If you wanted to leave some money to your children, how would you split it between them? You could come up with numbers based upon their likely need for help. Or you could simply divide it equally…after all you love them all, well…equally. Equal distribution is probably the most common way of dividing assets. Yet, what about the situation where one of the kids is very successful financially and has no need for your money? What message does an unequal gift send? Conversely, if you were one of the children on the receiving end…what if mom and dad left all (or even most) of the money and investments to your sibling because you ‘don't need it?’ You might feel ‘less loved’, or slighted in some way, left with a nagging feeling that perhaps they really did love them a bit more than you.
People tend to embrace this statement. It sounds true: surely only shallow, materialistic people would insist that money could buy happiness. To utter the thought aloud is almost like a declaration that we aren’t materialistic (and hopefully not shallow!) Scientists have long been perplexed about how to measure such a thing as happiness. Studies that examine relationships between money and happiness raise the idea that although money may not directly bring us happiness, it has the potential to. Believing that money can’t buy happiness is a bold and sweeping generalization that weakens under scrutiny. The authors of the book, Your Money or Your Life present a “fulfillment curve.” As the curve in the diagram shows, money spent to meet basic needs brings the most precipitous rise in satisfaction.
Think of all the times you felt pleasure as the result of buying something. When I started interviewing for my first job in the investment business I bought the most expensive suit I could afford. I felt like a million bucks every time I wore that suit! Of course that led to a penchant for expensive suits but that is another issue. Money does not just buy things but also experiences. How many beautiful memories come to mind because you gave yourself permission to spend money on a new experience or adventure. I can think of so many trips we took as a family or even in younger days before having children. Those were clearly happy times. Weren’t they?
We use money every day. We spend on things, experiences, etc. Maybe you are planning the next big adventure in your life…or figuring out how to save the money to remodel the bathroom. Behind these activities there is a presumption that money used in these ways will make us happy. Do money and happiness even belong together in the same sentence? In some of my workshops participants fill out a survey asking them to agree or disagree with statements on money beliefs. One of the statements is “money makes me happy.” I never kept a specific tally but I always looked at whether they checked yes or no on that question. My recollection is a fairly even split between those who agreed with the statement and those who didn’t. I wonder if some checked “no” because we’re not supposed to find happiness in such a thing as money
In the past several articles, we’ve looked at the variable nature of prices. What does a gallon of milk or a hotel room cost? How much does it cost to retire? What types of financial management services are there, how much do they cost, and which one might work best for you? In that vein, why pay someone to manage your money? I recently told the story of a client who experienced immense relief upon delegating the management of her finances. Making all the decisions on her own had left her plagued with fear and anxiety. My listener exclaimed, “But my father said never to pay fees!” Such advice might be good for one person, but not so good for another. While I agreed that one should pay as little in fees as possible, my listener’s objection raised the question: What are some of the reasons to have your money managed professionally?
Last month’s article about prices began as a rant about the difficulty of knowing what specific items should cost and how to assess their value. In this month’s article, we’ll look at the “price” of retirement. How much does it cost? Have you saved enough? As a financial planner I want to know what something is going to cost before I say “yes.” Sometimes this can feel a little embarrassing. I’ll be the first to ask the waiter, “So how much is that swordfish special?” Did you grow up hearing, “If you have to ask, you probably can’t afford it”? I have the excuse that “it’s my job,” but I know that many people experience fear around asking. I’m not the only one who wants to know.
Back in 2008 a woman in her mid 50’s came to my office for an initial meeting to discuss her personal finances. She had rescheduled at least three times. About half way into our meeting I asked her, “So, how was it for you gathering your information to come see me?” Her response displayed such vulnerability and courage I’ll always remember it. She said, “I’m am so embarrassed! I’m so disorganized! I’m at a point in my life where I feel like I should be more together. I’m ashamed that I don’t have more saved.” Whether you earn a little or a lot of money you can find yourself having similar feelings.
In their book, Why Smart People Make Big Money Mistakes, Gary Belski and Thomas Gilovich state: “Numerous studies over the years have demonstrated significant overconfidence in the judgments of doctors, lawyers, engineers, psychologists, and securities analysts.” According to these findings, highly educated people seem to see their “smarts” in one area as evidence that they are more knowledgeable in other areas as well. But it’s not just professionals who fall prey to this belief. It appears to be part of human nature generally to over-estimate our abilities. For instance, in rating our skills at driving, how many of us think we are “smarter than the average bear?”
Consider the following scenario. You are perusing the menu at a restaurant, deciding what to order. The fresh, local salmon in a piquant sauce with sun gold tomatoes and basil has your mouth watering. It is $32. You definitely want fish, but immediately conclude that the salmon is simply “too expensive.” No, can’t do that. So you order cod, perfectly respectable, broiled – but plain – at $22. It arrives. It’s OK – but it isn’t what you really wanted. We’ve all experienced this type of automatic compromise that seems so sensible we accept it as the “right” decision. Such thinking may become an unconscious principle behind our money decisions. This is the smart thing to do. But is it? Why do we so often deny ourselves what we really want? One obvious answer is that it is about the money. Ten dollars is . . . well, ten dollars.
It’s the sort of thing people ask friends and acquaintances. Recently at the gym I happened to overhear a conversation that began with this question. Unfortunately, I was on my way into the shower and didn’t get to hear the answer. It’s an intriguing question. What is a “good investment guy” anyway? At some point, you may want to find some investment guidance, too. What should you be looking for?
Many of the women I see in my financial planning practice have been through divorce. Many are experiencing for the first time what it is like to live independently. I hear familiar themes with respect to money —phrases like, “I should have paid more attention,” and “I shouldn’t have assumed my ex-husband knew what he was doing.” Finally, it dawned on me to start asking these women what lessons they would want to pass along to younger women, including their own daughters, about money. What follows are their stories and mistakes. Every one of these women has a valuable lesson to share!
Last month I posted a piece encouraging people to pay attention to their money. This, I argued, was “the one thing” that could make a meaningful difference in peoples’ financial lives. It may strike my readers this month, therefore, as counter-intuitive when I suggest that over-vigilance of one’s investments might backfire. Let me explain.