Talk to Us.
People who are successful and wise in other areas of their life may still be prone to making poor financial decisions—as many of us have learned from experience. Why does that happen so often? And what can we do about it?
Jill Schlesinger, a nationally syndicated financial columnist and award-winning business analyst for CBS News, shares some answers from her new book The Dumb Things Smart People Do With Their Money: 13 Ways to Right Your Financial Wrongs.
Money tends to be a very emotional topic, as Jill explains in this episode. Fear and greed in particular can cloud people’s financial vision, causing them to act against their better judgment. Fortunately, she says, recognizing these emotional triggers can give us the capacity to change our money management behavior.
Check out the podcast for more of Jill’s insights on:
Doug: Welcome to The Science of Economic Freedom. I’m your host Doug Fabian. This podcast is all about helping you achieve your financial dreams. We call that economic freedom. This program is about your journey to achieve economic freedom for yourself and your loved ones. Today we want to help you identify your next step on that journey.
This is episode 45, an interview with Jill Schlesinger on her new book, Dumb Things Smart People Do With Their Money. Jill Schlesinger is an award-winning business analyst for CBS News. She is a weekly guest on NPR’s Here & Now, and she is a certified financial planner.
Jill writes a weekly syndicated column called Jill on Money, and hosts a nationally syndicated radio show and podcast called Jill on Money. Jill Schlesinger, welcome to the Science of Economic Freedom podcast.
Jill: Well, thanks for having me.
Doug: Let’s talk about your new book, Dumb Things Smart People Do With Their Money. Why, Jill, did you write this book?
Jill: Well, I think that after being in financial services for 30-some years, I kept running across really smart people who consistently were just not acting in their own best interest. They would do these dumb things, and I really wanted to explore why that was and try to help people prevent making some of the most common mistakes that I had run across.
Doug: So, tell me about the title. I think the title is interesting. It wasn’t until I really picked up a copy of the book and I saw the way that it was typeset that it made complete sense to me. When I just read the title off the…you know, when I was first exploring this interview with you, I wasn’t getting it. I think it’s quite clever, and tell me, why’d you do that?
Jill: I think that it is interesting that, with a lot of our financial life, there are plenty of people who are just incredibly intelligent in their professions and in almost every other part of their life, but in the financial world, something seems to fall apart. Something’s missing.
I guess that part of the reason I wrote the book and actually entitled it as such is that I wanted to make sure that there was a book for people who really did kind of know the basics. This is not a starting-off book; this assumes that you have a job and you can pay your bills and you know that you shouldn’t spend more than you make and that you’re probably not in credit card debt up to your eyeballs, because I felt like that segment of the market was pretty well served.
On the other hand, I also knew that I wasn’t that interested in trying to figure out how to write a get-rich-quick book, because I just don’t think that happens, so one of the reasons I really wanted to look at this in this particular way is to say, “You know you’re smart, and you’re doing everything right in so many parts of your life; why are you doing dumb things right here, and why are you doing these things that really can cost you money?”
In the actual physical look of the book, we went through many iterations of the cover design, and what I wanted people to know is that you are smart, and I know you’re smart, and I know that money can be a very emotional topic, and that’s probably why we make more of the dumb decisions we make, not because we don’t know better, but simply because our emotions get in the way.
You’ll also notice on the cover that there is sort of a little Mad-Men-esque kind of homage of a man holding onto a wire, holding a briefcase, like a 1950s briefcase with lots of dollars falling out of it. Someone said to me, “Why’d you make that a man?” I said, “Because I didn’t want to make it seem like women were dumb. I wanted to say that everyone’s dumb.” Call him the everyman.
Doug: That is great. So, let’s talk for a moment, Jill, about financial literacy in America. As I’m out making presentations and talking with investors, I am shocked at how few people are achieving true financial independents where they don’t have to worry about money. I don’t mean uber-rich, but just comfortable.
Why is it, in your view, that financial literacy is where it is in America today?
Jill: This is kind of a strange topic in many respects because financial literacy is not really taught in schools, and even when it is taught in schools, doesn’t necessarily lead to better outcomes.
I think that the stakes have gotten pretty high in the last 20 or 30 years because it used to be a generation ago you wouldn’t really need to know much about your financial life except that you kept your head down, you worked hard, you got a pension, you got some Social Security, you saved a few bucks, and you’re okay.
The advent of having more and more of your saving, investing, and decision-making of your financial life falling to the employee as opposed to the employer meant that there was…we should have had a very significant shift in the way that we teach people about this. That shift never came, so a lot of this can go back to, a bull market can really cover up a lot of ills, so the 1982-1999 bull market probably covered up a lot of the facts that surrounded this issue, which is that we just hadn’t really taught people how to manage their money and how to take control of this.
