Episode Transcript
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Speaker 1 (00:05):
Tonight, we are going deep healing your relationship with money,
the specific order of withdrawals you need to make when
retirement comes, and a whole lot more. You're listening to
Simply Money presented by all Worth Financial, I Memi Wagner
along with Steve Ruby. You know, you can get upset
about politics, geopolitical events, all these things that are not
(00:27):
within your control. Sure, and look at the impact that
that's having on your four oh one K. But I'm
telling you, more often than not, the most damage that's
ever done to someone's portfolio isn't by whoever's the noble office,
whoever's in Congress, what's happening in the Ukraine. It is
because you have made a decision that is actually a
(00:50):
bad one for your long term financial health.
Speaker 2 (00:52):
Yeah, and a lot of this is founded in the
roots of your relationship with money, which is kind of
going to be the trend of today's show. We're going
to talk about the emotions behind money, our relationship with money,
and the challenges that some of that foundation might bring us.
Because we can share with you historical data, charts, roadmaps
(01:13):
that can lead to financial freedom. You know, we have
all that information right at our fingertips, and I do
share it with folks I work with in meetings, but
it doesn't mean anything if your own relationship with money
is a mess.
Speaker 1 (01:27):
Often your relationship with money is a mess because maybe
your parents was or you grew up in a home
where nobody was talking about this. You know, I speak
publicly a lot at different workshops and things, and I
always always start with one question. How many of you
grew up in a home where people talked openly about money.
If there's one hundred people in that room, two three,
(01:47):
which kind of remarkable, isn't it, maybe four people are
raising their hands saying yep, yep, my parents talk to
us about money. So you're growing up in this home
in an environment where obviously bills are being paid, money's
coming in, idea how that's working. And then you become
an adult. You got to figure it out on your own.
No one's ever talked to you about it. Many times,
there's no personal finance classes involved, and so this is
(02:08):
all figuring it out on your own. And I think
a lot of bad habits then sort of come to
be during that time.
Speaker 2 (02:16):
Yeah, I mean, family influence is huge here. Obviously it
wasn't talked about in my household at all. I've gone
in some details about my upbringing, but it was definitely
on the other side of the railroad tracks. There was
not a lot of money in my household. There was
not a lot of money to pay bills. Even so
it was you know, I saw that there were problems
because of money, but I never really made the connection
because there was no conversations around it. There was no
(02:39):
talk about money other than realizing that maybe we didn't
have a lot of it.
Speaker 1 (02:43):
On the flip side, Gary Wagner spoke very openly about money.
I mean, I knew at a young age how much
my dad made, which I think is something that people
often don't share. But how are kids going to know
what kinds of careers pay certain things, and how do
you pay the bills and how much does it take?
So he was first of all open about that, and
then second of all, oh my gosh, she had this
(03:03):
color coded spreadsheet system with envelopes attached.
Speaker 2 (03:07):
Just explains right, right, doesn't it, that you are We literally.
Speaker 1 (03:12):
Had a gift fund, and there was a there was
a hair fund for when my mom would get her
hair done. I mean, we had all little envelope system
for funds. And not only that, one other thing that
my dad talked about, which I appreciate so much was
mistakes he made with money. I remember one time when
I was younger, my dad's uncle passed away and he
(03:34):
inherited a little bit of money. Uh, And it was
awesome because we put a pool in our backyard and
I loved that pool, and we had so many parties
there and my friends were over all the time, and
it was so great. It was a great investment for
our family, right and just family time. But years later
he kind of said, you know, thinking back, yeah, if
(03:54):
I had just invested that money, maybe you know, paid
for the pool a few years later with some other funds,
that money could have actually been X dollars. And at
least it kind of led me to understand, Hey, sometimes
people make mistakes. My dad recovered, he's just fine, But
I also appreciated the fact that he shared that probably
wasn't the best thing I could have done with that.
Speaker 3 (04:14):
You know.
Speaker 2 (04:15):
Financial planning is about finding a balance in the life
that you're living and the life that you want to
live in the future, and making sure that your money
lasts longer than you do. At the end of the day,
he may have categorized it as a mistake, but it
also brought you a lot of joy, connecting you with
friends and all that jazz. So you know, maybe not
such a mistake here. But you know, family influence obviously
has an impact because you know, I didn't learn about
(04:35):
any of this stuff in my household, and it took
a lot of time and effort on my own.
Speaker 1 (04:39):
Totally drove you to want to understand it. But many people,
I think it's the opposite. You don't understand it. There's
a little shame involved in what you don't know, and
so it's kind of stick your head in this hand.
Speaker 2 (04:50):
Yeah, for me, it was motivation to create a better
life for my daughter, not turning out like the folks
that raised me. You had, you know, the other angle
here where your father was very in tune with money
and had that open communication, and the end result was
the same. Somebody who has a good relationship with money
is now having that conversation with their children, and all
of Greater Cincinnati for that matter.
Speaker 1 (05:12):
Right, my kids are like, yep, family dinner, Mom's talking
about health savings accounts again. But I think if you
grew up in a family where you did not talk
about money. One of the things that I would say
is break that cycle, please, for your kids, for your grandkids.
I had clients in my office recently who really did
a lot of the right things and have been really
(05:34):
smart about it, and they've got kids that are just
starting kind of in the workforce, and I said, have
you ever talked about this with your kids? And they
looked at me like, oh no, And I said, you've
done so many right things, why would you not then
want to make sure that your kids are on the
same track. And she said, We're going to do it
when we get home. You know, we just never thought
about it. So listen. Understandably, you could have grown up
(05:59):
in a home or either no one talked about it,
or it was such a bad situation there was always debt,
there was never enough to cover the bills whatever. That
is one of the statistics that I have seen in
doing the show that has been the most eye opening
for me is most of us have a relationship with
money by the time we're seven years old. Seven. Yes,
So this stuff is ingrained. And I'm telling you, I
(06:21):
can see it in my kids. They're raised in the
same house and they are so very different about it.
And some of it is nature and some of it
is nurture. But hey, assess yourself. Where are you? Do
you feel like you're someone who happens to have a
track record of making some not great decisions of getting
yourself into debt, you know, taking on more than you
can handle, whatever that is. I think that the first
(06:42):
step here is figuring out what your relationship with money is,
maybe why it's that way, and really kind of sitting
with that for a little bit, figuring it out.
Speaker 2 (06:53):
Well. You know, I want to talk about the why
a little bit because we've touched on family influence, but
it could be cultural even, I mean society attitudes within
the society that you're part of, you know, could portray
wealth as either the ultimate goal or some kind of
corrupting force. Yeah, you know that can obviously drive you
to behave one way or another with money. Fear and
anxiety could be you know, founded and worries about debt
(07:15):
expenses that can't be met. You know, obviously, financial insecurity
can lead to some major stress, guilt and shame. You'd
mentioned that earlier. Feeling undeserving of wealth or ashamed of
financial mistakes can create avoidance, but you know that's also
an opportunity, like your father talking about you know, here's
a mistake that I thought I made, and here's what
I learned from it, so that there's opportunities to kind
(07:37):
of break that cycle within your own family.
Speaker 1 (07:40):
You're listening to Simply Money presented by all Worth Financial.
I Memi Wagner along with Steve Ruby, we talk all
the time about things that can be impacting your money.
There is no greater thing that impacts your money than
you and a lot of that goes down to how
you were raised, your attitude toward money, the mistakes that
you've made. Have you educated yourself about these things? I
(08:01):
would say one of the largest drivers now of people
making a bad decision with their money social media. Yeah, comparison, right, Listen,
keeping up with the Joneses is not a new concept,
but when it's in your face every time you pick
up your phone and wait a second, that guy went
to college with he can afford, what kind of trip
or she drives, what kind of car? They must make
(08:24):
X dollars and you're constantly comparing yourself. I would love
for social media to come with a disclaimer and when
that car is on there, they say, this person has
a credit score of this, they have this much debt. Right,
if you could see the reality beyond just the beautiful,
glossy pictures of that amazing vacation, it may not look
so great to you. But I think, whether it's consciously
(08:46):
or subconsciously, we start to think, well, I want to
do trips like that if everyone else is doing trips
like that, But maybe are you doing those trips to
the detriment of your future retirement goals?
Speaker 3 (08:57):
Right?
Speaker 1 (08:58):
And so I think, gosh, social media is so terrible
for many because it's constant keeping up with the Joneses
in your face.
Speaker 2 (09:06):
Yeah, comparison is the thief of joy, I think is
the comment. I think Steve Sprovac came up with that one.
Speaker 1 (09:12):
I think he just takes credit.
