Smart People Can Be Money Dumb (but don’t have to be)
Readers of Degree of Wealth are smart people. Most have gone to college and most have even gone to graduate or professional school. They probably work in research or education. They spend their days learning new things and explaining them to others.
Personal finance is not a complicated subject. Like any field, there is some terminology, some expected background knowledge, and you need to know where to go for reliable information. Certainly any DoW reader can learn the basics and save themselves thousands (or tens or hundreds of thousands) of dollars. And they deserve to keep those hard-earned dollars!
So why are smart people so often Money Dumb? And how do they become Money Smart?
Years ago my University switched retirement plans from TIAA-CREF and Vanguard to Fidelity. The University held various town halls explaining the change-over. I was happy with Vanguard and wasn’t thrilled with the change, so I went to one of these meetings to hear more about the switchover.
In the meeting, the HR folks announced that, in response to employee grumbling, they had arranged it so folks could choose to keep their existing accounts and investments with TIAA-CREF/Vanguard. Only new money was required to go to Fidelity. To my ears, that sounded more than fair. After all, employers have every right to change investment providers, and employees who don’t like it can pound sand.
One of my colleagues in another department (I don’t recall which, so we’ll say sociology) argued vociferously against this option. They said “everybody knows” money split into multiple accounts won’t compound as quickly as it would in a single account.
Now, I’m not in economics, finance, or any such thing, but I do know that if you earn 10% interest on $100, that’s $110 and it doesn’t matter if it’s in two accounts ($50 each earning $5) or a hundred accounts ($1 each earning $0.10). However you slice it, the amount earned is exactly the same.
This is not to disparage my colleague. They are undoubtedly smart. They have a Ph.D., are a world expert in their area of expertise, are well-read, and surely think carefully about things.
But, when it comes to money, my very smart colleague is Money Dumb.
And their Money Dumbness gave my colleague all sorts of unnecessary worry and stress. Not just about the change in their retirement account provider, but surely also budgeting, buying a house, saving for retirement, their health care, and innumerable other issues, big and small. Money touches nearly every aspect of our lives. If you aren’t comfortable thinking about money, life is a lot more stressful than it needs to be.
Being Money Smart is not about being smart. It turns out that knowing everything you need to live a life of financial stability and even wealth is actually not hard to learn. Anybody who is in the education, research, and academic sphere (aka readers of DoW) will find it surprisingly simple.
Money is much easier than the poetry of John Donne, quantum mechanics, the ins-and-outs of the Whiskey Rebellion, running a PCR, or whatever it was that you wrestled with this week. With a little effort, you can confidently make the money decisions that are right for you. A year from now you can be a Money Genius.
“I’m good enough, I’m smart enough, and doggone it, people like me.”— Stuart Smalley
Why Are People Money Dumb?
So why are smart people Money Dumb? As my former landlord pointedly said when I told him I worked at the university, “Some people are book smart, and some people are life smart”. That’s obviously a false division. There are plenty of people who are both, and plenty of people who are neither. And some who are so stupid, they have no idea how stupid they are.
So why are so many smart people so Money Dumb?
- Money is taboo: most of us are raised to not talk about money. I have only a vague idea of how much my coworkers are paid. We certainly don’t talk about retirement planning, how much our houses are worth, and such. It’d be less awkward to ask about sex lives and medical exams :-).
- We’re not taught about money: parents’ don’t talk about it and schools don’t teach it. And if you do learn from others, it’s likely to be bad or outdated advice (“Renting is throwing your money away!”). If my colleague had been taught some elementary numeracy when they were young, they wouldn’t have freaked themselves out in the middle of a faculty meeting.
- A lot of Money Smarts is not about smarts at all: it’s about human nature. Being smart doesn’t make you better about being frugal, making wise investments, and planning ahead. Being smart doesn’t automatically make you skinny and athletic, and it won’t automatically make you wealthy, either.
- Smart people are blind to their own limits: smart people often overestimate how far their smarts can take them. This can make them blind to their own weaknesses and to others’ deviousness. There is a reason doctors are every con man’s favorite target. They’ve got the money and the hubris to think they can’t be fooled.
- Many people don’t like thinking about money: we like money for what it does for us, but you’re a rare duck if you like to read about out of interest and fun. But even if you aren’t into this stuff, it is important and easy to learn. Being willfully ignorant about money is not just Money Dumb, it’s stupid.
- Smart people like thinking about other things: as a DoW reader, you’re naturally curious, like to learn, and have wide interests. That means there are worlds and worlds of interesting things to spend your time on. Money is only one of them. With all you do at work and in your free time, you’ll never get to it.
- Smart people think they are above money: in college and beyond we’re told we do what we do out of a love for the subject and a love of helping people. We’re not interested in grubbing around for money. After all, we would get a job on Wall Street or Silicon Valley if we wanted the big bucks! Right?!? Hey, can’t we do well and do something worthwhile?
That last point is especially important. We hopefully find our career path interesting and meaningful, but saying it’s for The Children or for Knowledge is also an insidious half-truth meant to keep us from what we deserve (that’s a whole blog post on its own!).It's okay to want to be paid what you are worth, and it's also okay to not want to be screwed out of the meager $$$ you earn. Click To Tweet
Another True Story
In many ways, I’ve been lucky. My parents were willing to talk about money, I’m pretty frugal by nature and nurture, I stumbled into a personal finance class in high school which taught me such now-quaint skills like how to write a paper check, I’m a pretty numerate guy who’s willing to research and crunch the numbers, and I’m one of those odd ducks who finds this stuff interesting. I’ve also been blessed with good advice from my parents and various mentors over the years.
But even with all these advantages, when I started my career I knew next to nothing about choosing a retirement plan, health insurance, how to buy a house, how much to save in an emergency fund, or how to save thousands on my taxes. These all came through belated reading and the school of hard knocks. Thanks to some luck and by learning what I needed to know in order to make smarter decisions, I will be able to retire much earlier than most of my colleagues.
More Good News
For smart folks like the readers of DoW, it is surprisingly easy to learn all you need to know to become financially secure and even wealthy. I’ve read countless books and blogs, done endless back-of-the-envelope calculations, and made plenty of mistakes. I’m here to share what I’ve learned and to help other educators, researchers, and academics become Money Smart.
My goal for DoW is to build a community of intelligent and kind people who share knowledge and help each other achieve their professional and financial goals. Whether you are a teacher, a grad student, a researcher, a professor, or are just curious, join us!
Questions and Suggestions Welcome!
If you have questions about money, personal finance, careers, academia, or whatever comes to mind, drop me an email at email@example.com. I’m happy to give you what advice I can.
Or, if you have suggestions on topics you’d like to hear more about here at DoW, let me know. I’ve got scads of blog topics already in mind, but I’m also smart enough to know that I’m blind to important issues that could otherwise fall through the cracks.
Image from the Met Museum