A Lament for Personal Finance

I just finished reading No Worries: How to live a stress-free financial life by Jared Dillian. It’s a great book on personal finance. On his behalf, I can say, smash that buy button. You won’t regret it. But this is not a book review. It just got me thinking.

When I was a financial advisor, I would give clients, particularly young clients, a copy of Ramit Sethi’s I Will Teach You to be Rich. If I were still an advisor, I would gift that book and Dillian’s book, too. They are both great. Sethi’s promotes living your rich life! Aligning your money with your values and being ruthless with expenses that don’t align with your values. Who can argue with that? When I worked with clients, the first several meetings were all talking about values - personal and family. Clients were frequently a bit bewildered that it wasn’t until we got to our third meeting that we actually started talking about finances. And Dillian promotes having a stress-free financial life. He does that primarily by focusing on the big things: house, car, and college loans. I used to call this the Trifecta. Get these three things right, and your financial planning becomes significantly simpler (although I focussed on education savings for children as much as your personal student loans). Dillian’s is a novel approach; who wouldn’t want a stress-free financial life? It’s pretty genius, actually.

As I read and mulled over his message, I couldn’t help but feel a little disappointed about the state of personal finance. Given my experience as an advisor, my feeling was that only 10-20% of people out there would be interested in reading this book and taking the correct action to improve. More people might read the book, but most people weren’t just going to go do what it said and improve their financial lives. It is highlighted by what these two authors do when they are not writing personal finance books. Sethi has a media empire around financial courses and podcasts, Dillian writes financial newsletters, and for a long time did a personal finance radio show. In other words, they do continuing financial education. And that is the tough work. Just like any good financial advisor would do, you need to roll up your sleeves and help people figure out what works for them - in their specific situation, with their specific personality. And by the way, their situation will probably change in the not-too-distant future. Nothing that I have seen published or broadcast seems to solve the problem of the day-to-day knife fight that is required for successful personal finance.

One thing became apparent over time - and I don’t want to oversimplify a complicated topic - one of the core issues associated with personal finance: people want to spend the majority of their money. Pensions have gone the way of the Dodo, so now we have to do this ourselves, and most people don’t save much. I think maybe 10-20% of people are really wired to want to save their money. Everyone else fights some degree of battle to save. They either undersave on a day-to-day basis - spending so much that they crowd out their ability to save. Or they manage to save for a while, and once they have a little money piled up, they convince themselves that buying {a house, car, kitchen renovation, whatever your pet expenditure is} is a really financially bright idea. Then they spend a chunk and set themselves back years on their savings goals. Oftentimes, buying something with higher running costs, like a car or house, which stretches their monthly budget as well. I’ve heard all kinds of reasons:

• I worked really hard on {my education, climbing the corporate ladder, raising children, whatever your pet reason}, so I deserve to spend this money.

• I’m going to have to work forever anyway, so I might as well enjoy today.

• I have to spend money on my family and friends now. I can save later when I’m old and don’t have all these demands.

• All of my friends buy these things, and I need them too.

• I need to live in a good neighborhood so my kids can go to a good school.

It’s tough. I get it. I think Sethi and Dillian writing books like this are important. Maybe even more important is their outreach and content that comes out on a regular basis helping people stick through the challenges. I’m not sure what the right model for personal finance is that will help people in the future. There are good financial advisors, but as a whole, the finance industry does not serve individuals and families particularly well. I remain at a loss as to how to encourage good personal finance habits among the general population. At least there are people like Dillian and Sethi out there fighting the good fight.

This post is a bit longer and more rambling than my normal fare. Next time, I’ll try to be more succinct and to the point.

A rare sunny, snowy day in Stockholm. A little relief from the normal gray!