Speaker 2 (09:13):
I know, I don't remember who was I don't sure sure,
but social media really does just magnify that to so
much extent. And it is funny bringing up Steve because
well before social media, he told stories of neighbors growing
up when he was a kid that bought their fancy
new car and they kept the stick around. Ye show
(09:34):
everyone in the neighborhood much they paid for their brand
new car, so it's not like this is new. However,
social media just puts it front and center at all times,
and there is no reason to compare something that might
be to an extent fabricated. You're not getting the full
picture when you see somebody else's social media posts. You're
(09:54):
seeing the best of the best in their lives, you
know what.
Speaker 1 (09:57):
And I want to point out something else too, for
those of you who are not talking about this with
your kids or your grandkids. You and I did not
grow up with social media, right. We're the first generation
to be raising children who are growing up in it.
So we didn't grow up with these things in our face.
My kids are growing up nova will grow up with
these things in their faces, right, And it's consume, consume, consume.
(10:18):
You need this, you need that, you need this, you
need that. So if you are not talking about it
in your home, your kid is getting toxic. Probably ideas
of what's smart with their money based on these things.
My daughter sent me a meme that she saw on
social media the other day and it said, I'm going
on a trip. My parents drove me to the airport,
so that saved me forty five dollars in an uber.
(10:39):
I made my coffee before I went, so that saved
me ten dollars. So now I have saved fifty five dollars,
I can spend fifty dollars on sea. And it was
like this crazy math, right, didn't even exist, But she
was like, my brain does work this way sometimes, you know,
weird ways of justifying this is all over social media.
In so you've got to make sure that your kids
(11:01):
are growing up with a healthy relationship with money, and
many times it's got to come from you.
Speaker 2 (11:06):
Yeah, I think it's important. The whole reason why we're
talking about some of the behaviors behind the scenes and
what drives our emotions here is to talk about ways
to address them. So making sure that you're reflecting on
your own money story essentially, so that you can break
that chain that maybe exists within your household. Like it
didn't mind anyways yours. You're passing on what you learned mine,
(11:28):
I'm passing on what I didn't learn. So identifying what
needs to be addressed so that we can share that
story with our loved ones and you know, the younger
generations around us. It is important.
Speaker 1 (11:39):
Yeah, So know what your beliefs are. Identify them, see
where the limitations are, where they're holding you back. Educate yourself.
There's no shame and not knowing anything, but going back
to that kind of guilt spiral that comes from it, Well,
I don't I'm at work and people are talking about
what their for one ks are invested in. I have
no idea, So I'm going to stick my head in
this hand. Oh, or you could go home tonight and
(12:01):
you could start researching, or listen to the show, or
share the show with someone who you not doesn't know right,
there are ways to educate yourself in a little bit
of knowledge then starts to build a much stronger founding.
Speaker 2 (12:13):
You could also seek support, you know that that would
be in the in you know, with a fiduciary financial planner,
for example. They could hold your hand and guide you
through some of these processes.
Speaker 1 (12:22):
I one of our founders always says the number one
thing that we do more than anything else is to
help people or keep people from making mistakes they cannot
recover from. Had someone in my office earlier this week
her asset allocation. She probably didn't have enough stock exposure
to really get her through retirement, and we started talking
about that, and she had some really strong feelings about
(12:46):
politics and why that was and I really can to
kind of talk through, Hey, this is your Your prejudice
is in this place. While you can have whatever political
opinions you want, could be holding you back financially, and
by subscribing to this way of believing and actually acting
on it with your money, you could be much farther
(13:07):
behind where you might be if you didn't let this
limit you. So kind of understanding how those thoughts kind
of play into the decisions you're making with your money
goes a long way. Here's the all Worth advice. Cultivating
a healthy relationship with money is going to lead to
some much better decision making and ultimately help lead you
toward achieving financial independence. Can gip. Next, we're talking about
(13:29):
what six and ten investors have to overcome on their
road to financial freedom. You're listening to Simply Money presented
by all Worth Financial here on fifty five KRC, the
talk station.
Speaker 3 (13:41):
I Love.
Speaker 1 (13:42):
You're listening to Simply Money presented by all Worth Financial.
I mean Me Wagner along with Steve Ruby. If you
can't listen to our show every night, you don't have
to miss the thing we talk about. We've got a
daily podcast for you, just search simply Money on the
iHeart app or wherever you get your podcasts. Coming up
at six forty three, we're going to look into the
sequence of as that you need to make sure you
are maximizing your retirement withdrawals. There's a way to get
(14:05):
this right and a way to get it wrong, and
the difference could be.
Speaker 2 (14:08):
A lot of ways to get it wrong.
Speaker 3 (14:09):
Yeah, a lot.
Speaker 1 (14:10):
Yeah, that's true, and in tens of thousands of dollars
in the difference if you get it wrong. So let's
let's just get it right. Okay. We were just talking
a few minutes ago about the role that your mind
plays in your financial life. We're going to stick with
that and we're going to focus on communication. Here's the
stat More than half Americans fifty six percent say you
(14:31):
grew up in a home where nobody talked about money
with you. This is a recent Fidelity survey of nineteen
hundred adults. Actually think that number is probably on the
low side.
Speaker 3 (14:39):
Yeah, I know.
Speaker 2 (14:40):
When you know you're talking about when you give presentations
in front of groups of people and you ask people
to raise their hand and how many talks about money,
it's two or three to one hundred. Yeah, this is
this is an alarming stat here from Fidelity. And you know,
it's supposedly because a lot of people simply have a
complicated relationship with with wealth. Yeah, eighty nine percent of
(15:02):
folks say they do not consider themselves wealthy. This is
according to the same Fidelity survey. You know, the definition
of being wealthy is just not having to live paycheck
to paycheck. So those are some scary statistics.
Speaker 1 (15:15):
What I think is the biggest problem for many people
is if you go up to home where no one
talked about money, and you just feel like you don't
have the proper education. You tend to then feel like
I'll figure it out someday. Sure, but not yet, and
so you let years go by where you could have
been building this really solid financial foundation because you don't know,
and you're just ashamed of the fact that you don't know.
(15:37):
And you know, no, probably no surprise to anyone. I
not only speak very openly about money with my kids,
I do it with my friends too, and I've found
that it has been helpful to all of us. In
just an example, I have of my one of my
best friends since she we were three years old. And
she is brilliant and she has a fantastic job. And
(16:00):
I had worked in an industry for years and years
and years where there was no bonus structure, nothing like that,
and a new job kind of had a bonus structure,
and I really wasn't comprehending really well how it worked out.
And I called her and we talked through the numbers
of it, and she was very openly sharing how much
she makes and what her bonus structure is. Like most
people are afraid to talk about those things. There's no
(16:20):
shame in that. It educated me and I came out
of it better because of it.
Speaker 3 (16:25):
Now.
Speaker 1 (16:25):
I didn't go gossiping it, you know, everyone that we
grew up with, but it was helpful to me, and
we trust each other in that situation. And I just
think that there's so much shame around this conversation about
money that needs to go away, and I think everyone
would be better as a result of it.
Speaker 2 (16:42):
They sure would be. And you know, part of this
Fidelity study that we're talking about today, it shows that
the baby boomer baby boomer generation, especially because they relied
on themselves oftentimes for financial literacy, they feel like they
should go at it alone, to the point where you know,
a third of baby boomers don't feel that having a
(17:04):
financial plan is actually necessary. Yeah. Yeah, well I.
Speaker 1 (17:10):
Say that because it's like my brain doesn't even wrap
around that. You know, like we're gonna wing it and
hopefully we're good at the end, or there's someone out
there that can look at what I'm doing, how I'm saving,
how I'm invested, how much I spend, and tell me
whether I'm going to be okay. If there is one
piece of research that we have looked at time and
(17:32):
time again, it is people's concerns in retirement. And I
have looked at dozens and dozens of studies on this
and through the years, they all have the exact same conclusion.
The number one concern in retirement is outliving your money.
And so if you can work with someone or if
you can do a plan yourself, great, But what you
don't want is to look at that screen and when
(17:54):
you're seventy eight years old or pick the age, there's
red access in that plan. And red access mean there's
not dollars, you have.
Speaker 2 (18:01):
No more resources. Your money will not live longer than
you do. That is a scary prospect. Do not win that, Yeah, exactly.
I mean I do see a lot of folks coming
into my office and they finally reached a point where
they're you know, I've generated wealth, I've made good decisions
along the way, but you know, I'm coming to realize
that things are maybe a little bit more complex than
I thought, and I probably have questions that I don't
(18:22):
know I should be asking, right, And I think that's
the attitude that a lot of people need to come
in with, because going at it alone does present challenges
that maybe you wouldn't think of that could lead you
to a situation where you simply run out of money
while you're still.
Speaker 1 (18:38):
Around, if you're in a marriage or relationship to where
you have not there's not history there of talking about
money change that. Alriddick's on our show a lot. He's
brilliant game time budgeting. He and his wife, I don't
they probably have weekly meetings about money. I'm not saying
you about it. You don't have to do that, but
they really plan ahead. They assign their dollars a job.
