Most People Just Don’t Know

I’m currently doing some financial coaching for a couple I know and it became very obviously to me that while they were in a great position in a number of ways (no debt other than mortgage, spend less than they earn, one of them has a defined benefit pension), they just really didn’t understand some fairly basic things about their money.

It wasn’t like they didn’t have a the capacity to understand their money situation, it was merely they have never really put the time and effort into having a basic financial plan.  The idea of making that many decisions on their insurance, savings and investing felt overwhelming to them so the just never did it.  From their point of view their weren’t getting into debt, they had some savings, so it wasn’t like they were doing that bad.  Even from a net worth point of view they were about average given their age.

So what struck me during all this was the fact how little difference there was between their situation and mine.  That the only things separating us was the fact I had plan and was actively awareness of my money.  That is it. The line between doing ok with your money and good or great is very thin indeed.  So while I’ve never put a tonne of time into writing  articles on basic personal finance on this site, I know understand why there are so many of them on the web.  Most people just don’t know the basics, so hence the endless attempts to educate people.

For example, here are a few things that strike me as obvious that some people just don’t do:

1) Put a limit on your spending. When you get paid move the money you mean to save out at once.  That way when you look at your chequing balance you feel poor than you really are and naturally don’t spend all your money.

2) Use automatic transfers. Plan to be lazy, dumb or just forgetful.  Make your saving automatic so you never have to think about it.

3) Make investing easy. Don’t go complex, just keep it simple.  Use low fee index funds and rebalance once a year. Google “couch potato portfolio”.  Just by keeping your fees low, a diversified portfolio and taking some of the emotion out of investing you will do better than most people.

4) Don’t feel guilty about your spending. Comparing yourself to others is the road to unhappiness.  Instead ask the questions, what do you wish you spent more on?  Then ask, how can I spend less on what I don’t care about?  That way you can do more with what you already have.

So do you ever try to help people around you do better with their money?  If so, any advise on what approaches seem to work?

9 thoughts on “Most People Just Don’t Know”

  1. I was discussing exponential human population growth in my Environmental Science class and said, “BTW, this curve shows up a lot in life, like interest on a loan.” So I shifted to a discussion of student loans and how fast the interest accumulate over one or two decades. Some students were gobsmacked, some didn’t care, but other understood and began offering ways to pay the debt down FAST. It was the last group I believe who taught me the most. Oddly, most students commented that no one had ever discussed this with them.

  2. I’m fascinated by how others think about money. Over the years, I’ve learned to only offer advice if there is interest or if it is asked.
    The first thing I do is ask them what their life priorities are (whether it costs something or not). The next step I take is to look at where they spend their money and how it reflects their priorities. Usually there’s a large discrepancy of where the money is “wasted”.
    Everyone is different so this method works well with their individual priorities.

  3. I spent time coaching a fellow student with finances and the biggest factor was attitude. There were some things she was game on changing but when it came to reducing her lifestyle to something she could afford she simply wasn’t interested. At the end of the day you can’t make them want to make better choices.

  4. I have been helping my best friend of 25 years manage his portfolio since his remaining parent (mother) passed away last August and he received a large inheritance. This included accompanying him to meetings, showing him how to use the brokerage house’s website, and suggesting mutual funds for him to invest in. All of the time-consuming setupwork finally got done in December, and he has nearly all of the cash portion of his inheritance invested in something other than cash equivalents, so there is not much to now. However, it is an ongoing process because his inherited stocks and bonds spin off cash interest and dividends every so often.

    I have also kept him from making some really bad investments like when an annuity salesman wanted him to convert his Roth IRA to an annuity, something he did not need. He has invested some relatively small amounts with his broker/friend, sometimes against my advice, but I figure he can have some “play money” from the large inheritance to do with as he pleases.

    He is a LBYM type and like me has no debts and no kids so is doing quite well.

  5. I am shocked by the number of people who don’t understand TFSAs. They think it is just a savings account instead of the tax shelter umbrella that it is.

    My TFSA is home to my dividend producing stocks that are a big part of my retirement savings goals.

  6. We often think that everyone should know the basics even if we believe they are common sense. I’ve learned that attitude is so important when it comes to financial health. Some people think a budget is too restrictive or they don’t need it. I also get comments from fans that don’t want to look at my monthly budget updates as they get discouraged. What I tell them is that it’s NOT about the numbers or comparing it’s about showing them that by using the tips we share is helping us to get to the place we are at. Comparing ourselves to others WILL hold us back if not help us dig a deeper hole trying to keep up. The best part about tracking expenses and using a budget is we don’t feel guilty when we spend money anymore. Great post.

  7. My method (with my kids anyway) tends to use these kind of methods:

    “But you are free” (to choose) really does give kids (or anyone) a reasonable feeling of control that’s healthy for them. It works as well for me with my budget of “just don’t go over this total” for the month/year. Guaranteed if I was like Mr. CBB above and had a budget of $5 parking every month, I’d probably have a panic attack or want to spend $5.25 just out of contrariness. Apparently I don’t even like listening to myself being bossy to myself. 🙂

    I’d rather only preach to the choir or waste my time and energy with my kids’ finances. I’ve tried helping and advising friends but it doesn’t work and I get frustrated and feel like it’s my business to tell them what they should or could do when it really isn’t. I’d rather know nothing about friends’ finances except for those where I’m helping them do some tax stuff.

    However, I just showed a friend at work a retirement calculator that I modified off of MMM’s site to be more correct. She’s the type that I think really gets the FI/ER concept and wants it for herself (and has the certain something needed to get there). It almost makes me weepy to find a kindred soul IRL – I’ve only ever met two. 😛

  8. @Jane – At least TFSAs are relatively new. Though I am commonly shocked that people have random taxable money around and aren’t bothering to use their TFSA. Yes, it’s better for investments that produce higher returns, but a little bit of tax reduction is better than none.

    People not understanding RSPs bothers me more. I had to explain to my now husband that RSP does not equal GIC. He still won’t invest in anything stock related at all, but at least he sort of understands you can have a savings account in an RSP, if that makes more sense in a given situation.

    I’m also blown away by people who have no idea what they are actually spending, and don’t even look at their bank statements. I’m pretty meticulous but wouldn’t you at least want to compare money-in vs money-out, which only involves basic math skills.

  9. @Goldeneer,

    I totally agree with your process, I did the same thing. What is important to you and how do you feel about money. There is no point creating a plan you know they won’t follow since it rubs them the wrong way.

    @Everyone else,

    Thanks for the feedback. It’s good to know that at least some of us are trying to help people…when they want it.


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