Why Even Smart People Make Dumb Financial Decisions on ‘How To Money’

On this episode of How To Money, Joel and Matt are joined by CBS Business News analyst, financial planner, and author Jill Schlesinger to talk about some of the dumb things even smart people do with their money. She knows what she’s about; she was a Wall Street trader in the 1980s, which she describes as “a frat party meets a rugby scrum,” before she became a financial advisor. She tells us that because we’re human, we can fall prey to our emotions, and that can lead to bad financial decisions. People will obsess over purchasing a home or choosing an expensive college even if the numbers don’t add up for them, or fall for a complicated financial product because “it sounds good in the moment,” and we’re afraid of missing an opportunity.

It’s a tough problem to solve because being human, of course, is non-negotiable, but there are ways to not let our emotions rule us financially. One of them is to work to identify when, and why, we get emotional about money. She describes a friend whose mother was very miserly with money, so she felt cheated – now, she overindulges her own children. But maybe her friend’s mother was an immigrant who worked relentlessly to earn every dime, so any frivolous spending feels offensively wasteful. “Money is such a loaded topic in many families,” Jill says. “These patterns that are created in your life are really important to acknowledge, so you don’t react to them.” Homeownership is a big one; in Jill’s opinion, it can often be better to rent than buy for many families, because owning “saps people of the liquidity, the money they may need, to have options down the line.” But because our parents (and their parents) were so sure that renting was just “flushing money down the drain,” we can often romanticize it instead of critically crunching the numbers. 

Fear of missing out can make us take unnecessary risks as well, Jill says, like investing in complicated financial products we don’t fully understand. “Most people who are in financial services are not required to put you first,” she cautions. “If you don’t really understand it and you can’t explain it to someone else, chances are, put the brakes on….the complexity of most products is a tell.” Instead of thinking about the long-term financial impact of our decisions, we’re thinking about it emotionally. Meanwhile, more important things are overlooked, like estate planning – she says “nothing drives me crazier” than people who won’t write out their will. “The risk you’re taking….is that your family is going to clean up a load of crap you left on the front door,” Jill says. “Your inaction creates a lot of pain, a lot of anxiety, and a lot of work for your family that is unnecessary.” Hear more of Jill’s great advice on this episode of How To Money.

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