This one's going to be on for vacation, this one's
(18:59):
going to be for retirement, and they're really intentional, and
if you feel like you're behind or not on the
same page, one of the best ways tote it on
the same page is to talk about what are our
financial goals. Do we want to help our kids pay
for college? Do we want to go to Europe? Do
we want to retire it early? Whatever that is. Figure
out what the goal is, and then make the financial
decisions through the lens of does that take us closer
(19:20):
to that goal or farther away?
Speaker 2 (19:22):
And then keep having the conversation too, to make sure
that you remain on the same page and that you're
making progress towards whatever that goal might be.
Speaker 1 (19:29):
Here's the all Worth advice. By fostering open dialogue and
a shared responsibility, families can really strengthen your relationship with
money and each other. Make financial planning kind of a
collaborative and empowering thing in your family. Coming up next,
we're talking with an expert on your mind and money.
Really brilliant. You're going to want to stick around for this.
Some great insights you're listening to Simply Money, presented by
(19:51):
all Worth Financial here in fifty five KRC the talk station.
Most of us know the right thing to do with money.
So why don't we always do that? Why don't we
always choose that? It can be a very complicated question.
Joining us tonight to help make sense of this. How Hirshfield.
(20:12):
He's a professor of behavioral decision making at UCLA's Anderson's
School of Management. How we do? I think most of us,
especially those who listen to these kinds of shows, kind
of know what we're supposed to do, yet we don't
always do it. Let's talk about why that is.
Speaker 3 (20:28):
Yeah, Amy, thank you so much for having me. It's
a great question, right, and I think most of us,
You're right, have that same feeling, which is, I know
I should be doing this right, but I always find
myself having a hard time doing it. I mean, there's
lots of reasons why. We can start with the fact
that we live in the present, and the present is
so much stronger than the future. And so even if
(20:52):
we know we should put aside some money, even if
we know we should be saving or doing something for
the long run, well needs crop up and unths crap
up too right now, making it hard to do the
thing that we say we want to do. So that's
one big reason.
Speaker 1 (21:06):
Okay, you know We always talk about having a financial plan, right,
you make a financial plan for yourself, it helps you
plan for retirement or if you want to help the
kids pay for college, dunday or a wedding, whatever that is.
And I think when you sit down with that advisor
or you figure it out yourself, it's like, Okay, this
is good to go, right, I believe in this. I
can get behind it. And then things get weird. The
(21:29):
markets go berserk, the economy is a little crazy, whatever
it is, and all of a sudden, sticking to that
plan isn't as easy as we once stop. Why is that?
Speaker 3 (21:38):
Yeah, that's exactly right. So I mean there's a couple
of things going on here. So first off, I would
say that plans are great, and the best plans are
the ones that have an automatic component to them and
have more of a lock in that makes it difficult
for us to be our own worst enemies. If that
(21:59):
doesn't make sense. What I mean by that is we
want to make it harder for ourselves to switch gears
because of some sort of sudden worry or feeling or
concern on our parts.
Speaker 1 (22:12):
Just like our parents or our grandparents maybe used to
have a pension right, that money was there, they couldn't
touch it.
Speaker 3 (22:20):
That's exactly right, you know, And of course that's the
basic idea behind a four one K, which is really
only a sort of personally managed pension. But the problem
there is the personally managed component, right, which is to say,
it's easy for us to start then sort of messing
around and can you know, convince ourselves that we need
that money right now? Now? Of course, there can be
(22:42):
times when we do need it, and that's you know,
that's the reason why it's good to have a rainy
day fund. I saw somebody the other day say something
that made so much sense to me, which is, you're
not a failure if you dip into your rainy day fund.
It means that you were prepared.
Speaker 1 (22:55):
Yeah, that's a great point.
Speaker 3 (22:56):
Expected expenses, Yeah, exactly.
Speaker 1 (22:59):
And we talk all the time about that rainy day
fund or that emergency fund and why you have it
there so that you're not dipping into those retirement savings.
But you know, so many of us, you know, get
those statements and we see that money either going up
or going down, and then there's in the present, and
I think that's a great point. There's things we need
right now, and so it's hard to think about the
future self and retirement and especially how I think right
(23:21):
now when you've got markets all over the place, when
you look at that money that's taken, however, many number
of years to get into that account, starting to go down,
for a lot of people, the knee jerk reaction is,
I'm just going to take it out, even though I
think most people know somewhere in their heads not the
best idea.
Speaker 3 (23:40):
Yeah, you know, I think this is a particularly difficult
problem to solve because you know, we're convincing ourselves that
we're doing this, we're pulling the money out because we
see the dips. We convince ourselves that this is the
right move. And I would sort of, you know, push
back and say it's the right move for who, because
you know, historically and of course, you know, we don't
(24:00):
know what's happening today, but historically the data would suggest
that if you have a long term goal, it's best
to just let it be, let it ride, right And
if we pull it out right now, we may actually
be ironically harming ourselves in the long term, in the
you know, for our future selves there, right, So I
would say it all depends on what are the time
(24:23):
horizons of our goals are. If we have a long
term goal, if it's retirement and that's not for ten, twenty,
thirty years or whatever it may be, then we've built
in market relatility, We've built in risk to get higher
returns there. If, of course our goals are much shorter term, well,
then you know that's a conversation that we should be
having with our advisors about our investments in well, in
(24:46):
safer harbors.
Speaker 1 (24:47):
I would say, absolutely, you don't seem to simply money
tonight here in fifty five KRC as we're joined by
hol Herschel. He's a professor of behavioral decision making at
UCLA's Anderson's School of Management. Essentially, why do we sometimes
do things with our money where we know it's not
the best thing? How I'm wondering if in your research,
what you've learned about how we grew up with money,
(25:09):
how our parents dealt with money, what is kind of
just innate that we're not even processing is probably on
some kind of subconscious level of just how we've grown
up with money that affects our decision making today.
Speaker 3 (25:21):
Yeah, this is a great point, right, So a lot
of my own research looks at the relationships that we
have with our future selves and how those relationships impact
our financial decisions, you know. And the gist, of course
is that if we feel closer, in a stronger bond
with our future selves, then we're more likely to do
things today that might put ourselves in a better position tomorrow.
(25:43):
But your question is really about how you know historically
where our childhood experiences are, where our life experiences are,
may impact those relationships and those future decisions. And this
is a really tricky topic because of course you've got
some geik influence and you've got some environmental influence. And
this is not my own research, but other researchers have
(26:06):
found that our life histories do matter. In other words,
how we grew up with money does matter. But one
really important caveat there is that it's not like these
sort of life histories or our childhood events are sort
of ever present, but rather they seem to rear their
head when the volatility arises. So, in other words, if
(26:30):
we grew up in a financially restricted environment, whether objectively
speaking it was financially restricted or that was our attitude
toward money, then we start seeing that sort of mindset
creep in when we experience more volatility in the market.
On the other hand, if you know we grew up
with a more leis fair attitude, with more of a
(26:52):
sense that money was flush and you know that we
could have a cushion in the future, well then you
see people being a little bit more realized even when
times get tougher. So it's not just sort of all
or nothing thing, but rather you see these childhood influences
sort of pop up when markets go violatile or you know,
when our own personal circumstances are more volatile.
Speaker 1 (27:15):
Yeah, that makes a lot of sense. I also want
to get to social media, you know, for those who
scroll through Facebook, Instagram, Twitter, you name it. I think
we like to think like, oh, we know about social media,
like we're not making any monetary decisions anything about how
we spend our money based on social media. But I
think if we really thought about it, we would realize
(27:35):
that's not true.
Speaker 3 (27:37):
Yeah, you're exactly right. So you know, it's a really
interesting topic. There's been a lot of theorizing about how
sort of massive events can cause you know, sort of
quirky investor behavior, right. I mean, this is something that
economists have talked about. Well, it seems like for decades,
(27:58):
if not centuries, the idea that they're can be bubbles,
and bubbles are driven by sort of uh mania that's
driven by me seeing what other people are doing. We
don't actually know from like an empirical standpoint, We actually
haven't seen research yet looking at individual level influence from
say Twitter or Facebook or Reddit or social media generally speaking,
(28:21):
and how how those platforms then impact our own investment behavior.
It's it's actually a question that I've been looking into
with two colleagues right now to see whether or not
some of these sites may actually intensify our sense of well,
you know, to borrow the sort of popular term, whether
you know, these sites intensify the feeling of fomo, you know,
the fear of missing out.
Speaker 1 (28:42):
I think about the stocks, right, great investment stocks that
started last year on Reddit and a frenzy that was
involved around that, and I think that's a very kind
of blatant example. But I also think you kind of
casually look at social media and you see your college
friend is driving a certain call or going on a
certain vacation, and maybe you can't really afford that, but
(29:04):
you think I should and so then do you make
different decisions about credit card debt or pulling money out
of your four oh one K? Right, I just I
think that we don't even on a conscious level, think
about these things. But there has to be some kind
of an impact.
