Behavioral Money Tendencies that Wreck Us #179

bearer market we've seen in history. The better we are at identifying these behavioral tendencies, the more likely we are to be able to make better decisions that will have a positive impact on how we view and how we handle our money. Humans were fickle creatures. We do weird things. But yeah, knowing kind of what underlies the actions that we take is super helpful, especially when it comes to money, right, Maddie.

That's right, man, all right. But before we get into that, man, I wanted to let you know I saw this interesting article on this website called Institutional Investor dot com, and it was talking about these Ivy League endowments, These big Ivy League schools have these private investment funds, and it was just kind of interesting to see that almost all of the Ivy League schools completely underperformed the market last year.

So basically the return that these Ivy League schools got didn't keep up with just the standard SMP five index fund that we often tout on the show. Yeah, and not just the SMP five hundred, but it was waited in the SMP and the other was a bond index. And and what's so what's even more crazy there is to think that if they were comparing that against a total stock market fund, or even just one in that

SMP FID fund, they would have underperformed. But even less, Like there was only one Ivy League school that I

saw in there that outperformed the market, which was was Brown. Yeah, but otherwise every single Ivy League school, including Harvard and Princeton, like these fancy schools that have these massive endowment funds, which by the way, I looked at Harvard's and it's like thirty eight billion dollars, right, so much money, And so they've got these fancy investors that are trying to grow that money for the benefit of the school, right, Yeah,

They're they're investing money in private markets, in private equity, venture capital, all that fancy stuff, things that aren't open to everyday investors like you and me, And they're thinking that they're going to get outside returns because of their access to these private investments that nobody else can take part in, but they still underperform just the basic investments that you and I can easily take advantage that just you and me, but all of our listeners right as well.

And this isn't to point out that the IVY Leagues are just really bad at investing, but it's just to point out how hard it is to beat the market, even with all of these sophisticated tactics, even with all the networks and resources that these investors have with these IVY League schools, that the best bet probably is just to stick that money in an SP five funded fund

or total stock market fund. Yeah. I think there's a tendency for individual investors as they start to learn a little bit more, to get cute or to try to get into alternative investments that are touted online. Is potentially making you a higher return, you know, closer ten, twelve,

fifteen percent on your money. But if these big wig investors who have billions of dollars at their disposal aren't able to keep up with the SMP five under just the the simple trajectory of the overall stock market, or even just a standard kind of sixty mix of stocks and bonds, then how can we, as individual investors who have day jobs and all these other things on our minds, how can we even come close to beating the market?

I mean, I think, I mean, I don't manage an endowment fund for a living, right, Like, I've got other stuff to do. Yeah, exactly, And so I think it just goes to show that we as investors should probably keep it simple. We're gonna make better returns in a typical year, and at the same time, we're gonna be paying lower fees, and it's just gonna be easier on us at the same time. Yeah exactly. And like you said, on a typical year, this was from last year's results.

And this isn't the first year that this has happened, right, This has happened many times, and so this isn't a one time thing. This is a pattern. Yeah. And I think even if, like let's say, the Ivy League schools crushed the stock market next year, I don't think it necessarily means that investing in private equities or investing in alternative ways is a better move. I think overall, we see the trends that the numbers bear out that the

simpler investing methods are almost always the best way to go. Yeah, and it'll be really interesting to see if these same numbers hold true for these endowment funds in an economic downturn as well, but for almost all of us. Yeah, the simpler the path, the better, simple path to wealth. Noil Collins would say, our good buddy, Jail Collins. That's right, all right, Matt, let's mention the beer that we're having

on the show today. This one is called I d k f A. It's by Ellipses Brewing picked this one up when I was down in Orlando and brought it back in Crowler form for us to share on the show today. My friend, Yeah, this along with the one we had last week, which is I'm already pulled over, So pay that toll, Joel, I'm on it. I will get on it. No, I haven't. I'm going to Okay, do they have an online option to pay? No, that's the thing they don't. It's ridiculous. I have to mail

in the check. That's it's lame, but you better do it. It's gonna have Our listeners are gonna hold you to that as well. And by the way, do you know where this comes from? I d k f A the name of this beer. No, not exactly. I remember as a kid from playing Doom. It's a it's a cheat code. It gives you, like I think it was, like, you get all the ideas, the keys and full armor. It's like a super nerdy gamer term. Okay, that's good to know. Yeah,

