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THE OLDER WE GET, the easier it is to see the progress we’ve made, both as individuals and as a society. But I’m not just thinking about personal wealth, higher standards of living, better health care and extraordinary technological advances.
As I look back, I also see impressive progress in our financial thinking. Here are eight notions that were conventional wisdom half a century ago—but which today aren’t universally accepted and, in my estimation, ought to be discarded.
1. Wall Street sells wisdom. Remember John Houseman in those old Smith Barney ads? “They make money the old-fashioned way. They earn it.” Today, the notion strikes me and many others as laughable.
Wall Street doesn’t sell wisdom. Rather, it sells whatever it can get folks to buy—and that’ll also make a heap of money for the Street. What about making money for customers? That, it seems, falls into the category of “happy accidents.”
2. The goal is to beat the market—and, with hard work, we can do it. The reality: Millions of investors have tried to beat the stock market averages and failed, which is why today there’s more money invested in index-mutual funds and exchange-traded index funds than in actively managed funds.
But this massive vote in favor of index funds doesn’t just reflect the realization that beating the market is unlikely. It’s also dawned on many investors that outperforming the market is unnecessary. Instead, by saving diligently, settling on a sensible stock-bond mix, and simply collecting the financial markets’ returns while incurring minimal costs, we should have a great shot at achieving our financial goals.
3. The rich and famous have better lives. The myth: They live in a magical world that we mere mortals can only dream about. This belief was fed by Hollywood publicists and the fawning celebrity journalists of decades ago.
But celebrity journalism isn’t nearly so fawning today. As we’re reminded by the media on a daily basis, the lives of the rich and famous aren’t nearly as wonderful as we imagine. Surprised? Maybe we shouldn’t be. Like you and me, the rich and famous have sleepless nights, indigestion, self-absorbed teenage children, constipation, quarrels with their spouse, and all the other struggles that come with being human—things for which money and fame are not magic antidotes.
4. You can tell who’s rich. As a child, I remember assuming that those who appeared rich—with big houses and fancy cars—were rich. The bestselling book The Millionaire Next Door burst that bubble, pointing out that folks with a seven-figure net worth were often the quiet couple down the street who lived in a modest home, drove older cars and didn’t sport designer clothes. Their thrift, of course, meant they could save great gobs of money.
Indeed, if you listen carefully to what your supposedly wealthier acquaintances say, you can often pick up clues about the true state of their finances. Do they still have a mortgage? Are their cars leased? Are they limiting their children’s college choices? While there might be sound reasons for doing such things, these could also be signs of financial stress—and your purportedly wealthy friends might not be nearly as wealthy as they pretend.
Some years ago, I met an older man through his middle-aged daughter. He was full of bravado and appeared quite wealthy. Still, not all seemed quite right.
When he described the investments that he owned and what drove his trading choices, it was hard to imagine his results were all that great. And when he mentioned that there was still a mortgage on the huge house that he owned, I grew even more suspicious. Even though I gathered he had a five-figure monthly pension, it didn’t appear to be enough to support his lavish lifestyle.
I never learned the true state of his finances. But when his daughter was struggling to cope, financially and otherwise, his response wasn’t to write a check. Instead, his daughter told me, he made a special visit—to help her develop a budgeting spreadsheet.
5. Money buys happiness. A half-century ago, most of us simply assumed that money bought happiness. Today, most folks—including me—still think that’s true. But thanks to some fascinating research, our view is now much more nuanced.
For instance, there are many other factors that affect happiness—friends, faith, divorce, unemployment, age—including the biggest factor of all, which is our innate happiness “set point.” Moreover, much depends on what we buy with our money. Do we use it to create special times with friends and family, to pursue meaningful activities, to favor experiences over things, and to be generous with the causes and people we care about? Research suggests such spending is more likely to boost happiness.
6. More is better. When I say “more,” I don’t just mean more money. Folks spend their lifetime pursuing more of many things, including more career successes and more possessions. But this pursuit can leave us running fast on the hedonic treadmill, sure that the next item will bring greater happiness, only to find we’re running in place. What to do? I’d suggest that each of us should figure out what we’d consider enough, including both enough money and enough worldly success.
7. Employers care. My parents worked for a paternalistic employer, and I certainly thought of my initial employers in those terms. But how many folks today believe that, if they work hard, their employer will return that loyalty and that their job is truly safe? The evisceration of that social contract has, I believe, left us all worse off, both workers and their employers.
8. Time to relax is the big reward. Amassing enough to live without a paycheck is our life’s great financial task. But with many folks reaching retirement in good health, and with potentially many decades ahead of them, retirement from the workforce is no longer about retiring from life.
Rather, it’s about starting new adventures, whether those adventures involve hobbies, travel, volunteering, further education or second act careers. Forget sitting at home in an easy chair with the cat and the TV. Perhaps our retirement might end that way. But many folks embarking on retirement today are looking for much more from life’s final chapter.
Jonathan Clements is the founder and editor of HumbleDollar. Follow him on X @ClementsMoney and on Facebook, and check out his earlier articles.
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Jonathan, my favorite quote, MONEY DOESN’T BUY HAPPINESS, IT BUYS FREEDOM
Nice article, Jonathan. It is great to see our human’s knowledge, including finance, keeps evolving. Thank you for sharing this.