Investing Guide at Deep Blue Group: 4 Money Moves To Outsmart Your Brain
Finally, the explanation for why
Americans aren’t saving enough: It’s not sexy. Now, spending: that’s sexy.
That’s one of the findings in Thinking
Money: The Psychology Behind Our Best and Worst Financial Decisions,
airing on public television stations beginning Thursday, Oct. 16; check local
listings. It’s produced in association with the FINRA Investor Education
Foundation (FINRA is the largest independent securities regulator in the U.S.).
In truth, the show is really about
behavioral economics, but that’s not very sexy either.
So the program serves up key principles
by interviewing experts from the likes of Princeton,
Stanford and Yale — as well as what we
call in the journalism trade “real people” — to
explain why our brains keep us from doing the right thing with our money and
how to outsmart them. For instance, you’ll learn how to combat “the IKEA
effect,” which makes you put more value on products you helped create than ones
you don’t.
If this all still sounds a little wonky,
it’s worth noting that the program has some pretty funny and weird experiments.
For instance, someone gets wine coursed
through a vein while in an fMRI (a functional magnetic resonance imaging
machine that measures brain activity by detecting changes in blood flow) to see
how the brain reacts when it thinks the person is drinking a $90 bottle of pinot
noir versus a $10 bottle. In another, the jokey host — comedian/actor Dave
Coyne — wears Virtual Reality goggles to see what he’d look like “old.”
As Thinking Money’s producer and writer
John Greco told me, the show offers ways “to fight your instinct to spend money now.”
Four lessons from the show:
1.
Don’t let an overwhelming number of choices paralyze you from making smart
investing decisions.
In Thinking Money, the brilliant, blind Columbia University business professor
Sheena Iyengar (author of The Art of Choosing) discusses her jam study. She let
some people select among 24 flavors and others had a choice of six. They were
more likely to buy a jam when given a smaller selection; choosing among 24
flavors was too confusing.
The jams, the show explains, are an
excellent proxy for all those investment choices employees often have to pick
through when deciding where to put their 401(k) money. As it turns out, the
more 401(k) choices people have, the less likely they are to invest in the
plan. “Iyengar found that so many people are so confused by their 401(k)
choices that they invest in what they can understand, like money market funds. But
those barely keep up with inflation,” said Greco.
2.
A good “nudge” can help you achieve your financial goals — especially if the
nudge has unpleasant consequences attached. “Behavioral economists like the
nudge idea because they don’t have much faith in our ability to make the right
decisions,” Walter Updegrave, of RealDealRetirement.com (and a Next Avenue
contributor) noted at the Society of American Business Editors and Writers
(SABEW)/National Endowment for Financial Education (NEFE) Personal Finance
Reporting Workshop I attended on Thursday.
Thinking Money describes the clever,
free website, Stickk.com, where users sign up for “commitment contracts” to
force them to reach their goal. (The genesis of the site came from Yale
economists.) When setting your goal and a date, you can also tell Stikk which organization
you detest that should receive money charged to your credit card if you fail.
On the show, grad student Graham Brown
says he took out a commitment contract to force himself to make lunch three
days a week and put the money he’d saved toward a road trip with a buddy. It
worked.
3.
Beware of confirmation bias. This is when you look for
justifications for decisions you’ve made or are about to make by finding ones
that support your view and ignoring ones that don’t. Thinking Money says the
dot com bubble of the 1990s is an example of this. So was the 1630s tulip
bubble in Holland, when, as Greco said, “bulbs were going for 10 times the
salary of skilled craftsmen and were completely overvalued and a lot of
fortunes went with them.”
How to avoid confirmation bias? Daylain
Cain, Assistant Professor of Organizational Behavior at Yale University,
advises in the show that when you’re about to make an investment purchase, be a
devil’s advocate and ask yourself: What could go wrong?
“Any of us can do that, we just have to
be motivated,” said Greco.
4.
Don’t hand over money to a crook because you fear you’ll miss out on a
spectacular investment opportunity if you don’t. AARP’s
Washington state director Doug Shadel, a financial fraud expert (“he has
interviewed more con men than I have had hot meals,” said Greco), explains in
the show how fraudsters and marketers prey on that behavior.
One secret of con artists, says Shadel:
They look for people who’ve just lost a lot of money because those people are
angry and upset. As a result, they aren’t thinking clearly.
“That makes them more susceptible to the
con man’s pitch,” said Greco.
You can find other useful tips on
saving, investing, controlling debt and protecting your future at FINRA’s Saveandinvest.org
site.
After watching Thinking Money, maybe
you’ll feel a nudge to trim back spending and save more for your impending
retirement.
Greco told me that, since working on the
show, that’s exactly what he’s done. “I work primarily at home and used to
think nothing about buying lunch out. Now I find myself making lunch a lot
more.”
He added: “It’s never too late to change
spending habits that can hurt you.”
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