Speaker 3 (29:17):
Yeah, I suspect you're right about that. And so, you know,
part of the issue here, just like you said, is
that we may not be fully aware of the impact
that sort of the constant consumption of these images and
you know, comparison of experiences, et cetera, is having on
our own decisions about money and how to spend it. Again,
(29:41):
you know, this is this is speculation at this point
because I'm you know, we haven't looked at sort of
a specific influence of what I consume on say Facebook
or Instagram and how that impacts my decisions. But you
used to be the case that one of the advantages
of spending our money on experience, well that experiences were
(30:02):
harder to compare and so my vacation could have been
half as much as yours, but we could have had
just the same amount of sort of positive utility from
that vacation. And now with social media, experiences are incredibly
comparable or you know, it's much easier to compare one
to another. Yes, exactly, take away some of the advantage there.
Speaker 1 (30:23):
Yes, So just great insights from how Hirschfield. He's a
professor of behavioral decision making at UCLA's Anderson School of Management.
If you ever wondered, I know the right thing to
do with my money, but why am I not doing it?
So much of that has to do with behavioral finance.
You're listening to Simply Money here on fifty five krs
the talk station. You're listening to Simply Money presented by
(30:45):
all Worth Financial, I mean wagneralone with Skee Ruby. Do
you have a financial questions keeping you up at night?
You and your spouse just aren't on the same page.
There's a red button you can click on while you're
listening to the show. It's right there on the iHeart app.
Record your question. It's coming straight to us. We figure
it out. Okay, So we were talking about your mind
and money, and there's kind of a technical term for
(31:05):
this behavioral finance, actually a credential and behavioral finance. And
it's so interesting how the brain works often counter to
what's best for your money, and so really understanding thought
processes can be incredibly helpful when you get to retirement.
Speaking of the mental component of this, first of all,
(31:28):
many don't even mentally prepare for the transition that happens
when you go from that paycheck coming in to then,
here's all the wealth that we've brought in. How do
we protect it, how do we make smart decisions? How
do we continue to grow it? And one of the
major strategies that can work to your advantage when you
get it right is how you take distribution. So, my
(31:49):
grandpa had a pension, he didn't need to worry about
how he took distributions his income in retirement and pension
social security for those nowadays, tensions are becoming less and
less common, distribution strategies more and more important.
Speaker 2 (32:05):
Yeah, you really need to make sure that you're looking
at your distribution strategy through the lens of tax efficiency,
because if you do it wrong, there's a lot of
ways to get it wrong in which you could be
ending up paying more in taxes, and a handful of
ways to get it right.
Speaker 1 (32:20):
So, and we often talk about saving in different buckets.
Speaker 2 (32:24):
Right.
Speaker 1 (32:24):
That gives you the ability to do that if you
get your retirement and you have a million two million
dollars in a traditional four to oh one K, and
you are patting yourself on the back. I'm not saying
that's not great. Great, great job saving. You're going to
have to pay taxes ordinary income on every dollar that
you have.
Speaker 2 (32:41):
Every single job. The money you put in the growth
the company match anything that went in.
Speaker 1 (32:46):
Yeah.
Speaker 2 (32:47):
So when you're saving in ROTH accounts, whether it's in
your four oh one K or a ROTH iry, you're
diversifying the future tax liability, allowing those dollars to grow
tax free. When you hit fifty nine and a half,
they become tax free and they're not considered for required
minimum distributions when you're seventy three years old currently or
seventy five if you were born nineteen sixty or later.
(33:08):
Now kind of a hierarchy of distribution ZOUGH would be.
The first place would be the assets that you've accumulated
in a non qualified non retirement account. This would be
an after tax brokerage account where maybe you inherited some
Procter and Gamble shares, or maybe you had a stock
plan that you purchased stock through your employer, or you've
just been contributing on top of your tax favorable accounts
(33:31):
of your four oh one K or your iras, because
this account has a level of tax inefficiency in essence,
because you're not deferring taxes. So oftentimes folks will want
to start with taking distributions from their taxable account where
they're tax on capital gains rather than ordinary income.
Speaker 1 (33:49):
And if you do some tax loss harvesting right before
you get to the point of taking distributions, you can
be even more tax efficient.
Speaker 2 (33:56):
Which is a wonderful benefit of this type of vehicle.
Speaker 1 (33:59):
Absolutely, we get to those tax deferred accounts right, those
can make sense to pull money from next and then
you leave those WROTH dollars for lath and hey, if
you're doing legacy planning your children, then can inherit those
dollars that you pay taxes on and not have to
think through the tax implications of yay.
Speaker 2 (34:15):
I have folks that I work with that, in fact
even have much higher risk reward exposure inside of the
roth I rays because they know it's going to be
the last dollars they ever spend. So in essence, it's
more of an a state play where they're investing on
behalf of their children or future generations because they know
that money is going to go to them.
Speaker 1 (34:33):
Here's the all Worth advice. Knowledge is power. That power
can lead to prosperity. A qualified financial pro right. If
this sounds like it's over your head, can help you
minimize your tax burd when it comes time to withdraw
money for retirement. The difference here thousands tens of thousands
of dollars if you get it right. Coming up next,
some final thoughts on the correlation between your mind and
(34:53):
your money. You're listening to Simply Money, presented by all
Worth Financial here in fifty five KRC the talk station
the snow Man was a doubly handy listening to Simply Money,
wasn't all Worth Financial. I'm Amy Wagner along with Steve Ruby.
We're talking about behavioral finance tonight right, making mistakes with
your money that you cannot recover from. How do you
(35:14):
protect yourself from that? I think one of the best
examples I've ever witnessed in our industry was early twenty twenty.
We use headsets often when we're talking to clients on
the phones during I don't remember a single time in
the past years where people had the headsets on when
(35:34):
they were actually walking to the bathroom. That's how many
calls we were getting. In February of that year, markets
were in a free fall. There was a pandemic coming
from China. We knew it was coming. It was scary.
We had never been here before. No one knew what
to do, and our phones were ringing off the hooks
with clients who wanted to pull their money out of
(35:54):
the market and curl up in a fetal p.
Speaker 2 (35:56):
It's a terrifying thing.
Speaker 1 (35:58):
Yes, it was terrifying.
Speaker 2 (35:59):
I'm talking about pulling money out of the markets.
Speaker 1 (36:01):
Well, it looks terrifying.
Speaker 2 (36:03):
I know, I know, I know it. This time is
different was easy to It was hard to argue against.
Speaker 1 (36:08):
It felt really different.
Speaker 2 (36:09):
Yeah, it was hard to argue against this time is
different because it's like, Okay, you're right, we really haven't
had a global pandemic in one hundred years, and the
markets weren't the same then as they are now. So sure,
it does feel a little bit different. But you do
yourself a favor. Go to Google and google the S
and P five hundred and look at the five year returns,
and you'll see in that period of time we're talking about,
(36:31):
there's this tiny little blip of downturn, and it was
the shortest recession that we have ever had, Yes, the
shortest recession that we have ever had. And if you
made the emotional decision to pull your money and sit
on the sidelines, there's a very good chance that you
did not get back in in time to reap the
rewards of the markets going back up to all time highs.
Speaker 1 (36:54):
The economy was still shut down. There was nothing happening
that would have said, oh, markets should be rebounding. Yet
they started to rebound, and they rebounded in a heck
of a way. And those conversations that we had with
clients who wanted to jump off of the cliff during
that time, we saved ninety five percent of them probably
from maybe more from doing that. And those people were
(37:15):
so glad that they didn't. And you know, we had
one client and who decided to pull out, and I
actually interviewed her last year. They were able to buy
a condo in Florida. She was talking all about the
condo and if she hadn't worked with her advisor, here
the difference that it would have made. And her advisor said,
to me, did she tell you that she actually they
(37:36):
pulled money out of the market during the pandemic, and
I said, no, she didn't even mention it. He said,
I called her every single day and said, you got
to get back in, You got to get back in.
Never would have been able to do that if they
had stayed out for a long amount of time. So
this is where understanding your relationship with money and how
you can actually hurt it and yourself long term makes
(37:58):
a big difference.
Speaker 2 (37:59):
Having an advisor on your side, yes, actually badgering you
and making you think about the decision that you've made
and how it might impact your financial future. I mean,
that's a big deal because we said it earlier today
and I'll say it you know moving forward. Part of
the biggest part of our job is protecting people from
making mistakes that they can't recover from.
Speaker 1 (38:19):
Yeah, that particular client didn't even necessarily remember that as
part of our story her advisor, he did. It stressed
him out and they stayed in and they were okay.
