WEBVTT - At The Money: Our Complicated Relationship With Cash

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

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<v Speaker 2>We all have a complicated relationship with money. We think

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<v Speaker 2>we understand what it is and why we want it,

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<v Speaker 2>but very often we have little idea about what money

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<v Speaker 2>truly represents. This can lead to disappointment when we think

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<v Speaker 2>about how much money we need to be happy. Capital

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<v Speaker 2>is a tool, and if we want to get the

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<v Speaker 2>most out of it, we need to understand what it

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<v Speaker 2>can and cannot do for us. I'm Barry Riddhelts and

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<v Speaker 2>on today's edition of At the Money, we're going to

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<v Speaker 2>discuss how to improve our relationship with money, how to

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<v Speaker 2>have better outcomes when it comes to earning, investing, and

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<v Speaker 2>spending our cash. To help us unpack all of this

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<v Speaker 2>and what it means for your portfolio, let's bring in

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<v Speaker 2>doctor Daniel Crosby. He is the chief Behavioral Officer at Orion,

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<v Speaker 2>where he develops tools, training, and technology to help financial

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<v Speaker 2>advisors apply behavioral science in their practice. His new book,

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<v Speaker 2>The Soul of Wealth Fifty Reflections on Money and Meaning,

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<v Speaker 2>is out this month. It challenges readers to think about

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<v Speaker 2>money in new ways and to develop a better relationship

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<v Speaker 2>with their finance. So Daniel, let's start with a simple question,

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<v Speaker 2>what is true wealth? How should we consider things like friends, family, health,

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<v Speaker 2>time in terms of our overall wealth versus simply financial success.

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<v Speaker 3>Well, very great to be here. When we look at

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<v Speaker 3>what true wealth is and what it isn't, it's what

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<v Speaker 3>it is is a little harder to answer. What it

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<v Speaker 3>isn't is just a number. And if we look at

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<v Speaker 3>the positive psychology literature that came out beginning in the

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<v Speaker 3>mid nineties, it's really like five things that are the

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<v Speaker 3>staples of a life well lived. Martin Seligman did this

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<v Speaker 3>seminal research. But it's it's positive experiences. So this is

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<v Speaker 3>sort of leisure, like are you having enough fun? It's engagement,

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<v Speaker 3>which is deep, meaningful work that helps you sort of

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<v Speaker 3>lose track of time. It's relationships. This is the thing

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<v Speaker 3>that's most predictive of true wealth. It's meaning working for

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<v Speaker 3>something bigger than you, bigger than your net worth. And

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<v Speaker 3>its advancement, which is getting better, you know, being better

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<v Speaker 3>today than you were yesterday, growing, learning, changing. And when

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<v Speaker 3>most of us think about and talk about wealth, we

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<v Speaker 3>do it in a very one dimensional way. And even

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<v Speaker 3>when you look at you know, how people prepare for

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<v Speaker 3>something like retirement, mostly we're trying to hit a number

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<v Speaker 3>that would help us have lots of that leisure, right,

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<v Speaker 3>we're going to spend it at the shore or at

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<v Speaker 3>the golf course, but we don't always account for the

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<v Speaker 3>relational piece, or the meaning, or the advancement or the

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<v Speaker 3>growth or the work, and all of these are very

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<v Speaker 3>much a part of human flourishing. So, you know, soulful

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<v Speaker 3>wealth encompasses far more than just numbers on a spreadsheet.

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<v Speaker 2>So in the book, you address four common behavioral erarors

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<v Speaker 2>that are endemic to finance Ego, emotion, attention, and conservatism.

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<v Speaker 2>Explain those if you would.

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<v Speaker 3>Yeah, absolutely, So you know, there's well over two hundred

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<v Speaker 3>different psychological biases now that impact our money. But in

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<v Speaker 3>my research I really said, look, they're not all equally meaningful,

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<v Speaker 3>and a couple of them are sort of these meta biases.

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<v Speaker 3>Ego is the different flavors of over confidence, thinking we're

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<v Speaker 3>better than we are, luckier, better, smarter, more knowledgeable about

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<v Speaker 3>the future. Emotion is exactly what it sounds like, sort

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<v Speaker 3>of confusing the heart with the head, which is easy

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<v Speaker 3>to do with something as visceral as much any Attention

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<v Speaker 3>is where the media comes in. You know, the media

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<v Speaker 3>diet that we have ourselves on. It's confusing things that

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<v Speaker 3>are loud in the media with things that are likely

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<v Speaker 3>or high probability. And conservatism is the various ways in

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<v Speaker 3>which we're sort of small minded in provincial we're risk averse,

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<v Speaker 3>we're status quo prone, we confuse things that we know

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<v Speaker 3>with things that are good, and all of these things

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<v Speaker 3>can kind of land us in trouble.

