At The Money: Our Complicated Relationship With Cash

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0:58We all have a complicated relationship with money. We think we understand what it is and why we want it, but very often we have little idea about what money truly represents. This can lead to disappointment when we think about how much money we need to be happy. Capital is a tool, and if we want to get the most out of it, we need to understand what it can and cannot do for us. I'm Barry Ritholtz, and on today's edition of At The Money, we're going to discuss how to improve of our relationship with money, how to have better outcomes when it comes to earning, investing, and spending our cash. To help us unpack all of this and what it means for your portfolio, let's bring in Dr.

1:46Daniel Crosby. He is the chief behavioral officer at Orion, where he develops tools, training, and technology to help financial advisors apply behavioral science in their practice. His new book, The Soul of Wealth, 50 Reflections on Money and Meaning, is out this month. It challenges readers to think about money in new ways and to develop a better relationship with their finance. So Daniel, let's start with a simple question. What is true wealth? How should we consider things like friends, family, health, time, in terms of our overall wealth versus simply financial success? Well, very great to be here.

2:30When we look at what true wealth is and what it isn't, what it is is a little harder to answer. What it isn't is just a number. And if we look at the positive psychology literature that came out beginning in the mid-90s, there's really like five things that are the staples of a life well-lived. Martin Seligman did this seminal research, but it's positive experiences. So this is sort of leisure, like are you having enough fun? It's engagement, which is deep, meaningful work that helps you sort of lose track of time. It's relationships. This is the thing that's most predictive of true wealth. It's meaning, working for something bigger than you, bigger than your net worth.

3:14And it's advancement, which is getting better, you know, being better today than you were yesterday, growing, learning, changing. And when most of us think about and talk about wealth, we do it in a very one dimensional way. And even when you look at, you know, how people prepare for something like retirement, mostly we're trying to hit a number that would help us have lots of that leisure. Right. We're going to spend it at the shore or at the golf course. but we don't always account for the relational piece or the meaning or the advancement or the growth or the work. And all of these are very much a part of human flourishing.

3:52So, you know, soulful wealth encompasses far more than just numbers on a spreadsheet. So in the book, you address four common behavioral errors that are endemic to finance, ego, emotion, attention, and conservatism. Explain those if you would. Yeah, absolutely. So, you know, there's there's well over 200 different psychological biases now that impact our money. But in my research, I really said, look, they're not all equally meaningful. And a couple of them are sort of these meta biases. Ego is the different flavors of overconfidence, thinking we're better than we are, luckier, better, smarter, more knowledgeable about the future.

4:36Emotion is exactly what it sounds like, sort of confusing the heart with the head, which is easy to do with something as visceral as money. Attention is where the media comes in, you know, the media diet that we have ourselves on. It's confusing things that are loud in the media with things that are likely or high probability. And conservatism is the various ways in which we're sort of small minded and provincial. We're risk averse. We're status quo prone. We confuse things that we know with things that are good. And all of these things can kind of land us in trouble. Money can indeed buy happiness if spent on meaningful experiences and values.

5:24Let's discuss that because it flies so counter to what we're so often told. Yeah. So, you know, the money and happiness literature has changed even in the last 10 to 15 years. And there's just like a few things that we know. First is that it matters how you measure happiness, right? Some ways to measure happiness sort of moment to moment, right? They have a beeper and they, you know, they beep you at various points in the day and they say, hey, how are you doing? when you're measuring sort of like how are you doing moment to moment, happiness plateaus rather quickly with respect to money. But when you ask people about their self-appraisal of their life, like, hey, Barry, how are you living, man?

6:12And like how how are things greater wealth tends to correspond with greater sort of qualitative descriptors of being self-satisfied and happy up to even like half a million dollars a year. So there are where we're introducing some more nuance into the money and happiness conversation. The other thing we're finding is that certain ways of spending money really do buy happiness. Like getting out of stuff you hate buys happiness. I will never mow my yard again because I hate it. I live in the deep south. It's too nasty. There's too many bugs. I hate it. And the money that I spend to let some high school kid cut my yard is some of the best money I ever spent.

6:59Let's talk about the flip side of spending and instead focus on the importance of delaying gratification as a form of wealth building. Discuss why sometimes we should not engage in immediate gratification. Well, this is, you know, this is one of those things that's just kind of a lesson for life. You know, delayed gratification will get you far across a variety of contexts. If you look at the ways that people screw up their lives, whether it's an affair or an addiction or whatever, it usually has immediate gratification at its core. And if you look at the way that people get the bank account or the body or whatever that they want, it usually has delayed gratification at its core.