Thanks for listening. You've been listening to Simply Money, presented
by all Worth Financial here on fifty five KRC, the
talk station
Tonight, we are going deep healing your relationship with money,
the specific order of withdrawals you need to make when
retirement comes, and a whole lot more. You're listening to
Simply Money presented by all Worth Financial, I Memi Wagner
along with Steve Ruby. You know, you can get upset
about politics, geopolitical events, all these things that are not
(00:27):
within your control. Sure, and look at the impact that
that's having on your four oh one K. But I'm
telling you, more often than not, the most damage that's
ever done to someone's portfolio isn't by whoever's the noble office,
whoever's in Congress, what's happening in the Ukraine. It is
because you have made a decision that is actually a
(00:50):
bad one for your long term financial health.
Speaker 2 (00:52):
Yeah, and a lot of this is founded in the
roots of your relationship with money, which is kind of
going to be the trend of today's show. We're going
to talk about the emotions behind money, our relationship with money,
and the challenges that some of that foundation might bring us.
Because we can share with you historical data, charts, roadmaps
(01:13):
that can lead to financial freedom. You know, we have
all that information right at our fingertips, and I do
share it with folks I work with in meetings, but
it doesn't mean anything if your own relationship with money
is a mess.
Speaker 1 (01:27):
Often your relationship with money is a mess because maybe
your parents was or you grew up in a home
where nobody was talking about this. You know, I speak
publicly a lot at different workshops and things, and I
always always start with one question. How many of you
grew up in a home where people talked openly about money.
If there's one hundred people in that room, two three,
(01:47):
which kind of remarkable, isn't it, maybe four people are
raising their hands saying yep, yep, my parents talk to
us about money. So you're growing up in this home
in an environment where obviously bills are being paid, money's
coming in, idea how that's working. And then you become
an adult. You got to figure it out on your own.
No one's ever talked to you about it. Many times,
there's no personal finance classes involved, and so this is
(02:08):
all figuring it out on your own. And I think
a lot of bad habits then sort of come to
be during that time.
Speaker 2 (02:16):
Yeah, I mean, family influence is huge here. Obviously it
wasn't talked about in my household at all. I've gone
in some details about my upbringing, but it was definitely
on the other side of the railroad tracks. There was
not a lot of money in my household. There was
not a lot of money to pay bills. Even so
it was you know, I saw that there were problems
because of money, but I never really made the connection
because there was no conversations around it. There was no
(02:39):
talk about money other than realizing that maybe we didn't
have a lot of it.
Speaker 1 (02:43):
On the flip side, Gary Wagner spoke very openly about money.
I mean, I knew at a young age how much
my dad made, which I think is something that people
often don't share. But how are kids going to know
what kinds of careers pay certain things, and how do
you pay the bills and how much does it take?
So he was first of all open about that, and
then second of all, oh my gosh, she had this
(03:03):
color coded spreadsheet system with envelopes attached.
Speaker 2 (03:07):
Just explains right, right, doesn't it, that you are We literally.
Speaker 1 (03:12):
Had a gift fund, and there was a there was
a hair fund for when my mom would get her
hair done. I mean, we had all little envelope system
for funds. And not only that, one other thing that
my dad talked about, which I appreciate so much was
mistakes he made with money. I remember one time when
I was younger, my dad's uncle passed away and he
(03:34):
inherited a little bit of money. Uh, And it was
awesome because we put a pool in our backyard and
I loved that pool, and we had so many parties
there and my friends were over all the time, and
it was so great. It was a great investment for
our family, right and just family time. But years later
he kind of said, you know, thinking back, yeah, if
(03:54):
I had just invested that money, maybe you know, paid
for the pool a few years later with some other funds,
that money could have actually been X dollars. And at
least it kind of led me to understand, Hey, sometimes
people make mistakes. My dad recovered, he's just fine, But
I also appreciated the fact that he shared that probably
wasn't the best thing I could have done with that.
Speaker 3 (04:14):
You know.
Speaker 2 (04:15):
Financial planning is about finding a balance in the life
that you're living and the life that you want to
live in the future, and making sure that your money
lasts longer than you do. At the end of the day,
he may have categorized it as a mistake, but it
also brought you a lot of joy, connecting you with
friends and all that jazz. So you know, maybe not
such a mistake here. But you know, family influence obviously
has an impact because you know, I didn't learn about
(04:35):
any of this stuff in my household, and it took
a lot of time and effort on my own.
Speaker 1 (04:39):
Totally drove you to want to understand it. But many people,
I think it's the opposite. You don't understand it. There's
a little shame involved in what you don't know, and
so it's kind of stick your head in this hand.
Speaker 2 (04:50):
Yeah, for me, it was motivation to create a better
life for my daughter, not turning out like the folks
that raised me. You had, you know, the other angle
here where your father was very in tune with money
and had that open communication, and the end result was
the same. Somebody who has a good relationship with money
is now having that conversation with their children, and all
of Greater Cincinnati for that matter.
Speaker 1 (05:12):
Right, my kids are like, yep, family dinner, Mom's talking
about health savings accounts again. But I think if you
grew up in a family where you did not talk
about money. One of the things that I would say
is break that cycle, please, for your kids, for your grandkids.
I had clients in my office recently who really did
a lot of the right things and have been really
(05:34):
smart about it, and they've got kids that are just
starting kind of in the workforce, and I said, have
you ever talked about this with your kids? And they
looked at me like, oh no, And I said, you've
done so many right things, why would you not then
want to make sure that your kids are on the
same track. And she said, We're going to do it
when we get home. You know, we just never thought
about it. So listen. Understandably, you could have grown up
(05:59):
in a home or either no one talked about it,
or it was such a bad situation there was always debt,
there was never enough to cover the bills whatever. That
is one of the statistics that I have seen in
doing the show that has been the most eye opening
for me is most of us have a relationship with
money by the time we're seven years old. Seven. Yes,
So this stuff is ingrained. And I'm telling you, I
(06:21):
can see it in my kids. They're raised in the
same house and they are so very different about it.
And some of it is nature and some of it
is nurture. But hey, assess yourself. Where are you? Do
you feel like you're someone who happens to have a
track record of making some not great decisions of getting
yourself into debt, you know, taking on more than you
can handle, whatever that is. I think that the first
(06:42):
step here is figuring out what your relationship with money is,
maybe why it's that way, and really kind of sitting
with that for a little bit, figuring it out.
Speaker 2 (06:53):
Well. You know, I want to talk about the why
a little bit because we've touched on family influence, but
it could be cultural even, I mean society attitudes within
the society that you're part of, you know, could portray
wealth as either the ultimate goal or some kind of
corrupting force. Yeah, you know that can obviously drive you
to behave one way or another with money. Fear and
anxiety could be you know, founded and worries about debt
(07:15):
expenses that can't be met. You know, obviously, financial insecurity
can lead to some major stress, guilt and shame. You'd
mentioned that earlier. Feeling undeserving of wealth or ashamed of
financial mistakes can create avoidance, but you know that's also
an opportunity, like your father talking about you know, here's
a mistake that I thought I made, and here's what
I learned from it, so that there's opportunities to kind
(07:37):
of break that cycle within your own family.
Speaker 1 (07:40):
You're listening to Simply Money presented by all Worth Financial.
I Memi Wagner along with Steve Ruby, we talk all
the time about things that can be impacting your money.
There is no greater thing that impacts your money than
you and a lot of that goes down to how
you were raised, your attitude toward money, the mistakes that
you've made. Have you educated yourself about these things? I
(08:01):
would say one of the largest drivers now of people
making a bad decision with their money social media. Yeah, comparison, right, Listen,
keeping up with the Joneses is not a new concept,
but when it's in your face every time you pick
up your phone and wait a second, that guy went
to college with he can afford, what kind of trip
or she drives, what kind of car? They must make
(08:24):
X dollars and you're constantly comparing yourself. I would love
for social media to come with a disclaimer and when
that car is on there, they say, this person has
a credit score of this, they have this much debt. Right,
if you could see the reality beyond just the beautiful,
glossy pictures of that amazing vacation, it may not look
so great to you. But I think, whether it's consciously
(08:46):
or subconsciously, we start to think, well, I want to
do trips like that if everyone else is doing trips
like that, But maybe are you doing those trips to
the detriment of your future retirement goals?
Speaker 3 (08:57):
Right?
Speaker 1 (08:58):
And so I think, gosh, social media is so terrible
for many because it's constant keeping up with the Joneses
in your face.
Speaker 2 (09:06):
Yeah, comparison is the thief of joy, I think is
the comment. I think Steve Sprovac came up with that one.
Speaker 1 (09:12):
I think he just takes credit.