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<v Speaker 2>Money can indeed buy happiness if spent on meaningful experiences

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<v Speaker 2>and values. Let's discuss that because it flies so counter

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<v Speaker 2>to what we're so often told.

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<v Speaker 3>Yeah, so you know, the money and happiness literature has

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<v Speaker 3>changed even in the last ten to fifteen years, and

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<v Speaker 3>there's just like a few things that we know. First

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<v Speaker 3>is that it matters how you measure happyess right, some

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<v Speaker 3>ways to measure happiness sort of moment to moment. Right,

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<v Speaker 3>they have a beeper and they you know, they beep

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<v Speaker 3>you at various points in the day and they say, hey,

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<v Speaker 3>how are you doing when you're measuring sort of like

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<v Speaker 3>how are you doing? Moment to moment? Happy? Happiness plateaus

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<v Speaker 3>rather quickly with respect to money. But when you ask

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<v Speaker 3>people about their self appraisal of their life, like Hey, Barry,

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<v Speaker 3>how you live in man? Like? How are things? Greater

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<v Speaker 3>wealth tends to correspond with greater sort of qualitative descriptors

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<v Speaker 3>of being self satisfied and happy, up to even like

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<v Speaker 3>half a million dollars a year. So there are we're

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<v Speaker 3>introducing some more nuance into the money and happiness conversation.

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<v Speaker 3>The other thing we're finding is that certain ways of

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<v Speaker 3>spending money really do buy happiness, like getting out of

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<v Speaker 3>stuff you hate buys happiness. I will never mow my

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<v Speaker 3>yard again because I hate I live in the Deep South.

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<v Speaker 3>It's too nasty, there's too many bugs. I hate it.

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<v Speaker 3>And the money that I spend to let some high

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<v Speaker 3>school kid cut my yard is some of the best

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<v Speaker 3>money I ever spend.

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<v Speaker 2>Let's talk about the flip side of spending and instead

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<v Speaker 2>focus on the importance of delaying gratification as a form

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<v Speaker 2>of wealth building. To discuss why sometimes we should not

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<v Speaker 2>engage in immediate gratification.

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<v Speaker 3>Well, this is you know, this is one of those

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<v Speaker 3>things that's just kind of a lesson for life. You know,

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<v Speaker 3>delayed gratification will get you far across a variety of contexts.

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<v Speaker 3>If you look at the ways that people screw up

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<v Speaker 3>their lives, whether it's you know, whether it's an affair

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<v Speaker 3>or an addiction or whatever, it usually has immediate gratification

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<v Speaker 3>at its core. And if you look at the way

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<v Speaker 3>that people get the bank, the bank account, or the

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<v Speaker 3>body or whatever that they want, it usually has delayed

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<v Speaker 3>gratification at its core. And so we are wired profoundly

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<v Speaker 3>for the here and now. And so I think one

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<v Speaker 3>of the ways that we have to really work for

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<v Speaker 3>this is by casting a vivid, visceral vision of the

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<v Speaker 3>future and that future enjoyment in that future state. That's

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<v Speaker 3>why I harp on purpose so much and meaning because

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<v Speaker 3>without that, without that thing to look forward to, the

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<v Speaker 3>pull of the here and now just becomes far too powerful.

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<v Speaker 2>Does this relationship to immediate gratification change as we age?

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<v Speaker 2>How does this evolve as we all get older?

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<v Speaker 3>Yeah, we get a lot nicer as we get older.

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<v Speaker 3>So a lot of the rough psychological edges tend to

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<v Speaker 3>be sanded off through much of adulthood. It's really kind

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<v Speaker 3>of fun to watch the sharp edges get sanded off.

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<v Speaker 3>People get better at delaying gratification, they get kind or

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<v Speaker 3>to get better with people. And then, of course in

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<v Speaker 3>later age we start to deteriorate. But you know, I

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<v Speaker 3>think that is an underdiscussed and underappreciated benefit of middle age.

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<v Speaker 3>Easy for two middle aged dudes to say, but you know,

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<v Speaker 3>I think that is an underappreciated privilege of middle age.

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<v Speaker 3>Is that you just tend to calm down a little bit,

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<v Speaker 3>and it's quite nice. And I'm living it, Barry, I'm

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<v Speaker 3>living it and I'm loving it.

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<v Speaker 2>You know. One of the interesting things we've discovered in

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<v Speaker 2>the office is that getting people to pivot from being

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<v Speaker 2>savers and investors when they hit a certain age to

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<v Speaker 2>being spenders and donators. It's a very challenging psychological turn

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<v Speaker 2>to make a lot of people, Hey, you spend twenty

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<v Speaker 2>thirty forty years working and saving and working in investing,

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<v Speaker 2>to tell people, hey, you have a ton of money,

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<v Speaker 2>go on that trip by that beach house, spend time

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<v Speaker 2>with your grandkids. There are a lot of psychological obstacles

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<v Speaker 2>to effectively embracing that. Discuss that if you would.

