The Biggest Risk Of Them All - BOD027

0:00Pete:Nobody cares at us about you. Apart from yourself. Yes, sorry. Yeah, I care about you. Yeah, thanks. Fuck you. So, if I'm wearing skis... Hang on, pause. This is an image of Dad AI to be wearing. No, no way is that. Hi and welcome to the Bank of Dad podcast. I'm Kate and this is my dad Pete. Hello. And we're here to teach you the money lessons we were never taught at school. There's no judgement, no jargon, just real talk about how to handle your money. Yep, here we are again. I feel like when we came into the studio, like nothing was charged, was it? No, despite this being a large part of our jobs, you were violently underprepared.

0:42Pete:We were really, which is why I'm reading off my phone because my iPad's not charged. The iPad that turns all the lights on, that wasn't charged. There's multiple iPads in this room. Yep, your laptop's not charged. And that's the thing that controls this. The main camera battery wasn't charged. so basically a complete shower but we uh you know shower yeah a shower of shit is oh shit showed i see got it yeah yeah so despite being professionals apparently yeah uh we were no evidence of that today and also we've accidentally come in matching matchy matchy yeah you're you're more gray tuned that's because you're a spring i am indeed i'm an autumn so this is a little bit more warm well i can wear warm as well obviously because i'm spring but oh yes We have the grey neutral because it's more vibrant.

1:32Pete:Absolutely nothing more on colour theory coming up today, but what are we talking about? Today we are finishing our little mini-series that we have been talking about on risk. And we have done the more obvious risks. Last week we did the hidden risks, the ones you might not be aware of. And then we teed up for this. I see this one a little bit and maybe the sort of biggest risk of all, which is kind of behaviour. Behavioural risks, indeed. So I'll talk a bit about that today. So that is today's, yeah, that is today's topic. So we're going to talk about behaviour, but before we do, it's time for Wanky Word of the Week.

2:08It's time for Wanky Word of the Week.

2:13Pete:Yes, here we are again. And what is this week's Wanky Word of the Week? It is quite wanky, but it's not wanky in a finance way, it's a wanky in a psychology way. Okay. speaking as someone who doesn't work in psychology no me neither um cognitive bias yeah so cognitive to do with cognition so how we yeah the brain how we process stuff and how we receive stuff process it and then act upon it and then bias you know suggests a sort of pre-disposed way of thinking or acting yep so cognitive biases are the kind of programmed into our humanity ways of reacting, behaving, and dealing with stuff. They're part of who we are.

2:53Pete:They are inescapable, but it helps if we understand a little bit about them. There are like hundreds of these biases. And they're also trainable. Yeah, but you can't get away from them. You can't fix them. So you need to understand them so that you can work with them rather than try and fix them. I beg to differ. I feel like you can rewrite them. Like if you... You can beg to differ all you like, but like a couple of centuries of psychology would probably disagree with you. Well, sure, but surely you can rewrite them. Like if you grow up in a household that's really fearful about money and you mustn't spend, you mustn't spend, and you'll win the lottery, you can overwrite your cognitive bias.

3:33Pete:You can, but yes, you can... I'm just saying it shouldn't, it's not impossible. I think overwrite potentially is a little bit final. You can... Rewire. Mitigate the effects of it. I don't think you can get rid of them but I think with awareness you can perhaps mitigate to a degree their impact. Interesting. So I had a client recently, I've been earning hundreds of thousands of pounds a year, mega high earner, same as you. Mega high earner. And in his 40s, the maths simply said he could retire now and have all the money he needs. and he said I can possibly do that I said why? You know the maths shows you've got all the money and he said I grew up dirt poor and I have a real thing about poverty and I will not rest until I've put what I think is enough space between me and being poor.

4:31I mean fair enough

4:33Pete:Fair enough but to an unhelpful degree in his case because he's burned himself out and he needs not to be working at that pace but he can't reconcile to. He can still work but obviously and maybe only earn 60 grand a year or something right because he's got all that he needs but for him it's a really big deal so you know despite you can apply as much logic to this as you want it's a big deal yeah sure okay well let's get straight into the main body the first sort of section or chapter as it will be named in the YouTube comments description box is emotions and decision making so this could be the whole thing really well yeah but it needs not to be because we've got more to go i'll probably bring it back to this though i'm sure so how do emotions affect my money making decisions it may seem obvious but let's let's get it out into the open it's the beginning of the video so emotions and our cognitive biases you know the way we are wired it's essentially emotion is sort of less um thought through less logical we're sort of almost balancing logic versus emotion as not diametric opposites, but, you know, they're...