Speaker 2 (09:13):
I know, I don't remember who was I don't sure sure,
but social media really does just magnify that to so
much extent. And it is funny bringing up Steve because
well before social media, he told stories of neighbors growing
up when he was a kid that bought their fancy
new car and they kept the stick around. Ye show
(09:34):
everyone in the neighborhood much they paid for their brand
new car, so it's not like this is new. However,
social media just puts it front and center at all times,
and there is no reason to compare something that might
be to an extent fabricated. You're not getting the full
picture when you see somebody else's social media posts. You're
(09:54):
seeing the best of the best in their lives, you
know what.
Speaker 1 (09:57):
And I want to point out something else too, for
those of you who are not talking about this with
your kids or your grandkids. You and I did not
grow up with social media, right. We're the first generation
to be raising children who are growing up in it.
So we didn't grow up with these things in our face.
My kids are growing up nova will grow up with
these things in their faces, right, And it's consume, consume, consume.
(10:18):
You need this, you need that, you need this, you
need that. So if you are not talking about it
in your home, your kid is getting toxic. Probably ideas
of what's smart with their money based on these things.
My daughter sent me a meme that she saw on
social media the other day and it said, I'm going
on a trip. My parents drove me to the airport,
so that saved me forty five dollars in an uber.
(10:39):
I made my coffee before I went, so that saved
me ten dollars. So now I have saved fifty five dollars,
I can spend fifty dollars on sea. And it was
like this crazy math, right, didn't even exist, But she
was like, my brain does work this way sometimes, you know,
weird ways of justifying this is all over social media.
In so you've got to make sure that your kids
(11:01):
are growing up with a healthy relationship with money, and
many times it's got to come from you.
Speaker 2 (11:06):
Yeah, I think it's important. The whole reason why we're
talking about some of the behaviors behind the scenes and
what drives our emotions here is to talk about ways
to address them. So making sure that you're reflecting on
your own money story essentially, so that you can break
that chain that maybe exists within your household. Like it
didn't mind anyways yours. You're passing on what you learned mine,
(11:28):
I'm passing on what I didn't learn. So identifying what
needs to be addressed so that we can share that
story with our loved ones and you know, the younger
generations around us. It is important.
Speaker 1 (11:39):
Yeah, So know what your beliefs are. Identify them, see
where the limitations are, where they're holding you back. Educate yourself.
There's no shame and not knowing anything, but going back
to that kind of guilt spiral that comes from it, Well,
I don't I'm at work and people are talking about
what their for one ks are invested in. I have
no idea, So I'm going to stick my head in
this hand. Oh, or you could go home tonight and
(12:01):
you could start researching, or listen to the show, or
share the show with someone who you not doesn't know right,
there are ways to educate yourself in a little bit
of knowledge then starts to build a much stronger founding.
Speaker 2 (12:13):
You could also seek support, you know that that would
be in the in you know, with a fiduciary financial planner,
for example. They could hold your hand and guide you
through some of these processes.
Speaker 1 (12:22):
I one of our founders always says the number one
thing that we do more than anything else is to
help people or keep people from making mistakes they cannot
recover from. Had someone in my office earlier this week
her asset allocation. She probably didn't have enough stock exposure
to really get her through retirement, and we started talking
about that, and she had some really strong feelings about
(12:46):
politics and why that was and I really can to
kind of talk through, Hey, this is your Your prejudice
is in this place. While you can have whatever political
opinions you want, could be holding you back financially, and
by subscribing to this way of believing and actually acting
on it with your money, you could be much farther
(13:07):
behind where you might be if you didn't let this
limit you. So kind of understanding how those thoughts kind
of play into the decisions you're making with your money
goes a long way. Here's the all Worth advice. Cultivating
a healthy relationship with money is going to lead to
some much better decision making and ultimately help lead you
toward achieving financial independence. Can gip. Next, we're talking about
(13:29):
what six and ten investors have to overcome on their
road to financial freedom. You're listening to Simply Money presented
by all Worth Financial here on fifty five KRC, the
talk station.
Speaker 3 (13:41):
I Love.
Speaker 1 (13:42):
You're listening to Simply Money presented by all Worth Financial.
I mean Me Wagner along with Steve Ruby. If you
can't listen to our show every night, you don't have
to miss the thing we talk about. We've got a
daily podcast for you, just search simply Money on the
iHeart app or wherever you get your podcasts. Coming up
at six forty three, we're going to look into the
sequence of as that you need to make sure you
are maximizing your retirement withdrawals. There's a way to get
(14:05):
this right and a way to get it wrong, and
the difference could be.
Speaker 2 (14:08):
A lot of ways to get it wrong.
Speaker 3 (14:09):
Yeah, a lot.
Speaker 1 (14:10):
Yeah, that's true, and in tens of thousands of dollars
in the difference if you get it wrong. So let's
let's just get it right. Okay. We were just talking
a few minutes ago about the role that your mind
plays in your financial life. We're going to stick with
that and we're going to focus on communication. Here's the
stat More than half Americans fifty six percent say you
(14:31):
grew up in a home where nobody talked about money
with you. This is a recent Fidelity survey of nineteen
hundred adults. Actually think that number is probably on the
low side.
Speaker 3 (14:39):
Yeah, I know.
Speaker 2 (14:40):
When you know you're talking about when you give presentations
in front of groups of people and you ask people
to raise their hand and how many talks about money,
it's two or three to one hundred. Yeah, this is
this is an alarming stat here from Fidelity. And you know,
it's supposedly because a lot of people simply have a
complicated relationship with with wealth. Yeah, eighty nine percent of
(15:02):
folks say they do not consider themselves wealthy. This is
according to the same Fidelity survey. You know, the definition
of being wealthy is just not having to live paycheck
to paycheck. So those are some scary statistics.
Speaker 1 (15:15):
What I think is the biggest problem for many people
is if you go up to home where no one
talked about money, and you just feel like you don't
have the proper education. You tend to then feel like
I'll figure it out someday. Sure, but not yet, and
so you let years go by where you could have
been building this really solid financial foundation because you don't know,
and you're just ashamed of the fact that you don't know.
(15:37):
And you know, no, probably no surprise to anyone. I
not only speak very openly about money with my kids,
I do it with my friends too, and I've found
that it has been helpful to all of us. In
just an example, I have of my one of my
best friends since she we were three years old. And
she is brilliant and she has a fantastic job. And
(16:00):
I had worked in an industry for years and years
and years where there was no bonus structure, nothing like that,
and a new job kind of had a bonus structure,
and I really wasn't comprehending really well how it worked out.
And I called her and we talked through the numbers
of it, and she was very openly sharing how much
she makes and what her bonus structure is. Like most
people are afraid to talk about those things. There's no
(16:20):
shame in that. It educated me and I came out
of it better because of it.
Speaker 3 (16:25):
Now.
Speaker 1 (16:25):
I didn't go gossiping it, you know, everyone that we
grew up with, but it was helpful to me, and
we trust each other in that situation. And I just
think that there's so much shame around this conversation about
money that needs to go away, and I think everyone
would be better as a result of it.
Speaker 2 (16:42):
They sure would be. And you know, part of this
Fidelity study that we're talking about today, it shows that
the baby boomer baby boomer generation, especially because they relied
on themselves oftentimes for financial literacy, they feel like they
should go at it alone, to the point where you know,
a third of baby boomers don't feel that having a
(17:04):
financial plan is actually necessary. Yeah. Yeah, well I.
Speaker 1 (17:10):
Say that because it's like my brain doesn't even wrap
around that. You know, like we're gonna wing it and
hopefully we're good at the end, or there's someone out
there that can look at what I'm doing, how I'm saving,
how I'm invested, how much I spend, and tell me
whether I'm going to be okay. If there is one
piece of research that we have looked at time and
(17:32):
time again, it is people's concerns in retirement. And I
have looked at dozens and dozens of studies on this
and through the years, they all have the exact same conclusion.
The number one concern in retirement is outliving your money.
And so if you can work with someone or if
you can do a plan yourself, great, But what you
don't want is to look at that screen and when
(17:54):
you're seventy eight years old or pick the age, there's
red access in that plan. And red access mean there's
not dollars, you have.
Speaker 2 (18:01):
No more resources. Your money will not live longer than
you do. That is a scary prospect. Do not win that, Yeah, exactly.
I mean I do see a lot of folks coming
into my office and they finally reached a point where
they're you know, I've generated wealth, I've made good decisions
along the way, but you know, I'm coming to realize
that things are maybe a little bit more complex than
I thought, and I probably have questions that I don't
(18:22):
know I should be asking, right, And I think that's
the attitude that a lot of people need to come
in with, because going at it alone does present challenges
that maybe you wouldn't think of that could lead you
to a situation where you simply run out of money
while you're still.
Speaker 1 (18:38):
Around, if you're in a marriage or relationship to where
you have not there's not history there of talking about
money change that. Alriddick's on our show a lot. He's
brilliant game time budgeting. He and his wife, I don't
they probably have weekly meetings about money. I'm not saying
you about it. You don't have to do that, but
they really plan ahead. They assign their dollars a job.
