Your ‘inner caveman’ hinders security
Humans are emotional, and that can affect financial decisions, says finance pro
Being intelligent doesn’t prevent you from doing unintelligent things with your money.
So says Jill Schlesinger, a CBS News
business analyst and the author of The Dumb Things Smart People do with Their
Money ( Ballantine). Schlesinger, a former options trader and financial planner, was motivated to write her book because “I wasn’t seeing the book out that spoke to a lot of the people I hear from all of the time. “So many books judge you for buying a latte, or talk down to you.
“I hadn’t seen books written for smart people who were stymied by fear, greed and cognitive biases.”
Schlesinger says her book is for “people who are doing pretty well and should be more on top of their financial lives: people who want to do better.”
We asked Schlesinger a few questions about preventing some of those dumb things she’s seen smart people do:
When you talk about the Big 3 in personal finance, what are they?
I talk about the three basic points of any smart financial plan. First, pay down any considerable debt: credit cards, student loans or auto debt. It’s incredibly important.
Second, establish an emergency reserve fund, and not just one or two months’ worth, but an ample one. You should have six to 12 months of general living expenses socked away in a safe place.
Finally, maximize your retirement
plan contributions. This is one where people seem to fall short. Matching your employers’ contribution isn’t enough. When you’re young, the maximum contribution may not be attainable, but it’s something to strive for.
How does our inner “caveman” influence our perception of risk?
I love the way we are programmed as human beings. The caveman in us is really good at saying, “I see a lion; I must run.” It identifies a very clear risk. It’s the harder things that we as humans tend to struggle with in identifying the risks — things such as identity theft. When we perceive a huge risk, we may not always be in the best spot emotionally to make good, long-term decisions. I try to impress upon people that we aren’t algorithms, we’re human. We’ll make bad choices because we’re emotional. If I can get you to recognize those situations, it will help you to succeed in making better decisions.
How, and why, should we be transparent with our children about money?
Ideally, you want your children to have a balanced view of money. If you communicate what money is and isn’t, and cultivate a learning environment around it, you create healthy, balanced, financially responsible adults.
Try to keep your personal money problems to yourself. Kids can pick up on them and repeat our bad patterns or react against them in harmful ways.
How is real estate porn leading us down the wrong path?
I don’t know if it’s the Canadian dream, but it’s certainly the American dream to own a home. People get hoodwinked into buying real estate because they are told over and over again that it’s the most important thing to do.
Everyone watches the house flippers on TV and runs around to open houses: it’s fun and voyeuristic. However, people buy without truly weighing the costs of owning versus renting. If you run the numbers, a lot of people are so much better off renting. The usual wisdom says that renting is throwing money out the window, but the reality is that it buys opportunities — to travel, etc. That’s what’s lost in the conversation. The pull of porn is always strong. Is there a key for protecting against identity theft? My favourite thing — aside from two-step authentication online — is to keep your credit frozen always. If it’s frozen and someone gets your information, they can’t do anything with it. If you decide you want another credit card, you just need to take one extra step to make it happen. However, it’s easy to get lazy about this. Considering all of the dumb things people do with their money, what’s the dumbest? Everyone has heard me rant about estate planning. But there should be no reason you don’t have a will. It’s the most awful mistake because it’s irrevocable.
If you die without a will, you leave such a mess for your family. In many respects, it’s the easiest financial planning step to take; you don’t have to run any complicated calculations. Do you really want to be known as the most stubborn, selfish member of your family? Confront your mortality and put a few things down on paper.