Really only since the financial crisis did many of the tried and truisms of these financial rules of thumb just get crushed. So I think that now our financial literacy is not particularly great, although I have great encouragement from the Millennials because of the time they grew up, they have become very much more involved and empowered about taking control of their own financial lives, so maybe we just got to work on Gen-X, Gen-Y, and we’ll see about the Millennials and Gen-Zs.
Doug: You think it’s getting better or getting worse, financial literacy?
Jill: I think that there’s more interest at younger ages, that’s what I would say. In my world, I hear a lot from younger people, more so than I ever did in my professional life. There are more platforms, there’s more democratization of financial advice, so I think that they are more attuned to some of these things, perhaps seeing even their own parents suffer after the financial crisis.
There is a general sense that they better take care of themselves because no one’s going to take care of them.
Doug: You know, something that’s bothering me a little bit about financial literacy and financial independence and the achievement of financial independence in America today is, I saw a study recently where participation in the stock market has actually fallen, and of course the financial crisis has something to do with that, but we’re not gaining as much momentum even though we’re in a 10-year bull market.
Why do you think more people are not participating, and how do you reconcile that? If things are getting better, why are fewer people investing in the stock market?
Jill: Depends who you talk to. Depends on what slice of the universe. If you talk about the United States overall, I mean, we can go back to the original sin, and that is that middle-class Americans have not seen wage increases in 30 years. That will do a lot to halt your forward progress in your financial acumen and your ability to actually go in and work hard and save and invest for your own future.
I’m not a policy expert, but I have interviewed quite a few of them in my day job at CBS, and it is particularly noticeable that some of the problems that are occurring are problems that really started a long time ago.
In terms of the younger generation, they graduated into a really rotten time, they are saddled with a lot of debt with the hopes of being able to land a great job and service that debt, and that is not coming to pass, so I don’t feel like there is a lack of desire. I do feel like there has to be some sort of reset, and that reset may come in lots of different ways.
I don’t think it’s reasonable to ask somebody who essentially makes $62,000 a year and hasn’t basically gotten a raise, adjusted for inflation, for 20 years…it’s not really reasonable to expect that that person’s going to start pouring money into the stock market. They’re still just trying to live their lives.
I do think that there is a great deal of participation of people who have some means, and not over-the-top means, but what we know is that when companies offer 401(k)s and municipalities offer 403(b) plans, that people participate. The structure of retirement is such that, if we have more plans that are offered, the people will actually invest.
The biggest obstacle to getting more people involved is to try to figure out how to make some sort of compulsory retirement plan system where people have to put money away. When that occurs, they do put money away. Look at any school system. When every teacher has a pension, somehow or other, they live on what is left in their paycheck after the pension contribution is made out of their paycheck.
We don’t have anything like that in the private sector, which makes it a lot more difficult to save.
Doug: Good points, thank you. Let’s talk about your book. In the introduction of your book, in the first 30 pages, you talk about fear, and you call it the enemy of understanding. What do you mean by that?
Jill: I think that when you are gripped by fear, one of the two major emotions that dominate the financial world, at least, fear and greed are sort of the big two…when you feel fear, often you’ve got a couple of different reactions. The most classic reaction is, when I feel fear, I put my head in the sand. When I put my head in the sand, that’s not the moment where I start to say, “How can I better understand this?”
So fear can really be paralyzing. You may have heard stories. I think sometimes the best analogy in financial services is the health or diet and exercise, right? I tell the story that, when I was in college, I stopped playing sports, and I gained wait, and I was so fearful of actually stepping on the scale.
I finally went to Weight Watchers. The first time I went, I wouldn’t do it, and I just said, “Oh, forget it.” But to then just actually step on the scale, so fearful, and I conquered that feeling. You step on the scale, you see how much you weigh, and you got to figure out a game plan.
That’s very similar with your financial life. When you’re gripped by fear and you say, “I don’t even want to know what the number is,” or “I don’t even want to open up my statement to see how bad the loss is,” that fear really can stymie your forward progress and can prevent you from making the decisions that are in your own best interest.
Doug: Good points. Let’s talk about some dumb things. Your number one dumb thing, you buy financial products that you don’t understand. Let’s peel back the onion on this, financial products versus investment advice.