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<v Speaker 3>So, first of all, I'll just commiserate. I recently, for

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<v Speaker 3>a project we were doing at Orion, I interviewed over

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<v Speaker 3>four hundred couples and we basically ask them what they

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<v Speaker 3>fight about when they fight about money as a way

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<v Speaker 3>to sort of ascertain what are some of these fundamental

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<v Speaker 3>personality dimensions of the way that people view wealth. And

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<v Speaker 3>the number one source of disagreement was whether money is

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<v Speaker 3>better used to enjoy today or to secure tomorrow. And

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<v Speaker 3>there are two very pronounced camps there, the Yolo camp

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<v Speaker 3>and the like save for Tomorrow camp. And like never

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<v Speaker 3>the twain shall meet. Like they they are very in

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<v Speaker 3>the they're deeply embedded. Like the people who see themselves

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<v Speaker 3>in the best use of cash as fun and seizing

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<v Speaker 3>the day have a, you know, a very high opinion

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<v Speaker 3>of themselves. And the same is true of people who

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<v Speaker 3>are are so diligent at saving and putting off for tomorrow.

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<v Speaker 3>So I don't know that there's a trickier problem in

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<v Speaker 3>all of finance than than the one you're talking about.

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<v Speaker 3>The only thing that I have seen work again is purpose.

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<v Speaker 3>You know Covey talks about in his book you have

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<v Speaker 3>to I'll butcher it. But basically you have to have

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<v Speaker 3>a yes burning inside of you that's bigger than the no. Right,

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<v Speaker 3>So there's there's this no like no, I don't want

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<v Speaker 3>to see the number go down, or like no, I've

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<v Speaker 3>been in saver mode for decades, and like, I don't

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<v Speaker 3>want to see that number go down. I think the

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<v Speaker 3>only way that we overcome that very fundamental psychological tendency

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<v Speaker 3>is to introduce a love or a passion or a

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<v Speaker 3>purpose that is bigger than that fear. Maybe that's the grandkids,

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<v Speaker 3>Maybe that's the philanthropic gift of choice. Maybe that's time

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<v Speaker 3>with the family in at a time when time is

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<v Speaker 3>increasingly short. I think that's the only weapon we have

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<v Speaker 3>in that fight though.

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<v Speaker 2>And our final question, how important is a good financial plan?

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<v Speaker 2>And what are the key elements that go into creating one?

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<v Speaker 3>Well, you know, one of like the blocking and tackling

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<v Speaker 3>of a financial plan. You know, there's all the usual suspects,

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<v Speaker 3>but I'll talk about one of the things that again

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<v Speaker 3>I think we get wrong the most. And Carl, who

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<v Speaker 3>was previously mentioned, has done really interesting work with Michael

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<v Speaker 3>Kitsis on this. We're really prone to mimesis, right, Like,

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<v Speaker 3>as a human family, we're really prone to imitation and

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<v Speaker 3>doing what other people do. And people are both highly

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<v Speaker 3>mimetic and don't have a great sense of what they want,

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<v Speaker 3>and they can tend to kind of just want what

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<v Speaker 3>their neighbor has you know, like, you know, what's your

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<v Speaker 3>financial goal like well, to have a boat like my neighbor,

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<v Speaker 3>to have a house like my brother in law. And

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<v Speaker 3>so getting it right in a financial plan means going

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<v Speaker 3>a lot deeper with someone on what they value and

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<v Speaker 3>their vision of the good life and their vision of

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<v Speaker 3>a dream existence. It means going a lot deeper than

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<v Speaker 3>we usually do. I think we typically as a profession

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<v Speaker 3>ask very shallow questions and get very shallow answers and

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<v Speaker 3>then come up with financial plans that are lack some

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<v Speaker 3>efficacy because they're serving a very a very sort of

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<v Speaker 3>weak sauce copy of a copy of someone's dream. So

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<v Speaker 3>I think the first step is getting laser focused on

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<v Speaker 3>that vision for the future, that purpose, that why, and

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<v Speaker 3>until we have something that's emotionally laden and visceral and powerful,

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<v Speaker 3>I don't think any of the black and tackling in

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<v Speaker 3>the Monte Carlo simulations matters much at all, and it's

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<v Speaker 3>always going to kind of fall flat.

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<v Speaker 2>So to wrap up, yes, we have a complicated relationship

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<v Speaker 2>with money, and we often fail to understand what it

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<v Speaker 2>can and cannot do for us. But if we're thoughtful

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<v Speaker 2>in our spending and try and create memories and experiences

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<v Speaker 2>and use our money in a way that's purposeful. It

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<v Speaker 2>leads to very good outcomes. I'm Barry Riddholts and you're

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<v Speaker 2>listening to boombones at the Money