5:44Is that when people think with their heart or their brain?

5:47Pete:Yeah, you might hear sort of right brain, left brain, which is sort of, you know, analytical versus creative, all that sort of stuff. We kind of, all of us to some degree, hold logic and emotion in tension, but I think if you were able to fully turn off emotional response or anything, you'd be a psychopath. Yeah, absolutely. Well, let me die. So you don't want that. That is the definition of psychopath. Well, pretty much. So emotions affect every decision. But because finance is very emotive, you know, not having the money that you would like to have, having money troubles, you know, fighting debt, all the sorts of things, you know, that just the sort of slight fear of talking to the bank or HMRC or whatever.

6:35Pete:Money is a deeply emotive subject. And so because of that, because for many of us it's a source of fear and concern, our sort of fight or flight basic instinct to sort of stick our heads in the sand or run away from it applies. And so that means we can sometimes make money decisions really quickly to kind of get them off the table. So just don't think about that anymore. or the opposite we can procrastinate endlessly stick our heads in the sand and not make a decision because not making a decision means i don't have to deal with it so we just need to kind of sort of set as a premise that we are emotional creatures driven by the chemical impulses in our brains to do stuff that doesn't make logical sense a lot of the time we just need to kind of accept that as a starting point and be able to work with it and work yeah accept it and therefore understanding It starts with understanding, I think, to some degree.

7:29I think when people think about emotions dictating behavior, they think, what was the presumption I made, actually, is people seeing negative emotions, being angry, making a rash decision, being sad, making a rash decision. But there's more to it. For example, can you be too confident? And if that's the case, can that be damaging?

7:49Pete:Yeah, it's called overconfidence bias. Of course, it's got a name. Yeah, it has. They all have a name. We'll cover a few. so overconfidence bias is the sort of I can do anything put it all on black yeah but without reason or not so much overconfidence in that you know you're sort of betting on chance like put it all on black but more sort of well investing is easy all you have to do is this or I have made I've done well in the recent past you know I invested 10 ,000 it's become 14 in a year I am the best clearly I'm an investing god and so I can do no wrong when it comes to investing that is more likely to make you make a decision which is arguably too risky because you are less likely to properly weigh the pros and cons.

8:38Pete:So overconfidence bias can lead you to making silly mistakes just because you haven't considered the downsides or risks. You must consider the downside. Okay, so if regardless of the emotion we're feeling, whether it's positive or negative, you know what I mean, positive, the confidence thing how do I stop myself making those impulse decisions because you know today you and I a bit tired and we have to do this and here we are we bought Haribo a shit ton of sweets and Sprite and Dr Pepper you can tell we've had a long day yeah so we've got to record it's half past seven at night let's buy some Haribo to get us through that was an impulse decision we acted on it I don't regret it yeah I did Haribo that's okay you acted on it and I am reaping the benefits so but obviously this has a lot more weight than buying some Haribo.

9:25But how do we stop those impulse decisions?

9:27Pete:Well, again, awareness, right? So we talk about being intentional and sometimes you have to sit down and probably you are aware that you might be an impulse spender. It's probably not taking you by surprise because you're getting to the end of the month and thinking, well, I spent a lot more than I planned or I didn't plan to make those particular purchases. So if you are aware that impulse spending is a thing, you can start to think about what the triggers might be. so are you tired yeah uh have you had a crap day yeah are you do you are you more likely to impulse spend if you've had a drink uh on the weekend versus a weekday you know this yeah evening versus a morning 2 a.m doom scroll for me well there you go right and so everything starts with awareness and so you might say okay well then the answer is you know i'm not going to doom scroll at 2am or I'm not I'm going to make a rule with myself not to shop yeah there's an often quoted sort of rule that you can put in place for yourself that if you're prone to impulse shopping set inside or set yourself a rule that something has to stay in your shopping cart for 24 hours 48 hours a week with clothes I am good with that sometimes they're in there for like three months yeah and sometimes you think actually I don't like it I don't like it that much or I don't need it or I'd rather spend the money on something else yeah a lot of dealing with cognitive biases is sort of putting in place a kind of framework to help you respond more effectively.

10:53Like a firewall for impulse.