Jill: I was a investment advisor for 14 years. I gave advice, and that advice, I think, was really geared towards trying to help people get where they want to go. They articulate their goals, a fiduciary financial planner advisor is going to sit down with the client to say, “Let me figure out what needs to get done to achieve those goals.”
Sometimes that can include the sale of a product. That could be like, “Hey, you know what? You just got married, and you need a term life insurance policy.” Pretty easy solution.
I’m sure your listeners may know this, but maybe not every single person, that I think it would be shocking for people to understand that the vast majority of Americans truly don’t understand the difference between paying for financial advice and paying for a financial product.
Not every product salesman is some evildoer who wants to ravage your financial life, but those people are really motivated by selling a specific item, and so, if you walk into a Toyota dealership, the salesperson on that floor is not going to turn around and say, “You know, from what you’re describing, you really need a Honda.” They’ll sell you the Toyota that’s closest to what they have.
I think that what happens for us in financial services is that, when most people walk into an office of an insurance salesperson or a stock broker, they are purchasing something, some idea, and oftentimes they’ll not really listen and not really engage, and then all of a sudden they’re buying something they don’t really understand.
It happens in even a more dramatic way when people are buying things, maybe because they’re up too late at night and they’re watching cable TV, and all of a sudden someone is talking about gold or gold bars or gold coins or a reverse mortgage, and they are somewhat lured in maybe because something hits some note and drags you in, and now all of a sudden you’re buying something you really don’t understand.
In so many cases, in my previous life when I was a financial planner, I would run across this, not so much in reverse mortgages or gold bars and coins, but I always ran into this with hedge funds. People would come in telling me what they were buying and their other money and they had these hedge funds, and I would laugh. I literally said, “Look, I have a lot of friends who run hedge funds. Tell me, what do you think you bought?” And there would be, like, silence.
I think that we often are buying things we don’t quite understand, and that’s probably not a great idea. It’s probably not a great idea to buy anything on late-night TV either.
Doug: Let’s do the compare and contrast here. If the dumb thing is, you know, buying a financial product you don’t understand, how does somebody get smart on this?
Jill: I think the easiest thing is to really make sure you understand what is it that is being sold to you. If someone approaches you and says, “Hey, I have this idea,” right? And it doesn’t have to be something as nefarious as some shyster who’s on cable TV, but even just a friend who says, “I have an idea about an investment in my company,” even something like that.
Really what you want to understand is, how much does this cost? How easy is it to access my money? What are the tax consequences? And what am I comparing this to? What are the cheaper options that are out there?
I guess that at the end of the day, it kind of bleeds into my dumb thing number two, which is you take financial advice from the wrong person. Is someone who is offering you this opportunity somebody who is basically held to a standard where they have to put your needs first, or are they not?
If they don’t have to put you first, I may not want to buy that product from that person without really doing a ton of homework.
Doug: Jill, in that chapter on taking advice from the wrong people, you talk about sometimes people don’t need to hire a financial advisor, sometimes they do. Compare and contrast those two.
Jill: There are plenty of people who are probably listening here who actually are very smart people. They might want a little bit of customized advice now and then, but I think that some people are really constitutionally and emotionally able to do this themselves.
However, I think that, if you are the kind of person who really is emotionally driven and tends to have a hard time making some of these decisions on your own, engaging a fiduciary advisor, someone who’s got to put your best interests first, can make sense.
I think a lot of young people who don’t even have what I call the big three covered, people who, say, maybe are not even maxing out their retirement accounts, or they haven’t established that emergency reserve fund, or they haven’t paid down all that student loan debt. A lot of those people probably don’t need to be paying for personalized, expensive advice if they haven’t covered those basics first.
Doug: In this chapter, you [Laughs] were very direct with your readers. What do you do when the lame ass is you?
Jill: Yeah, this is a tough one, right? Because I think that, in my previous life in my practice, oftentimes it takes something bad happening to expose that fact, meaning that maybe you or your husband, one of you was managing the money and you made a mistake, and now you got to come clean, or you now have to admit to your spouse, “This has gotten beyond me,” or “I think I bought something really stupid.”
If you don’t trust yourself, or if you have to come clean, or you really need someone who can bridge the gap between you and your spouse to help the family achieve its goals, then I think those are good candidates for seeking sound financial planning advice.
Doug: I want to skip ahead, Jill, and talk about a subject that is obviously in the news every day, and it’s the college debt issue. Not only the college debt that our children might be taking on, but the debt that parents are taking on. You have a chapter on too much college debt. Why did you add that into the dumb things?
