I doubt there are any HumbleDollar readers who buy into the dozen notions listed below. But trust me: There are plenty of folks who do.
Trying to play financial coach to friends or family members? You’ve got your work cut out for you if:
- They imagine they can achieve financial freedom without living well below their means.
- They believe their car—or any other possession, for that matter—is an investment.
- They think it’s easy to beat the stock market averages.
- They rack up credit-card charges without considering how they’ll pay off the resulting card balance.
- They think Wall Street is on their side.
- They fail to fund a 401(k) plan with an employer match.
- They haven’t bothered planning their estate because there’ll be plenty of time later.
- They assume the safest option is to keep everything in cash investments.
- They see financial peril coming—a big home repair, the need for a new car, a possible layoff—and yet they don’t immediately start prepping their finances.
- They think tax deductions are financial freebies.
- They buy their investments from their insurance agent.
- They imagine they can wait until their 50s to start saving for retirement.
Any other signs that folks are likely a financial lost cause? And is there any way to wake them up from their money stupor?
Mr. Clements,
I have been reading your columns for years and have enjoyed them immensely. They also have impacted positively my family’s finances. The most impactful article was one you wrote for the WSJ titled “20 Tips for No-Nonsense Investing.” I’ve shared this article with many people over the years. I notice that many articles you write are variants of this article. Thinking back to this article, are there any updates you’d make today? Also, any chance you could post this article again on humble dollar (with any updates? I believe it would benefit us all. Thanks for all you do.
Here’s the article you’re referring to, which probably can’t be read without a WSJ subscription:
https://www.wsj.com/articles/SB114031062160177956
I can’t post the full article to HumbleDollar because the rights belong to the WSJ. But, for those who can read it, I believe it’s as relevant today as when I wrote it.
I think #6 is the key. “There’s no substitute for saving money.”
They have a good reason why they bought each of their many different mutual funds. I once helped a friend with his taxes. His Fidelity tax statement showed he had losses in 40 mutual funds. While it was a bad year (2018) for the S&P 500, I questioned why he had so many funds with overlapping holdings. I looked up the expense ratios of each of the funds and made a spreadsheet showing the expense ratios (averaging .72%) and suggested he dump them all and replace them with a few funds from either Fidelity or Vanguard with expense ratios averaging less than .2%. Given that he was also paying Fidelity twice what Vanguard charges for financial management, I also pointed out that he was not getting very good advice, since they were keeping him in a complicated set of conflicting, high expense funds, making it nearly impossible to tell what he had invested in any given market segment. However, he was unwilling to discuss this further or consider my suggestions. We’re still good friends, but he just closes down when I bring up finances. I probably should have approached it differently. `I did not find a way to wake him up.
Jonathan,
With regard to your last question, I don’t know the answer, in my experience people who do well in this regard do have some key characteristics:
They think about the future, whereas most people focus on the now.
They are able to delay gratification.
They understand and internalize the time-value of money.
They take responsibility for and understand basic financial issues – taxes, investments, etc.
They have realistic goals – i.e. mid 6 figure nest egg as opposed to Bezos level wealth.
They are sufficiently humble with respect to their ability to pick investments and predict the future.
I once heard a conversation around our old condo pool. The lady was complaining about her husbands crappy public pension and how money was very tight for them. I later found out he had been a teacher and retired at age 52. I’m guessing if he hung it up 10 years later at age 62, his pension would have nearly doubled with the additional credits.
The devil is always in the details. I bet that pension had a COLA. A friend retired as a sheriffs deputy after 20 years at age 45. Now she house and pet sits.
They do have COLA, still, additional credits would have been substantial.
Absolutely
Their investment strategy is driven by FOMO (Fear of missing out).
They think they will inherit their retirement funds from parents/family.
While you are correct in almost all cases, it is possible to buy a car that will almost certainly be worth more than you paid for it… a Ford GT for example.
But there’s no trunk for your Cornwalls!
A while back I was in a van pool with a couple guys that were really into playing the lottery. They said that it (winning) would be the only way they were going to be able to afford retirement. They were not just buying a single ticket each week, but basically putting their potential retirement savings to that. Too many buy into the get rich quick frame of mind. They would get so excited whenever it was the day for numbers to be pulled. I just thought they were dumb, lol.
Here’s another one: It isn’t worth trying to save anything until I have enough money to make a difference.
Another mistake. A family member invested heavily in one stock because the guy he knew, who recommended it is “really smart”.
he didn’t take into consideration that while a person might be a brilliant engineer that doesn’t translate into being financially savvy.
Lesson: There is no one person who knows everything. If there were, I would find them in haste and give them all my money to invest.
They focus on their tax refund and ignore the total tax line on their form 1040. Example: I once told a coworker that I only paid $300 in taxes for the year, and he bragged that he got a huge refund.
They buy one of the hot “meme” stocks because of the can’t miss momentum and their friend made a boatload on it.
They always have an excuse for why they can’t save. They can’t make a distinction between needs and wants and easily rationalize discretionary spending.
I just golfed yesterday with two guys in their early 30’s. During the round they told me about their recent 2 week trip to Europe (3 cities) and the golf courses they played in Ireland for approx $200 Euro’s each. Their adventures at the blackjack table, nightclubs and the 5star Michelin restaurants they dined at.
After the round they discussed the other countries they wanted to visit and if they should go to a friends wedding in Italy.
Then in the next breath, one of them says that their generation has been screwed by the older generation and they will never be able to catch up. He complained that he could not afford a house even though he makes good money.
By conservative estimates he probably just blew 10K or more on a two week trip… could this not be used towards a house lol?
My wife and I just marvel at the behaviour and attitudes we encounter.. we would never have considered a trip like that till our house was paid off etc etc, etc.
Let’s hope their older generation gives what they screwed them out of to charity.
So true, Dick. Especially your first sentence, which also relates to Jonathan’s first item on his bullet list. I was once asked to help a nephew get his finances under control and he just had one excuse after another to try and validate his
expenses. I gave up.
You can’t reason with people who are immature and think the world owes them a living.
There seems to be more people with excuses than ever before. Woe is me is the new Just do it.
It is hard to know if there are more people with excuses or if social media has their numbers more apparent.
I’ll admit to the habit of giving lost causes another chance–maybe a consequence of my career. But here’s one: they don’t get excited about investing in the stock market until they see headlines about record highs.
The same mindset that causes people to wait in line for hours to buy lottery tickets when the pot reaches record highs.