10:54Pete:Yeah, exactly. Put yourself a rule. We'll talk about investing in a bit, but there's things you can do there as well. There's lots of things you can do. It starts with awareness. I am more prone to impulse shop when I've had a drink or when I'm tired or when I'm anxious or when it's two in the morning. Therefore, I will put myself a rule in place that says I will not buy anything on impulse. i will instead yeah or i yeah i won't shop after 9 p.m or i won't shop if i've had a drink or i'll limit it to monday and tuesday nights you know where i might be a bit more fresh or whatever or sunday morning with a coffee so you can be more intentional about it starts with awareness and then you can build frameworks okay so the next sort of section we're going to talk about is social pressures um because well that's everywhere yeah more so than it's ever been arguably yep um so So why do I feel like, you know, why, I, why do I feel like everybody's got more money than me?

11:51Because they have. No. All right.

11:54Pete:I've just bought you the house. Yeah, no. I'm joking, obviously. No, I don't. There's always been social pressure. There's no doubt about that. It's a well-documented phenomenon. But of course, now it's everywhere and it's immediate and it's in your pocket. And people are bragging. Yeah. It's not just like what you see. it's what people are just putting out there it's more curated than it's ever been it's more filtered yeah uh it's not raw and so you know when you can edit a reel before you put it out and you know everything's just sort of utterly perfect yeah um yeah to the point of whitening teeth yeah and even if you know that right yeah it still works and it's still gosh you know that person's 23 like you but that person's got like a nine property portfolio and a porsche so what am i what am i doing wrong yeah what am i doing wrong so you're not doing anything wrong you know you need to start from the fact that you know your life is uniquely yours and it's not theirs and they may have had help that you didn't and uh particularly sort of anything sort of entrepreneurial is very often sort of sugar coats the incredible challenges or you know it's like you know i've built this from scratch it's like yeah but you had a 50 grand head start from yeah from your uncle or or your auntie or whatever yeah so yeah i mean yeah i think we need to understand that everything's filtered so that's that's a start i just think that's the reason it's ultimately social media that's why we feel worse off i think i was going to say that why do you think social media does influence what we spend.

13:30Pete:Well, it's going to, isn't it? If you aspire to be like somebody who you follow online, then you, I mean, these people make money out of getting you to buy the same stuff that they do, but which they've got affiliate arrangements with, you know. And then now, actually, they're all releasing collaborations and collections. And it's like, yes, I must have the Molly Mae Haig leggings that I made next to the Primark leggings in the same sweatshop in China. it's a bad example because I don't know Molly Mae the Hague's clothing line you know ethics but let's not get sued let's not I actually quite like Molly Mae but do you know I think Molly Mae's great and her leggings are exceptionally comfortable no but do you know I mean the point is like we are so obsessed with brands and brands showing status that we won't wear the Primark leggings if we can afford the the Molly Mae ones the Molly Mae ones and that's both sort of external motivations so because if i wear it's very weird i've been talking about molly may leggings i don't think molly may even has leggings i was thinking i know she's got a clothing brand okay so it's like kim kardashian skims she defo won't see this we can talk about that so if i'm wearing skims hang on pause this is an image of dad ai to be wearing no no way is that I will veto this.

14:53So good.

14:54Pete:You know, you might get these things to impress other people, but you might also get these things to say, well, I've worked hard. I deserve this. That's like mine. You know what mine is. I'm sure I do, but remind me. When I started House of Colour, I shall not be achieving this goal, but when I started my colour analysis, I knew I was, my goal, my success goal was to buy what? I can't remember a pair of come on Louboutin Louboutin that's right yeah I was gonna say Jimmy Choo I've always wanted a pair of the Red Souls yeah and that would have that was like my benchmark if I've made it I can justify yeah so ask yourself why I mean ultimately it's Louboutin's fantastic marketing yeah doubtless you know I mean the Red Soul thing is a stroke of genius and I'm sure, you know, they're on the red carpet, they're at the Oscars, they're at the Met Guard.

15:52Pete:Do you know what I mean? They're everywhere where successful people... Yeah, Taylor Swift had a custom set for her entire era's tour set. Well, there you go, right? So, you know, when there's that much marketing that was behind a brand, they're not stupid. They want... Yeah, they know. So you will buy a pair of Louboutins both to show the world that you are successful and to feel successful yourself. so you've got extrinsic, external and internal motivation, intrinsic motivation. And there's nothing fundamentally wrong with either. Again, as long as you're aware. Yeah. I will one day have a pair of Louboutins.

