Thinking about money stresses a lot of people out. For many of us, talking about it can be even worse, as it’s an area where we may feel crippling shame, inadequacy, anger, or even guilt. It’s one of the last remaining taboos in the West, and arguably one of the most harmful. For example, in November 2013, Wells Fargo commissioned a survey of just over 1,000 American adults,((To qualify for the survey, respondents had to be non-students between the ages of 25 and 75 and describe themselves as the primary or joint financial decision-maker in a household with investable assets of at least $10,000.)) which found, among other things, that nearly half of all respondents (44%) listed ‘personal finances’ as the most challenging topic to discuss with others. American adults reported that talking about ‘personal finances’ was more difficult than talking about death (38%), politics (35%), religion (32%), taxes (21%), or personal health (20%)!
Reticence about money might not be a harmful thing in itself, but when it’s coupled with the generally poor state of most Americans’ finances,((The best data source available for understanding the general state of Americans financial health is the triennial survey of consumer finances conducted by the board of governors of the Federal Reserve. The 2013 study is the most recent survey to be published (detailed summary of its findings here), though the 2016 study was conducted between April-December of 2016, with data to be published later this year.)) it’s a recipe for disaster. Most Americans worry about debt (because we have too much of it) and their retirement plans, or lack thereof (because we don’t save very much((Here are some theories on why that’s the case)) and when we do save, we often don’t know how to do it effectively).((More on why investor returns lag fund returns.)) It’s hard to know who to trust on money issues, a problem that’s exacerbated both by the general taboo against talking about money and the shocking fact that many people who provide financial advice or sell financial products do not currently have a legally binding fiduciary rule governing their advice or recommendations.((The Department of Labor under the Obama administration enacted a rule designed to be phased in between April 2017 and January 2018, but Donald Trump has already announced a 180-day moratorium, with much speculation that his administration intends to cancel/replace the rule. According to Investopedia: “The new fiduciary rule demands that advisors act in the best interests of their clients, and to put their clients’ interests above their own. It leaves no room for advisors to conceal any potential conflict of interest, and states that all fees and commissions must be clearly disclosed in dollar form to clients. The definition has been expanded to include any professional making a recommendation or solicitation — and not simply giving ongoing advice. Previously, only advisors who were charging a fee for service (either hourly or as a percentage of account holdings) on retirement plans were considered fiduciaries.” See this lengthy discussion of the rule and its implications from a large international law firm if you’re a total nerd.)) Instead of a fiduciary standard, broker/dealers are governed by a ‘suitability standard of care’ instead, meaning that they don’t have to act in their clients’ best interests or even put their clients’ interests above their own—they merely have to recommend something ‘suitable’ for their clients. Unsurprisingly, many of these ‘suitable’ recommendations explicitly benefit or enrich the person giving the financial advice.((See the website for the non-profit professional certification board Certified Financial Planners, which is currently governed by a fiduciary standard, for more discussion of this issue: https://www.cfp.net/public-policy/public-policy-issues/fiduciary-standard.))
There’s no wonder that in a marketplace flooded with bad (or self-interested) actors, individuals often act in confused or self-destructive ways. The forces arrayed against your interests are quite literally more numerous (and more powerful) than the forces arrayed in your interest. That’s the way the game is set up, and not accidentally. I want to be clear: I am not an certified financial planner and do not have any formal training or certifications in personal or corporate finance. I am simply a skeptical autodidact with a deep-seated anti-consumerism bias, an interest in rational decision making, and a very clear perspective on consumer debt and spending. Whenever I make recommendations, I’ll try to provide reputable evidence for my conclusions and the sources that have provided the warrant for my own beliefs and actions. So, here’s my advice:
Spend Less Than You Make