I didn't know what what it took for. But now how d k f A. All right, Well, let's get on the topic at hand. Today on the show, we're talking about behavioral money tendencies that wreck us. And I think we have to say up front that we're not trying to tell everybody that they're dumb. It's just that certain things are ingrained in how we are as human beings and how we approach the world. Right, so natural, Yeah, these these behavioral tendencies are not specific to just a

few of us. There are things that we all experience and we all need to fight back against. Some of the hardest money mistakes to correct are the ones that we do habitually because we don't recognize those core behavioral problems that actually let us there. So in order to to break those money habits, it often means taking a step back and develop being some awareness for those behavioral

issues that lead you there. For example, Matt, there's this study that was done of people that drink wine, and it turns out if you hand somebody glass of wine and you tell them the price associated with it, they automatically have an instinct for how good the wine is going to be. And if you lie to them and tell them that the wine costs more than it actually did, they assign higher value. They think that the wine was

better than it actually was. So if I hand you a glass of wine and I say, man, this this, this is this is a twenty dollar glass of wine, you're gonna be like, oh man, this is this is really really good. But because that's the most we spent on wine is like twenty bucks glass. I would never spend twenty bucks on a glass of wine, So I thought, you're talking about bottles. I mean even that a little little rich from my blood. But you'll spend twenty bucks

easily though on a bottle of beer, Yes I will. Well, that's the thing I mean, even aside from wine, like we did the same thing when it comes to beer, Like we get we get our hands on a twenty seven do a beer, which is rare, but occasionally we'll come across like a seven fifty million later bottle, which is the same size as a wine bottle traditionally, right, and if we know it's close to thirty bucks, like we're expecting a lot more out of that, and we

kind of convince ourselves that it's going to be better. And typically that is because it is better, right, Like you try to sell some swell that's super price like that and it's not gonna last. That's gonna hurt the brewery's name when you do something like that. But yeah, I totally understand. It's honestly why I try to never look up the ratings of beers on untapped before I drink them, because I don't want to be swayed by

the the star rating on there. I try to I'm very scientific, so I try to approach it very analytical, and I try to be objective about it, not subjective. Yeah, yeah, you want to come up with it in your mind before you see what other people said about exactly. I mean, that makes sense, but I think it is interesting though.

That's just one of these tendencies. And we're gonna cover a lot today in the show, all these tendencies that we have that lead us down this path of making bad money decisions because of these kind of ingrained behavioral tendencies that we have. Yeah, those unseen behavioral tendencies can totally cost us lots of money and poor buying decisions

and bad investing moves as well. That's why behavioral economics it's rapidly becoming a topic of risk, man, at least you and me, because we can't divorce our emotions from our decisions. It's really hard to do that. But the more that we are able to see the correlation between them, the more likely we are to be able to make better decisions, and that will have a positive effect on

how we view and how we handle our money. Yeah, man, I kind of grew up, I would say, with a negative money attitude, just kind of a negative association towards money in general. And I think that stems from from a few different things that I encountered while I was growing up, and and because of that, I've kind of struggled to develop a positive association with money in my adulthood.

I don't want to be super rich, but I do want to be well prepared for the future, and I want to have the freedom to choose the work that I want to do. I don't want to have ample time with my family and friends. So I had to work through these negative associations with money in order to realize that building wealth wasn't the bad thing, Like saving

from my future isn't bad. Just because I had these negative associations with money growing up, I guess I kind of correlated having money with like the great to be lifestyle where people were just like drinking champagne every night, these fancy cars, fancy parties, and I was like, well, I don't have any interest in that. That sounds terrible. So I just don't want to accumulate money. And because of that, you know, saving from my future wasn't attractive

to me. But it turns out, and then when you study things a little bit further, that the opposite is typically true of rich people. Right If if you read, for for example, the book The Millionaire next Door, you see that the way that people actually are able to amass some wealth is by living frugally, right, they drive older cars, they live in the same home for a

long period of time. So I had this negative money association and that's something that I've had to work through, and so doing that has been really really helpful to help me develop a more positive association with money as opposed to kind of just that negative one that had been ingrained for all those years. It's cool to see too, that that frugal lifestyle can lead to wealth, right, Like that can lead to millions. It's not necessarily like the opposite.