16:25Pete:But to get into debt to buy a pair of Louboutins would be pointless. Madness. Yeah. Because ultimately they're shoes. Beautiful shoes. I know, right? I've looked, as we've said several times, we're sitting in a temple to my tech addiction. Yeah. Right? Just off camera, there's two beautiful rolling keyboards. There's a TV behind you that we never use. No, I occasionally stick something on my family or on my own, but not, you know, it's like not very often. Yeah, anyway, but yeah, so it's not worth it, but I can put value on it and that's fine. Just don't make poor choices based on that value. No, because that's unhealthy motivation, I think, an unhealthy reason to do something.

17:07Pete:You should question everything, really, in a sort of sensible way. you don't double guess yourself every time. But just understand that we are being influenced and guard against it. Yeah. You don't have to accept it, see? No. There is a collection of Louboutins called the Sokates. Is there? I mean, come on. It's made for you. And Zendaya wears them exclusively. They're like this tall. They're like well-known footbreakers, but I will get a pair. Okay, so... That'll take you to about five foot four, won't it? maybe five fives maybe six and five for three all right give me a break okay so but it can be difficult when everybody else is doing it so how how do we say no when everyone else is uh it is hard right social pressure is really hard we're all susceptible to it there's anybody who says they're not is a liar in my book uh but maybe to to a greater or lesser extent surround yourself with better people well there's a lot to be said for that i think if and you know friends don't let friends get into debt to you know put a facade out i think the biggest flex by far is being in good financial shape yeah i mean this makes it okay this is going to sound bad but when i've like bumped into old college friends they're like oh kate what are you up to now and i'm like oh working for me dad not no then working for me dad um no but i'm like how do you know what you're up to is oh well you know i didn't travel anything but i have just bought my first house yeah and they're like whoa that's insane and i'm like yeah that's not like i'm not trying to say that as a flex because you've just gone on a four-month tour of southeast asia and you've gone into uni and got your degree and you make choices you live by everyone's different but that to me is the coolest thing i've been able to say and i haven't i've had to say really hard for it yes you have you know i just think stuff is um transient yeah uh it doesn't make you happy ultimately and there's a lot this um kind of way of living which was you know when i eventually so i'll be happy when i eventually meet my life partner i'll be happy when i eventually sort my finances out i'll be happy when i eventually have kids or get the job that i really want and you spend your entire life striving towards something as opposed to living fully in the in the present you don't have to buy stuff to live fully in the present no that is true in fact the most memorable and meaningful gifts I've had really have been experiences time because that is a currency that you can't make more of commodity you can't make more of right section 3 investing behaviour yep should I invest just because everybody else is no because everybody else is a stupid reason to do anything should you jump off a cliff because everybody else is vaccinated yeah do that get vaccinated And certainly don't go on cruises if you're not.

20:04Pete:No, for sure. Do you know, because everybody else is doing it, no, no, no. You need to be, to a large extent, reasonably self-centred when it comes to your finances because nobody else is going to look after you. No. Your financial future is your responsibility alone. So you should be selfish. Yeah, we're a long way from the time where you could work for 40 years for the same company. They would provide a pension for you and all you have to do is show up to work. These days, people have tons of jobs. Seven careers, isn't it? Careers, yeah, something like that. In a working lifetime. 15 or 18 actual jobs.

20:35Pete:Yeah. And so your ability to one day retire is entirely down to you. Your financial security is entirely down to you. Nobody will do it for you. Nobody cares at all about you. Apart from yourself. Yes, sorry. Yeah, I care about you. Yeah, thanks. I care about me. You know, none of the bigwigs. No, I mean, Trump doesn't care about you. Trump doesn't care about anyone by himself. the governor of the central bank you know the bank of england he doesn't care about you the stock market doesn't care about you the insurance companies don't care about you nobody cares about you except for you when it comes to your financial future so you've got to take it uh seriously uh yourself um and as with everything you should invest intentionally because it's the way to build wealth for the future yeah because if you do what everybody else does then you'll do what everybody else feels comfortable wise risk wise and that might not be right for you and that's just the majority are rarely right i mean it's a generalization but you know i think particularly plus there is no right no exactly we'd say that all the time though there's no should there's no best yeah so right way of doing you know it's like this right it matters of opinion like you know it's yeah and probably some people have louder opinions than others yeah and how you invest is truly an opinion anything okay well how do i avoid fomo investing then all right so I've decided I'm not going to do it just because, but everybody seems to be doing that.