Jill: I saw quite a bit of this in the last 10 years or so with colleagues of mine at work or people who called my radio show or my podcast, and they were people who understood the value of college, they knew that college graduates and a college degree was incredibly important, and they were also parents and they were so willing to put their own needs behind the needs of their kids.
I think that you can make a sound argument for saying, “I should be funding retirement and college at the exact same time,” because time value of money and one event comes before the other. But I think the bigger issue is that a lot of times, people make assumptions and say, “Well, I’m going to pull back, I’m putting money into my 401(k) or I’m going to borrow from my 401(k) to help my kid out and get this degree,” and maybe they don’t believe in the future there could be any instability in their own careers, and there often is.
Maybe they believe that it’s really hard to say to their kid, “Hey, honey, I know you want to go to a $50,000 a year school, but we as a family can really only afford 20, 25,000,” and there is this real fear of saying no to your kid.
I think the answer is that we want kids to get college degrees. We don’t want them saddling themselves with tons of debt to get that degree. We don’t want the family, the parents or the grandparents, to short-change their own retirement so the kid can get a degree, and all this boils down to having really open and honest conversations with your kids about what the family can afford.
The fastest-growing segment of student loan borrowers right now is those aged 60 and over. That to me is a pretty stunning statistic that comes from the Federal Reserve Board of New York. I found that just an alarming stat and that people just are making mistakes around the educations that their kids can get.
When the whole college admissions scandal started, I had a lot of inquiries that came back from the book around that particular topic. What you learn, and what I outlined in this book, is that a lot of families say, “Oh, I want my kid to go to this school because of the network he or she is going to have access to,” when in fact the parent probably already has the network already established.
I’m not so concerned with people who are making choices to go to the top-tier school. I’m actually much more concerned with the levels 3, 4, 5 tier schools. Those are schools that are extremely expensive that don’t give you a network, that don’t have great career placement offices, and where you are essentially throwing your money away for a degree that is not worth the cost relative to what you’d get going to your state university or college system.
Doug: Good points. Let’s jump ahead and talk about spending too much money early in your retirement, dumb thing number eight.
Jill: I’m wondering if you experience that in the landscape. I found this to be really kind of interesting. I went out and asked about a dozen financial planners what they thought was the biggest retirement mistake that people made, and nearly all of them said this, that this was their number one problem with their clients.
I think that the issue is that you’re balancing this idea that, “Oh, poor Joan or Joe dropped dead at 61 years old, so I should live large early in my retirement, spend the money now while I’m healthy,” which is, yes, I understand that need or that want, without understanding that you may not be that person who drops dead when you’re 61, 2, 3. You may be the person who lives until you’re 90.
More and more stories are emerging of older people who need their kids to help support them during their retirement because they’ve blown too much early on.
Doug: I see two things here. Number one, people in retirement who don’t have financial planners have a tendency to overlook their cash flow. They’ve got a big pot of money on the side and, hey, we’re out enjoying life, and really not doing the cash flow management that they were probably doing in the red zone prior to retirement, really kind of monitoring things closely.
Second, we have the financial markets. If you have a disruption in the financial markets, and we’re going to have them for the rest of our lives, then all of a sudden you have a drawdown and a setback and now we’ve got to make some drastic adjustments.
I’m looking at this a couple of different ways but absolutely agree with you that people just need to be managing their cash flow consistently. This is one of the reasons why you have an advisor, a planner in your life because they’re holding you accountable.
That accountability is a very important part of making sure that this money lasts because, statistically, a married couple age 65, 50% chance one of you is going to live to age 90. So we have to plan for that, and cash flow is the single most important element of the longevity of a financial plan. If you start drawing up too much cash flow, you’re burning too much cash, you’re going to be toast.
Jill: You know, it’s such a great point because the unsexy part of financial planning in any phase is having these conversations with a client or with friends where you’re literally saying, “How much do you spend?” And you get this blank look from somebody, like, “I think it’s about this.” I mean, it’s 100% right that that is almost the core issue at every stage, at every single stage.
Talking about people who just want to bury their heads, if that isn’t the quintessential “I don’t want to know how much I’m eating,” or “I don’t want to weigh my food,” or “I don’t want to step on the scale,” or “I’m scared to even go to the gym because, if I go there, I’m going to find out how weak I am,” checking in on your cash flow is like the unsexy part of the process that probably reaps the most benefits.
Doug: I do something similar to your thirteen dumb things with my seven most common mistakes, and the family member who needs cash can…you know, again, parents, if you have somebody who gets a divorce and they have a child and they need cash flow…but for you to supply $2,000 a month cash flow, that can destroy your financial plan right there.