It's like, it's not like once you become a millionaire, then you can, you know, start living lavishly and kind of living the life. It's like, no, Like, the way I'm able to accumulate wealth is because I live frugally, and pattern of behavior I feel like carries on as well, like after someone might you know, have millions in the bank. That's why oftentimes those millionaires next door, like they drive used Ford Explorers. Yeah, I remember specifically that being one

of the cars that a lot of them drove. It's like, why do they buy used water Explorers. They're like, I don't know, they're cheap, you know, they get it done, and it's often. Why uh, incredibly rich family often as they pass on that fortune to their kids, why doesn't last very long? Well? Yeah, oftentimes that frugal lifestyle isn't necessarily adopted by that younger generation. And when you weren't the one actually worked in order to accumulate that wealth.

Easy come, easy go. Right there, there's kind of that factor as well. Well. I think I'm lucky enough to not have had any negative money attitudes. I guess growing up we talked about money like fairly often. Um, I just had negative attitudes towards other stuff like what peace and carrots, which I still don't like, by the way. Actually I like carrots okay, but pea's not my favorite. I specifically remember a standoff between me and my parents over green beans over eating one one green bean. Man.

Green means are great. I love green means now, but I prove my point, I will say that my parents got the message. Well, I mean, I want to kind of continue talking about like negative attitudes though, right, because whatever your history with money has been in the past, it's important to step back and to consider that those attitudes and those views could be negatively affecting how you

relate to money. Now, right, Like, when we underestimate our past like that, it can have a serious negative consequence on how we behave now. And there's negative views. They can look different depending on the individual. So, Joe, while you might have seen having tons of money as a big negative, others might see having like a modest amount of money as like the worst thing ever, right, and this might cause them to prioritize wealth too much. So

it all depends on who you are and your life experiences. Yeah, man, And all these behavioral tendencies that we're going to talk about all of us have seen at least in someone else, but in all likelihood we've struggled with it too. And so let's get to some of those and kind of how to combat our behavioral tendencies, the tendencies that tend to wreck us and our money. And we'll get to the right after the break. All right, man, we are back in the break and we're talking about these different

behavioral money tendencies that wreck us. Uh. Let's first kind of touch on how we tend to make emotional money decisions, right like this pretty much plagues us. All we can easily think about some of those emotional bios on Amazon or maybe a night outce I cry every time I hit the bye button on Amazon? Is it that painful?

Free to purchase anything? But let's go a level deeper, though, and cover some of these more nerdy behavioral economic terms, what they mean and how they can apply to your life. Let's first talk about the endowments effect. You know, we actually just talked about endowment funds. This is a little bit different, but basically, the endowment effect is when you place more value on the things that you have because

you already own them. Right. So, for instance, like, if you're trying to get rid of some stuff, do you find yourself unwilling to start selling things you own on eBay in order to maybe pay off high interest credit card debt? That could be because we as hum tend to overvalue what we already have in our possessions, and so it's natural for us to to not want to part with those items because we do overestimate the actual value. Yeah,

that quick example. I think if let's say, for instance, you were into baseball cards and you had a Kim Griffey Jr. Autographed rookie card, right, and it was worth a thousand bucks. I don't know how much that cards worth. I just guessing that sounds pretty generous. Okay, maybe it's worth five. Do you own this card? Because no, I guess I would explain why you say it's worth a thousand dollars. I don't because if I did, I'd have

a thousand bucks my pie. I'd tell it. But so, my brother in law is getting into basketball cards right now, and he actually recently sold a card, a rookie card for like a new NBA player, I think, for like three thousand bucks on eBay. What's Yeah, so these cards are worth a lot of money, some of them. That

is crazy. I didn't know there's that much. I guess inflation, right, Yeah, Like when I was a kid, cards did not cost that much, right, Yeah, you go get a nice one for twenty bucks or but I mean we would just buy the packs since he was in there. But let's say you had a nice one in your possession, and you've got some high interest credit card debt too. Well, if you could esentially pay off your credit card by selling your kid Griffe Junior rookie card, well then that

would make a whole lot of sense. But most people probably overvalue the card they already have in their their possession. Would you go out, let's say you didn't have the card and pay a thousand dollars at the card shop in order to buy it while you're in credit card debt?

No way, Probably not. That's the endowment effect. That's essentially you assigning more value to the card because you already have it, then you should because you wouldn't go out there and buy that same card today for that amount of money. Yeah. I think this can also be extended to things like checking accounts and savings accounts that we have.