21:57Am I missing something?

21:58Pete:Yes, everybody's talking about crypto. Bitcoin is where it's all at. I don't feel comfortable about it, but maybe everybody's doing it. Should I do it? Well, exactly. These are high-pressure things. Should I be doing it? Am I missing out? Do you want to? So, well, yeah. The problem with, and we're going to talk about finfluences next week, can't we? Hideous word. Financial influences. Kate gets mad. Say again? Kate gets mad, actually you get mad at them too i do despite being one oh my god am i one now yeah sort of i'm an award-winning finfluencer there's an award in the office retirement finfluencer of the year or some nonsense that's actually disgusting anyway carry on you know so obviously everybody's got an opinion and you know back in the day if you wanted to learn about anything financial you'd have to go see a stockbroker or a financial advisor or read a book and these days obviously it's just served up to you by the algorithm.

22:52Pete:So FOMO investing, the problem is by definition, that's going to be sort of short term. It's like, do this now or else you'll miss out. Invest in this now or else you'll miss out. Investing as we've learned by now is a long term thing. So I say all the time to clients, it doesn't matter whether you do this this week or in six months time, take your time and make a decision because six months in the context of a 60 year retirement horizon, investing horizon is nothing. Surely that depends where you are. Like if you're 58, maybe don't take six months. But even 58, you know, probably you're going to live until you're 88.

23:26Yeah, no. Oh, yeah, but I was just thinking of retirement. Six months.

23:30Pete:Certainly, investing is too important to make a quick decision based on a fear of missing out. You need to make a thought through intentional decision. Yeah, that's fair enough. All right, so linking emotions to investing, you might want to be looking at it quite a lot and regularly checking. Is it bad to be checking it all the time? So yeah, if you've got money invested in your apps on your phone, is it bad that I'm constantly checking it? Easier than ever. You used to get a statement once a year. Yeah. Or you'd have to ring up. Yeah, once a year. And you'd have to ring up if you wanted the value in the meantime.

24:00Pete:And you'd get it in the post. You know, remember that? But they could fax it to you. I actually think faxing is a brilliant idea. I don't know. Like, I think it's genius. Okay. You know, we have email. No, no, I know that. But I'm like, that's an extra step. Just put it through, put up in your little code. Bam. it's in their hands okay that's fine you're an old soul yeah faxes were fun because it would just ring you like oh who's sending something what is it right just like come through really slowly nigel it's like a million emails a day it's just not so much fun i want to see that that feels like the delayed gratification oh what is it oh is it my investment statement has it gone up or down like so i mean you know you you because you can see your value every day the problem is that that exposes you to the daily fluctuations of the stock market.

24:50Yeah, because it does fluctuate.

24:52Pete:It does fluctuate and sometimes a lot, a very lot. And so the great thing about an annual statement is like you wait all year for it and you think, I forgot I had that. And you look at it and like, oh, it's gone up. Fine. Don't do anything. Whereas if you're watching it every day or in some investments, if you're watching it throughout the day, it's far more likely to play on your mind. As I say, we, Meaningful Money, have just done a video that went out yesterday. Have we? According to when they launched this. Oh, our podcast, yeah. Launched a podcast. Launched? Have uploaded another podcast and it features Adam Cochran.

25:34Pete:Oh, yeah. Who's just released two days ago. The Money in Your Mind. Your Money in Your Mind, which is a book all about it. And he literally talks about that separation, that detachment for money is so good for your mental health. It's really, really good for your mental health. And monitoring it every second is only ever going to be detrimental. Yeah, it's a terrible idea. I check my values once a month, but only to make a note of them. I don't ever do anything with them. So if there's a problem for you, there is no sense in sort of voluntarily worsening your mental health by checking your phone.

26:02Pete:And that's all it's going to be doing. Take the app off the phone if that's a problem. Or, again, set yourself a rule. I will only check it once a week initially and then drop it back to once a fortnight and then once a month. But crucially, whether you check it is one thing. It's whether you do anything. I was going to say, I check it quite regularly, but I just go, huh. Oh, yeah, that's interesting. Yeah, and then you don't do anything else with it. So it's about taking action. That's really what the behavior piece that we're talking about is a problem. If you take action based on, you know, an unwise decision to check your investment portfolio too regularly.

26:35So you've got to, and we also fall foul to,