People usually get better at things over time. We're better farmers, faster runners, safer pilots, and more accurate weather forecasters than we were 50 years ago.
But there's something about money that gets the better of us. If you look at the rate of
personal bankruptcies, financial crises, bubbles, student loans, debt
defaults, and savings rates, I wonder whether people are just as bad at
managing money today as they were in previous generations, maybe even
worse. It's one of the only areas in life we seem to get progressively
Here are 77 reasons why people are awful at managing money.
3. You suffer from the Dunnig-Kruger effect,
lacking enough basic financial knowledge to even realize that you're
making mistakes. People's lack of understanding about things like
compound interest and inflation can lead them to believe they're making
good financial decisions when in reality they're tripping over
themselves with failure.
4. For every $1 raise you receive, your desires rise by $2 or more.
5. You spend lots of money on material stuff to impress other people
without realizing those other people couldn't care less about you. You'd
be shocked at how few people care where your purse was made or how much
noise your car makes.
13. The single largest expense you'll pay in life is interest. You'll
spend more money on interest than food, vacations, cars, school,
clothes, dinners out, and all forms of entertainment. You do this
because you don't save enough and demand a lifestyle you can't actually
afford. The future owns your income.
14. You're thrilled that the credit card you're paying 22% interest on offers 1% cash back on all purchases.
15. You spent the last five years arguing why Keynesian/Austrian economists were all wrong. The S&P 500 (SNPINDEX: ^GSPC ) spent the last five years rallying 177%.
16. You think dollar-cost averaging is boring without realizing that
the purpose of investing isn't to minimize boredom; it's to maximize
17. Your work in a stressful job in order to make enough money to have a stress-free life. You see no irony in this.
18. You're a pessimist in a world where far more
people wake up in the morning trying to make things better than wake up
thinking we're all doomed.
19. You try to keep up with the Jonses without realizing the Jonses are buried in debt and can probably never retire.
21. You associate all of your financial successes with skill and all of your financial failures with bad luck.
22. Rather than admitting and learning from your mistakes, you ignore
them, bury them, make excuses for them, and blame them on others.
23. You anchor to whatever price you bought a stock for, without
realizing that the market neither knows nor cares what you think is a
27. You say you'll be greedy when others are fearful, then seek the fetal position when the market falls 2%.
30. You let confirmation bias take control of your
mind by only seeking out information from sources that agree with your
31. You think you're too young to start saving for retirement when
every day that passes makes compound interest a little bit less
32. You spend a month researching the best washing machine, then
invest twice as much money in a penny stock based solely on a tip from a
person you don't know and shouldn't trust.
33. You're investing for the next 50 years but get stressed when the market has a bad day.
34. You're willing to work hard for $15 an hour, but too lazy to
spend four minutes to fill out your company's 401(k) paperwork that
could result in thousands of dollars of free money from matching
39. You don't respect the idea that "do nothing" are two of the most powerful words in investing.
41. You feel especially smart after last year's 30% market rally without realizing that you had nothing to do with it.
42. You surround yourself with 18 hours a day of live market TV in a
game that requires decades of doing almost nothing but waiting.
45. You think financial news is published because it has useful
information you need to know. In reality, it's published only because
the publisher knows you'll read it.
46. You forget that the single most valuable asset you have as an
investor is time. A 20-year-old has an asset Warren Buffett couldn't
50. You think it's impossible to live on less than $35,000 a year without realizing that literally 99% of the world does, even adjusted for purchasing power parity.
51. Your definition of a middle-class lifestyle is a 3,000-square
foot home, more bathrooms than family members, three SUVs, private
colleges, annual trips to Hawaii and Vail, Evian water, and yoga
lessons. (Seriously, just stretch in your own living room.)
52. You can't acknowledge the role luck plays when making the
occasional successful investment. (Also true when worshiping investors
who made one big call that happened to be right.)
53. You suffer from hard-core belief bias. It's the tendency to
accept or reject an argument based on how well it fits your pre-defined
beliefs, rather than the objective facts of the situation. Pointing out
that inflation has been low for the last five years is still met with
suspicion by those who believe the Federal Reserve's actions must be
56. You think the stock market is too risky because it's volatile,
without realizing that the biggest risk you face isn't volatility; It's
not growing you assets by enough over the next several decades.
57. You've never been to a poor country, robbing you of the
realization that the world doesn't care how entitled you feel, what you
think is "fair," or what a real financial hardship is.
58. You think blowing money on frivolous stuff impresses people, when
in reality it makes you look like an insecure, pompous, jerk. (This is
particularly common among young people who come into money for the first
59. You're unable to realize that a 10% return for 20 years generates
more money than a 20% return for 10 years. Time can be a more important
factor than return when building wealth -- and it's the one thing you
have control over.
60. You don't respect the mountains of evidence showing that once
basic needs are met, the amount of happiness each additional dollar of
income provides diminishes quickly. This causes you to spend most of
your life chasing "the number" you think will make you happy, but
62. You think of the stock market as numbers that go up and down
rather than an ownership stake in real businesses with real assets.
63. You think renting a home is throwing money away when for many it's one of the smartest financial decisions they can make.
64. Your investment decisions are guided by what the economy is doing, when the two really have very little correlation.
66. You're unable to have a good time going for a hike, a bike ride, a
swim, reading a book, or anything else that's free (or cheap). Having
cheap hobbies is a large, yet hidden, asset on your personal balance
68. To paraphrase Carl Richards, you ignore history, basing your actions on your own very limited experience.
71. You think that not changing your opinion about markets, the
economy, and your investments is somehow noble, when it's really just
shutting your brain off to the reality that things are always changing.
72. You ignore that how elderly Americans who have seen it all view money is almost the opposite of how most young Americans view money. This goes back to not learning vicariously.
74. You underestimate how fast a company can go from "blue chip" to bankrupt.
75. You don't realize that when you say you want to be a millionaire,
what you probably mean is that you want to spend a million dollars,
which is literally the opposite of being a millionaire.
76. You're unaware that the business models of the vast majority of
financial companies rely on exploiting the fears, emotions, and lack of
intelligence of its customers.
77. You nodded along to all 77 of these points without realizing I'm talking about you. That goes for me, too.