In particular, like I'm thinking about credit cards that you've had around for a long time and you have this sort of emotional attachment to it, right and guess what, maybe it's got an annual fee and you receive like next to no benefits from this dumb card. I think the same thing could apply to checking accounts. A lot of people still have their checking accounts with big banks, and they have monthly fees if they don't meet a

certain threshold of a balance or certain transactions. Right. And so these credit cards or these checking accounts are costing us money if we have them, And the reason that we're hanging onto them is because we've always had them like these are you know, we have this emotional attachment to them where we're over assigning the amount of value that these accounts that these cards bring us when we know that if we were going to open up a new account today that we would definitely not open up

those accounts. Now, yeah, there's a little bit of inertia bias in there, and oh yeah, yeah, it's it's hard to do something new like that when when we've always been doing this other thing for years. Yeah, Matt, Let's talk about another emotional behavioral money tendency that that we sometimes make, and that's the sunk cost fallacy. And before we get to the fallacy, let's kind of define what sunk costs are. That is, essentially any past cost that

has already been paid and cannot be recovered. So, for example, concert tickets are the perfect illustration the price you paid for the tickets. Well, there are sunk costs, but if the money you've already paid is causing you to do something that's making you worse off or more unhappy, then you fallen prey to the sunk cost fallacy. So to the concert tickets, let's say you get sick and it would be a miserable time if you went to that concert, but you go anyway just to get your money's worth.

You just took line and sinker fell for that stunt cost fallacy. Yeah. A lot of times folks will refer to this as like throwing good money after bad, right, because you're you're trying to essentially like redeem the situation by throwing more money at that problem, when in fact it's just making you worse off. Man. I think of an example in our life where I think we came really close to falling into the stunt cost fallacy. This is when we were at our old house, Kate and

I and our family was growing. I was working from home, and our house wasn't working for us right. We knew that we needed to renovate and make the house bigger, and so we were. We had planned out this massive renovation and it was going to cost us a lot of money. But we'd kind of fallen in love with the idea of renovating it because we designed it, We'd worked with architects, and we had this awesome plan was

going to make a ton of sense. And deep down to side, I think we also knew that it wasn't necessarily going to fix some of the underlying issues with the house, Like it was gonna make it bigger, but there is gonna be some awkwardness to it, right, And so like the problem there is had we done that because we already had the house. Obviously this is a little bit related to the endowment effect because we already

had the house as well. But we already paid a lot of money for that house, and we're looking to dump a lot more money into it in order to make it work moving forward. But I think how we continue to go down that path, I think we definitely would have fallen victim to some cost fallacy. Yeah, I think let's give a couple more examples that people can

also relate to. I think one is that if you own a car and you realize that you have these other debts you need to take care of, but you're gonna lose money by selling that car your upside down on it. Let's say, well, it might still make sense to sell that car and and take that loss in order to reduce your costs that you can put more

of your money towards those debt payments. But it's so hard to actually do because we're emotionally tied to the fact that we're gonna quote unquote lose money on that one decision, and if we can think about the larger, overall picture, it's really helpful so that we don't fall prey to that sun cost fallacy on that one item. Dude, totally right, Like looking at that big picture can completely

put things in the right perspective. Also, I think about relationships a little bit too, Like this is maybe an example that's not money related, but there might be an individual who's in a romantic relationship, which is why we're friends,

still in some cost fallacy. You're like, I've too much. Well, I guess you do see it sometimes in like plutonic relationships, but I'm thinking about romantic relationships right, Like, if someone's in a romantic relationship and they know it's not going anywhere, or they it's not going where they want it to go, a lot of times people won't cut their losses and they won't end that relationship because they have spent so

much time, so much energy. You know, it's like, man, they've already met my parents, Like like that's sort of the last hurdle of I don't want to admit defeat now, and so because of that, folks will continue to pour into that relationship when you know, in the end, they know that it's not going anywhere and they just need to kind of face the facts. And I don't want to. I don't want to admit that I wasted three years with this person whatever, like a lot of time, which

is so hard to do. Like I'm not saying that that's easy to do, but I think, you know, big picture, like looking at the grand scheme of your life, that's the right thing to do. Yeah, well, we're not really a relationship advice podcast, but not yet. That's our spinoff podcast coming soon, right, Um, I don't think our wives would listen to that. No, No, they're not buying into us having any sort of relational wisdom at all. Like what's like, money is one thing, but relationship advice no way.