This one's going to be on for vacation, this one's
(18:59):
going to be for retirement, and they're really intentional, and
if you feel like you're behind or not on the
same page, one of the best ways tote it on
the same page is to talk about what are our
financial goals. Do we want to help our kids pay
for college? Do we want to go to Europe? Do
we want to retire it early? Whatever that is. Figure
out what the goal is, and then make the financial
decisions through the lens of does that take us closer
(19:20):
to that goal or farther away?
Speaker 2 (19:22):
And then keep having the conversation too, to make sure
that you remain on the same page and that you're
making progress towards whatever that goal might be.
Speaker 1 (19:29):
Here's the all Worth advice. By fostering open dialogue and
a shared responsibility, families can really strengthen your relationship with
money and each other. Make financial planning kind of a
collaborative and empowering thing in your family. Coming up next,
we're talking with an expert on your mind and money.
Really brilliant. You're going to want to stick around for this.
Some great insights you're listening to Simply Money, presented by
(19:51):
all Worth Financial here in fifty five KRC the talk station.
Most of us know the right thing to do with money.
So why don't we always do that? Why don't we
always choose that? It can be a very complicated question.
Joining us tonight to help make sense of this. How Hirshfield.
(20:12):
He's a professor of behavioral decision making at UCLA's Anderson's
School of Management. How we do? I think most of us,
especially those who listen to these kinds of shows, kind
of know what we're supposed to do, yet we don't
always do it. Let's talk about why that is.
Speaker 3 (20:28):
Yeah, Amy, thank you so much for having me. It's
a great question, right, and I think most of us,
You're right, have that same feeling, which is, I know
I should be doing this right, but I always find
myself having a hard time doing it. I mean, there's
lots of reasons why. We can start with the fact
that we live in the present, and the present is
so much stronger than the future. And so even if
(20:52):
we know we should put aside some money, even if
we know we should be saving or doing something for
the long run, well needs crop up and unths crap
up too right now, making it hard to do the
thing that we say we want to do. So that's
one big reason.
Speaker 1 (21:06):
Okay, you know We always talk about having a financial plan, right,
you make a financial plan for yourself, it helps you
plan for retirement or if you want to help the
kids pay for college, dunday or a wedding, whatever that is.
And I think when you sit down with that advisor
or you figure it out yourself, it's like, Okay, this
is good to go, right, I believe in this. I
can get behind it. And then things get weird. The
(21:29):
markets go berserk, the economy is a little crazy, whatever
it is, and all of a sudden, sticking to that
plan isn't as easy as we once stop. Why is that?
Speaker 3 (21:38):
Yeah, that's exactly right. So I mean there's a couple
of things going on here. So first off, I would
say that plans are great, and the best plans are
the ones that have an automatic component to them and
have more of a lock in that makes it difficult
for us to be our own worst enemies. If that
(21:59):
doesn't make sense. What I mean by that is we
want to make it harder for ourselves to switch gears
because of some sort of sudden worry or feeling or
concern on our parts.
Speaker 1 (22:12):
Just like our parents or our grandparents maybe used to
have a pension right, that money was there, they couldn't
touch it.
Speaker 3 (22:20):
That's exactly right, you know, And of course that's the
basic idea behind a four one K, which is really
only a sort of personally managed pension. But the problem
there is the personally managed component, right, which is to say,
it's easy for us to start then sort of messing
around and can you know, convince ourselves that we need
that money right now? Now? Of course, there can be
(22:42):
times when we do need it, and that's you know,
that's the reason why it's good to have a rainy
day fund. I saw somebody the other day say something
that made so much sense to me, which is, you're
not a failure if you dip into your rainy day fund.
It means that you were prepared.
Speaker 1 (22:55):
Yeah, that's a great point.
Speaker 3 (22:56):
Expected expenses, Yeah, exactly.
Speaker 1 (22:59):
And we talk all the time about that rainy day
fund or that emergency fund and why you have it
there so that you're not dipping into those retirement savings.
But you know, so many of us, you know, get
those statements and we see that money either going up
or going down, and then there's in the present, and
I think that's a great point. There's things we need
right now, and so it's hard to think about the
future self and retirement and especially how I think right
(23:21):
now when you've got markets all over the place, when
you look at that money that's taken, however, many number
of years to get into that account, starting to go down,
for a lot of people, the knee jerk reaction is,
I'm just going to take it out, even though I
think most people know somewhere in their heads not the
best idea.
Speaker 3 (23:40):
Yeah, you know, I think this is a particularly difficult
problem to solve because you know, we're convincing ourselves that
we're doing this, we're pulling the money out because we
see the dips. We convince ourselves that this is the
right move. And I would sort of, you know, push
back and say it's the right move for who, because
you know, historically and of course, you know, we don't
(24:00):
know what's happening today, but historically the data would suggest
that if you have a long term goal, it's best
to just let it be, let it ride, right And
if we pull it out right now, we may actually
be ironically harming ourselves in the long term, in the
you know, for our future selves there, right, So I
would say it all depends on what are the time
(24:23):
horizons of our goals are. If we have a long
term goal, if it's retirement and that's not for ten, twenty,
thirty years or whatever it may be, then we've built
in market relatility, We've built in risk to get higher
returns there. If, of course our goals are much shorter term, well,
then you know that's a conversation that we should be
having with our advisors about our investments in well, in
(24:46):
safer harbors.
Speaker 1 (24:47):
I would say, absolutely, you don't seem to simply money
tonight here in fifty five KRC as we're joined by
hol Herschel. He's a professor of behavioral decision making at
UCLA's Anderson's School of Management. Essentially, why do we sometimes
do things with our money where we know it's not
the best thing? How I'm wondering if in your research,
what you've learned about how we grew up with money,
(25:09):
how our parents dealt with money, what is kind of
just innate that we're not even processing is probably on
some kind of subconscious level of just how we've grown
up with money that affects our decision making today.
Speaker 3 (25:21):
Yeah, this is a great point, right, So a lot
of my own research looks at the relationships that we
have with our future selves and how those relationships impact
our financial decisions, you know. And the gist, of course
is that if we feel closer, in a stronger bond
with our future selves, then we're more likely to do
things today that might put ourselves in a better position tomorrow.
(25:43):
But your question is really about how you know historically
where our childhood experiences are, where our life experiences are,
may impact those relationships and those future decisions. And this
is a really tricky topic because of course you've got
some geik influence and you've got some environmental influence. And
this is not my own research, but other researchers have
(26:06):
found that our life histories do matter. In other words,
how we grew up with money does matter. But one
really important caveat there is that it's not like these
sort of life histories or our childhood events are sort
of ever present, but rather they seem to rear their
head when the volatility arises. So, in other words, if
(26:30):
we grew up in a financially restricted environment, whether objectively
speaking it was financially restricted or that was our attitude
toward money, then we start seeing that sort of mindset
creep in when we experience more volatility in the market.
On the other hand, if you know we grew up
with a more leis fair attitude, with more of a
(26:52):
sense that money was flush and you know that we
could have a cushion in the future, well then you
see people being a little bit more realized even when
times get tougher. So it's not just sort of all
or nothing thing, but rather you see these childhood influences
sort of pop up when markets go violatile or you know,
when our own personal circumstances are more volatile.
Speaker 1 (27:15):
Yeah, that makes a lot of sense. I also want
to get to social media, you know, for those who
scroll through Facebook, Instagram, Twitter, you name it. I think
we like to think like, oh, we know about social media,
like we're not making any monetary decisions anything about how
we spend our money based on social media. But I
think if we really thought about it, we would realize
(27:35):
that's not true.
Speaker 3 (27:37):
Yeah, you're exactly right. So you know, it's a really
interesting topic. There's been a lot of theorizing about how
sort of massive events can cause you know, sort of
quirky investor behavior, right. I mean, this is something that
economists have talked about. Well, it seems like for decades,
(27:58):
if not centuries, the idea that they're can be bubbles,
and bubbles are driven by sort of uh mania that's
driven by me seeing what other people are doing. We
don't actually know from like an empirical standpoint, We actually
haven't seen research yet looking at individual level influence from
say Twitter or Facebook or Reddit or social media generally speaking,
(28:21):
and how how those platforms then impact our own investment behavior.
It's it's actually a question that I've been looking into
with two colleagues right now to see whether or not
some of these sites may actually intensify our sense of well,
you know, to borrow the sort of popular term, whether
you know, these sites intensify the feeling of fomo, you know,
the fear of missing out.
Speaker 1 (28:42):
I think about the stocks, right, great investment stocks that
started last year on Reddit and a frenzy that was
involved around that, and I think that's a very kind
of blatant example. But I also think you kind of
casually look at social media and you see your college
friend is driving a certain call or going on a
certain vacation, and maybe you can't really afford that, but
(29:04):
you think I should and so then do you make
different decisions about credit card debt or pulling money out
of your four oh one K? Right, I just I
think that we don't even on a conscious level, think
about these things. But there has to be some kind
of an impact.