7:49And so we are wired profoundly for the here and now. And so I think one of the ways that we have to really work for this is by casting a vivid, visceral vision of the future and that future enjoyment and that future state. That's why I harp on purpose so much and meaning, because without that, without that thing to look forward to, the pull of the here and now just becomes far too powerful. Does this relationship to immediate gratification change as we age? How does this evolve as we all get older? Yeah, we get a lot nicer as we get older. So a lot of the rough psychological edges tend to be sanded off through much of adulthood.

8:36It's really kind of fun to watch. The sharp edges get sanded off, people get better at delaying gratification, they get kinder, they get better with people. And then, of course, in in in later age, we start to deteriorate. But, you know, I think that is an under discussed and under appreciated benefit of middle age. Easy for two middle aged dudes to say. But, you know, I think that is a an under appreciated privilege of middle middle age is that you just tend to calm down a little bit. And it's it's quite nice. And I'm living it, Barry. I'm living it and I'm loving it. You know, one of the interesting things we've discovered in the office is that getting people to pivot from being savers and investors when they hit a certain age to being spenders and donators, it's a very challenging psychological turn to make.

9:35A lot of people, hey, you spend 20, 30, 40 years working in saving and working in investing to tell people, hey, you have a ton of money. Go on that trip, buy that beach house, spend time with your grandkids. There are a lot of psychological obstacles to effectively embracing that. Discuss that, if you would. So first of all, I'll just commiserate. I recently for a project we were doing at Orion, I interviewed over 400 couples and we basically asked them what they fight about when they fight about money as a way to sort of ascertain what are some of these fundamental personality dimensions of the way that people view wealth.

10:16And the number one source of disagreement was whether money is better used to enjoy today or to secure tomorrow. And there are two very pronounced camps there, the YOLO camp and the like save for tomorrow camp. And like never the twain shall meet like they they are very in there. They're deeply embedded, like the people who see themselves in the best use of cash as fun and seizing the day. have a, you know, a very high opinion of themselves. And the same is same is true of people who are so diligent at saving and putting off for tomorrow. So I don't know that there's a trickier problem in all of finance than than the one you're talking about.

11:02The only thing that I have seen work again is purpose. You know, Covey talks about in his book, you have to I'll butcher it. But basically, you have to have a yes burning inside of you that's bigger than the no. Right. So there's this no, like, no, I don't want to see the number go down or like, no, I've been in saver mode for decades and I don't want to see that number go down. I think the only way that we overcome that very fundamental psychological tendency is to introduce a love or a passion or a purpose that is bigger than that fear. Maybe that's the grandkids. Maybe that's the philanthropic gift of choice.

11:43Maybe that's time with the family at a time when time is increasingly short. I think that's the only weapon we have in that fight, though. And our final question, how important is a good financial plan and what are the key elements that go into creating one? Well, you know, one of like the blocking and tackling of a financial plan, you know, there's all the usual suspects. But I'll talk about one of the things that, again, I think we get wrong the most. And Carl, who was previously mentioned, has done really interesting work with Michael Kitsis on this. we're really prone to mimesis, right? Like as a human family, we're really prone to imitation and doing what other people do.

12:32And people are both highly mimetic and don't have a great sense of what they want. And they contend to kind of just want what their neighbor has, you know, like, you know, what's your financial goal? Like, well, to have a boat like my neighbor, to have a house like my brother-in-law. And so getting it right in a financial plan means going a lot deeper with someone on what they value and their vision of the good life and their vision of a dream existence. It means going a lot deeper than we usually do. I think we typically as a profession ask very shallow questions and get very shallow answers and then come up with financial plans that lack some efficacy because they're serving a very weak sauce copy of a copy of someone's dream.

13:29So I think the first step is getting laser focused on that vision for the future, that purpose, that why. And until we have something that's emotionally laden and visceral and powerful, I don't think any of the blocking and tackling in the Monte Carlo simulations matters much at all. And it's always going to kind of fall flat. So to wrap up, yes, we have a complicated relationship with money and we often fail to understand what it can and cannot do for us. But if we're thoughtful in our spending and try and create memories and experiences and use our money in a way that's purposeful, it leads to very good outcomes.

14:16I'm Barry Ritholtz and you're listening to Bloomberg's at the money.

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