not willing to delve deeper.

+1

One of the funniest financial headlines I've seen in a while was yesterday, when one of the major "news" networks posted the following -

"S&P500 Poised For A Rebound"

This was the day after the S&P500 experienced a calamitous 0.2% drop

 

[NW-Bound]

The market is not completely rational, because investors are not.

If people were all rational, we would not have all sorts of silly conspiracy theories running rampant on the Internet.

 

[marko]

Great post, marko, IMHO, one of the best of the year!

Thnaks. I've mentioned here a few times that when DW was working some of her coworkers making $500k to $800k+ a year would bum fifty bucks from her a few days before payday. They didn't even have a hundred bucks at the ATM in the lobby. But they all would spend their weekends on Nantucket!

 

[friar1610]

One interesting aspect that I believe contributes to personal finance ignorance are how things like market drops are headlined in the general media. It gives the impression that investing is a scary thing. For example, searching for "S&P 500" for today comes up with these headlines:

"Dow drops more than 250 points amid global economic recovery concerns, S&P 500 slides"

"Why economists think bond yields are falling, slamming the S&P 500 and the Dow"

"Stocks pull back from records as growth concerns reignite"

"Dow, S&P 500 and Nasdaq log worst day in 3 weeks amid unrelenting slump in Treasury yields"

"S&P 500 Closes Lower as Volatility Returns Amid Growth Jitters"

Nothing along the lines of "markets have minor pullback but are still much higher for the year" or even "market down today, but that is nothing unusual, ups and downs are normal". It can easily impact the view of someone assuming these headlines are by the "experts" and who is not willing to delve deeper.

You are absolutely right! During yesterday’s not-so-catastrophic sell-off I noticed a few headlines that would have made you think it was the Second Coming of the Great Depression. And that the whole world was dumping stocks and seeking refuge in Treasurys. Click bait.

 

[marko]

You are absolutely right! During yesterday’s not-so-catastrophic sell-off I noticed a few headlines that would have made you think it was the Second Coming of the Great Depression. And that the whole world was dumping stocks and seeking refuge in Treasurys. Click bait.

True to a certain extent. But one could argue that those who fear the market, "the next Depression" and the headlines are already those with little financial acumen. You could see it as more of a symptom of financial ignorance than a cause; it confirms their bias.

These are the people who call the market a "casino" because their idiot uncle lost $500 in the market 50 years ago.

 

[OldShooter]

One interesting aspect that I believe contributes to personal finance ignorance are how things like market drops are headlined in the general media. It gives the impression that investing is a scary thing. <snip> Nothing along the lines of "markets have minor pullback but are still much higher for the year" or even "market down today, but that is nothing unusual, ups and downs are normal". It can easily impact the view of someone assuming these headlines are by the "experts" and who is not willing to delve deeper.

I think this is very insightful and tracks the behavioral finance research (Thaler, Kahneman, etc.) They have studied individual investors and found that investment results are negatively correlated with the frequency that the investor checks their portfolio.

The explanation, they believe, is our human aversion to risk. Constantly seeing negative market fluctuations has a bigger impact on the investor than the positive fluctuations he is also seeing. As a result he tends to trade more and to sell positions that he should be holding. The less-interested investor simply slides along in bliss, buying, holding, and getting superior results.

Thaler's "Misbehaving" is a worthwhile read for any investor as all of us are less logical and more human than we understand. It's all in the genetic wiring.

 

[Nick12]

You are absolutely right! During yesterday’s not-so-catastrophic sell-off I noticed a few headlines that would have made you think it was the Second Coming of the Great Depression. And that the whole world was dumping stocks and seeking refuge in Treasurys. Click bait.

Some panic for little reason. The market is back up sharply today in positive territory.

 

[Chuckanut]

Some panic for little reason. The market is back up sharply today in positive territory.

+1

Wake me when the market is down over 20%.

 

[JustCurious]

And spent hours on the phone talking of nothing.

My teenage daughter still does that.

 

[Markola]

One interesting aspect that I believe contributes to personal finance ignorance are how things like market drops are headlined in the general media.

Even Judy Woodruff on the PBS Newshour does it. “Today the S&P 500 did blah, blah, blah based on fears of a blah, blah, blah.”

They really shouldn’t do it, because it detracts from their credibility.