You’ve got to set parameters on these kinds of things. You have to have these tough conversations, and, again, this is one of the reasons why financial planners, partners who are walking through your life with you, can hold you to that accountability level and help you with these things that life dishes out.
We don’t know what life is going to dish out relative to our families, so another thing to think about.
Jill: It’s funny, I remember…two things come to mind as you talk about that. One of the things that I was thinking as you were talking about that is, I had a client once, many years ago, so smart, oh my God, and he was an M&A attorney in Boston, basically only focused on financial institutions, really was very clear.
I said to him, “Let me ask you a question,” like, “Why are you paying me to do this? I really do feel like you can do this.” He said, “You’re my insurance policy against myself. You’re right. I probably could do this, but I’d rather pay you so I don’t have to think about it.”
I think that there are some people who really could benefit from that. Or think of it this way, I’m going to go work out with my trainer in half an hour. I’m sure that I kind of know what I need to do, but just having the accountability of showing up at the gym and doing the exercise the right way, man, that is so helpful.
Doug: And having the appointment. You’ve set the appointment.
Jill: Yep. Yep.
Doug: So you’re forced to go.
Doug: Couple more things, Jill. I want to talk about number twelve, and you talk about how people…no will. No will, no estate plan, and I also call it NIGO, which is that acronym, you know, Not In Good Order. Your paperwork is not in good order. Tell me why this made your list.
Jill: Because it is actually the hardest mistake to correct of them because you die, you leave a mess, and now we got to clean it up. I understand we don’t actually want to look down deep…
Doug: Talk about dying.
Jill: Yeah, look down deep and say, “What’s it going to be like the day I die?” And I understand that there is an aversion to doing that, but I think that not doing it is this really crazy act of selfishness. You don’t see it that way, but it really becomes so difficult.
My dad died five years ago, and I was a financial planner, I’m a CFP, I know how to manage these affairs, and I think that the estate planning part was one thing, but also having conversations with him before he died. He was very open about the way he wanted to live, about the way he wanted to die.
When we had to make difficult medical decisions, they weren’t that difficult for us because he had articulated his really, true, deep belief about what it was to him to be alive, and how he wanted his life to be.
He may have gone overboard because that’s the way we are, we Jews here in the Northeast…
Jill: But I also think that it was really a gift because we didn’t have to think twice. We knew exactly the moment… I looked at my sister across the table with 12 doctors around, and they’re telling us what they could do. My sister looks at me a sort of gives me the eye, and she turns to me, and she’s like, “You know what we have to do,” and I said, “Yeah, totally.” And it wasn’t that hard. It was sad, but it wasn’t hard.
So I think that it’s not only just getting your estate in order and making your wishes known, but contemplating this enough to be able to give your heirs the gift of knowing your wishes is huge. Even if you think it’s going to be hard, even if you’ve got one screw-up kid who is just not going to be able to get the money outright, and the other one who is, having conversations is just important.
You know what? If they don’t like it, that’s going to stink, or they’re the kind of kids that…a lot of times, sometimes, one part of the family is quite religious, one part is not. I remember having to tell my mother-in-law after my brother-in-law died, that he was cremated, and he wanted to be cremated, and she said, “What do you mean?” I said, “That was his wish. That’s what he wanted.”
She was okay. I mean, it was uncomfortable, it’s a weird conversation, but you know what? You have to be able to face that. I’m sorry to say that that sort of gets back into, you are an adult, these are certain things you have to actually deal with. Once you deal with them, it’s pretty easy. You don’t have to deal with it again.
Doug: Awesome. Jill Schlesinger, this book is outstanding, ladies and gentlemen. I want to encourage everyone in my audience to get a copy of this book, especially for the 13 smart things to do with your money, but great job on this, Jill, and I really enjoyed the conversation.
Jill: Well, thank you so much for having me. I really appreciate your time, and looking forward to making a repeat performance here. Not with a sequel, I’ll come back before, because I can’t write another book so quickly.
Doug: That’s great. Jill Schlesinger, thank you so much.
Jill: Take care.
Doug: Ladies and gentlemen, the book, The Dumb Things Smart People Do With Their Money.
If you’re looking for a resource that will help you improve your financial plans, if you’re looking to improve your knowledge on all financial matters, or if you’re looking for a great gift for a family member, this book is it.
I really enjoyed our interview with Jill Schlesinger, and hope you will send me an email with comments, feedback, ideas for future podcasts here on The Science of Economic Freedom. My email address is [email protected], [email protected]
This is Doug Fabian. Thank you for listening to the Science of Economic Freedom podcast.
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