Speaker 3 (29:17):
Yeah, I suspect you're right about that. And so, you know,
part of the issue here, just like you said, is
that we may not be fully aware of the impact
that sort of the constant consumption of these images and
you know, comparison of experiences, et cetera, is having on
our own decisions about money and how to spend it. Again,
(29:41):
you know, this is this is speculation at this point
because I'm you know, we haven't looked at sort of
a specific influence of what I consume on say Facebook
or Instagram and how that impacts my decisions. But you
used to be the case that one of the advantages
of spending our money on experience, well that experiences were
(30:02):
harder to compare and so my vacation could have been
half as much as yours, but we could have had
just the same amount of sort of positive utility from
that vacation. And now with social media, experiences are incredibly
comparable or you know, it's much easier to compare one
to another. Yes, exactly, take away some of the advantage there.
Speaker 1 (30:23):
Yes, So just great insights from how Hirschfield. He's a
professor of behavioral decision making at UCLA's Anderson School of Management.
If you ever wondered, I know the right thing to
do with my money, but why am I not doing it?
So much of that has to do with behavioral finance.
You're listening to Simply Money here on fifty five krs
the talk station. You're listening to Simply Money presented by
(30:45):
all Worth Financial, I mean wagneralone with Skee Ruby. Do
you have a financial questions keeping you up at night?
You and your spouse just aren't on the same page.
There's a red button you can click on while you're
listening to the show. It's right there on the iHeart app.
Record your question. It's coming straight to us. We figure
it out. Okay, So we were talking about your mind
and money, and there's kind of a technical term for
(31:05):
this behavioral finance, actually a credential and behavioral finance. And
it's so interesting how the brain works often counter to
what's best for your money, and so really understanding thought
processes can be incredibly helpful when you get to retirement.
Speaking of the mental component of this, first of all,
(31:28):
many don't even mentally prepare for the transition that happens
when you go from that paycheck coming in to then,
here's all the wealth that we've brought in. How do
we protect it, how do we make smart decisions? How
do we continue to grow it? And one of the
major strategies that can work to your advantage when you
get it right is how you take distribution. So, my
(31:49):
grandpa had a pension, he didn't need to worry about
how he took distributions his income in retirement and pension
social security for those nowadays, tensions are becoming less and
less common, distribution strategies more and more important.
Speaker 2 (32:05):
Yeah, you really need to make sure that you're looking
at your distribution strategy through the lens of tax efficiency,
because if you do it wrong, there's a lot of
ways to get it wrong in which you could be
ending up paying more in taxes, and a handful of
ways to get it right.
Speaker 1 (32:20):
So, and we often talk about saving in different buckets.
Speaker 2 (32:24):
Right.
Speaker 1 (32:24):
That gives you the ability to do that if you
get your retirement and you have a million two million
dollars in a traditional four to oh one K, and
you are patting yourself on the back. I'm not saying
that's not great. Great, great job saving. You're going to
have to pay taxes ordinary income on every dollar that
you have.
Speaker 2 (32:41):
Every single job. The money you put in the growth
the company match anything that went in.
Speaker 1 (32:46):
Yeah.
Speaker 2 (32:47):
So when you're saving in ROTH accounts, whether it's in
your four oh one K or a ROTH iry, you're
diversifying the future tax liability, allowing those dollars to grow
tax free. When you hit fifty nine and a half,
they become tax free and they're not considered for required
minimum distributions when you're seventy three years old currently or
seventy five if you were born nineteen sixty or later.
(33:08):
Now kind of a hierarchy of distribution ZOUGH would be.
The first place would be the assets that you've accumulated
in a non qualified non retirement account. This would be
an after tax brokerage account where maybe you inherited some
Procter and Gamble shares, or maybe you had a stock
plan that you purchased stock through your employer, or you've
just been contributing on top of your tax favorable accounts
(33:31):
of your four oh one K or your iras, because
this account has a level of tax inefficiency in essence,
because you're not deferring taxes. So oftentimes folks will want
to start with taking distributions from their taxable account where
they're tax on capital gains rather than ordinary income.
Speaker 1 (33:49):
And if you do some tax loss harvesting right before
you get to the point of taking distributions, you can
be even more tax efficient.
Speaker 2 (33:56):
Which is a wonderful benefit of this type of vehicle.
Speaker 1 (33:59):
Absolutely, we get to those tax deferred accounts right, those
can make sense to pull money from next and then
you leave those WROTH dollars for lath and hey, if
you're doing legacy planning your children, then can inherit those
dollars that you pay taxes on and not have to
think through the tax implications of yay.
Speaker 2 (34:15):
I have folks that I work with that, in fact
even have much higher risk reward exposure inside of the
roth I rays because they know it's going to be
the last dollars they ever spend. So in essence, it's
more of an a state play where they're investing on
behalf of their children or future generations because they know
that money is going to go to them.
Speaker 1 (34:33):
Here's the all Worth advice. Knowledge is power. That power
can lead to prosperity. A qualified financial pro right. If
this sounds like it's over your head, can help you
minimize your tax burd when it comes time to withdraw
money for retirement. The difference here thousands tens of thousands
of dollars if you get it right. Coming up next,
some final thoughts on the correlation between your mind and
(34:53):
your money. You're listening to Simply Money, presented by all
Worth Financial here in fifty five KRC the talk station
the snow Man was a doubly handy listening to Simply Money,
wasn't all Worth Financial. I'm Amy Wagner along with Steve Ruby.
We're talking about behavioral finance tonight right, making mistakes with
your money that you cannot recover from. How do you
(35:14):
protect yourself from that? I think one of the best
examples I've ever witnessed in our industry was early twenty twenty.
We use headsets often when we're talking to clients on
the phones during I don't remember a single time in
the past years where people had the headsets on when
(35:34):
they were actually walking to the bathroom. That's how many
calls we were getting. In February of that year, markets
were in a free fall. There was a pandemic coming
from China. We knew it was coming. It was scary.
We had never been here before. No one knew what
to do, and our phones were ringing off the hooks
with clients who wanted to pull their money out of
(35:54):
the market and curl up in a fetal p.
Speaker 2 (35:56):
It's a terrifying thing.
Speaker 1 (35:58):
Yes, it was terrifying.
Speaker 2 (35:59):
I'm talking about pulling money out of the markets.
Speaker 1 (36:01):
Well, it looks terrifying.
Speaker 2 (36:03):
I know, I know, I know it. This time is
different was easy to It was hard to argue against.
Speaker 1 (36:08):
It felt really different.
Speaker 2 (36:09):
Yeah, it was hard to argue against this time is
different because it's like, Okay, you're right, we really haven't
had a global pandemic in one hundred years, and the
markets weren't the same then as they are now. So sure,
it does feel a little bit different. But you do
yourself a favor. Go to Google and google the S
and P five hundred and look at the five year returns,
and you'll see in that period of time we're talking about,
(36:31):
there's this tiny little blip of downturn, and it was
the shortest recession that we have ever had, Yes, the
shortest recession that we have ever had. And if you
made the emotional decision to pull your money and sit
on the sidelines, there's a very good chance that you
did not get back in in time to reap the
rewards of the markets going back up to all time highs.
Speaker 1 (36:54):
The economy was still shut down. There was nothing happening
that would have said, oh, markets should be rebounding. Yet
they started to rebound, and they rebounded in a heck
of a way. And those conversations that we had with
clients who wanted to jump off of the cliff during
that time, we saved ninety five percent of them probably
from maybe more from doing that. And those people were
(37:15):
so glad that they didn't. And you know, we had
one client and who decided to pull out, and I
actually interviewed her last year. They were able to buy
a condo in Florida. She was talking all about the
condo and if she hadn't worked with her advisor, here
the difference that it would have made. And her advisor said,
to me, did she tell you that she actually they
(37:36):
pulled money out of the market during the pandemic, and
I said, no, she didn't even mention it. He said,
I called her every single day and said, you got
to get back in, You got to get back in.
Never would have been able to do that if they
had stayed out for a long amount of time. So
this is where understanding your relationship with money and how
you can actually hurt it and yourself long term makes
(37:58):
a big difference.
Speaker 2 (37:59):
Having an advisor on your side, yes, actually badgering you
and making you think about the decision that you've made
and how it might impact your financial future. I mean,
that's a big deal because we said it earlier today
and I'll say it you know moving forward. Part of
the biggest part of our job is protecting people from
making mistakes that they can't recover from.
Speaker 1 (38:19):
Yeah, that particular client didn't even necessarily remember that as
part of our story her advisor, he did. It stressed
him out and they stayed in and they were okay.
Thanks for listening. You've been listening to Simply Money, presented
by all Worth Financial here on fifty five KRC, the
talk station
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