All right, let's talk about some more emotional money tendencies based on kind of the behavioral things that are ingrained in us. And one of these behavioral tendencies is called transaction utility, and essentially that's buying stuff just because it looks like it's on sale. And retailers have been doing a fantastic job at making this a really difficult one for us to combat. For years now, they're posting often silly, fake ms rps to make us think that we're getting

an incredible deal. My wife the other day actually kind of fell prey to this. She bought a bathing suit online and it was twenty six dollars, which is a decent price for bathing suit. I think, I don't know, and it's like a great price, yeah, but the m s r P was ninety dollars when clearly, unless you got a great deal to right, but clearly this bathing suit never cost ninety dollars. And the way that you

can see that never know. By the way, on a lot of these online sites are on a site like Amazon is using like the honey plug in, you can tell, okay, this suggested retail price is not reality because you can see what the price has been over the last thirty days, and if the m s r piece has ninet but the price is never broken forty two, then you realize it's just this fake price to make you feel like you're getting a better deal. And especially when we're encountering

all these different online sellers from across the world. Now, it's a really hard thing to keep track of what the actual price should be on this item and how good of a deal we're getting. And so this is something that we're encountering more and more and it's becoming harder and harder to tell whether we're getting a good price. So, Matt, how how can we combat transaction utility and actually make purchases not just based on the quote unquote sale price

that we're seeing. Well, Joel, thank you for asking. I think what we need to do is just not worry about the actual percentage off, right, Like we don't need to look at that that red price. A lot of times they put in red so it stands out so it pops. Don't worry about that. Just ask yourself the question,

like what is this worth to you? And by the way, like when you've identified what the actual dollar amount that you would pay for something, that's actually called the acquisition value, that's the true price that you'd be willing to pay.

And that's a rational way it's approach price, right, Whereas transaction utility that appeals more to the emotions, right, Like you either have positive transaction utility, which is like where you feel like you're getting a good deal, or you have negative transaction utility where you kind of feel like you're getting ripped off. Um. It has nothing to do with what you would be willing to actually pay, but it plays more off of sort of the emotions behind

what it feels like when you are making that purchase. Yeah. Man, I think we're more susceptible to transaction utility when we become deal based shoppers as opposed to shopping for things based on our needs or are thoroughly thought out once. And I think I've talked about this on the show before.

I know this from expersitional experiences. I was a deal based shopper for a long time, and I would buy things based on how cheap they were, essentially getting a pair of jeans for ten or twelve or fourteen bucks. Would would like get my ajournaline pumping, and I'm like, yeah, I scored a great deal, and then I get them in the mail. I forgot that I ordered them, and then I didn't really end up liking them anyway. Fit

kind of weird. Yeah, Like I shouldn't have gotten these genes off of WOOT, Like would off I have new they still happen. I think, yeah, we'd still around. Oh man, I feel like they're huge, like five ten years ago owned by Amazon. Now actually are they really? Yeah, I guess that's why they're still around. But yeah, I know that's totally how I shot. And it was all based on kind of the percentage off and how good of

a deal I thought I was getting. But really, it's not a great deal if it's something that you're not going to use, are not going to be happy with. And so, yeah, combating transaction utility thinking about what this item is worth to you and then taking some time to make that decision as opposed to clicking to purchase right away, that can really really help us combat that

negative money emotion that so easily lets us down. Yeah, this is why outlet malls are so popular, man, Like, everybody wants to snag what they perceived to be a fantastic deal, and when you feel like you're paying less than what you should, this is an example of that positive transaction utility. Like you, you also see this play out in retail categories of infrequently purchased items like mattresses

and cars as well. Most customers like they won't notice how there always happens to be a sale quote unquote sale going on right, and so because of that, you know, when they are in the market to buy and I don't like that, they're going to be more willing to spend compared to you if there wasn't a sale going on year round. I'm looking at you, old nabef like forty weeks a year. I mean, it's that kind of thing.

It's that kind of mentality that leads us to shopping more based on sale prices when the sale is pretty much always going on. It's just dirt cheap stuff, year round sale. You know. Actually, I saw another example to where Macy's and j. C. Penny they had decided to kind of go away from that model, like they had eliminated the m s r P the manufacturers suggested retail price, and they eliminated sales uh, and they eliminated like the instead they just rounded up. They're like, you know what,

forget all that, We're just gonna go thirty bucks. And it costs them a ton of money. It was a huge disaster for them. And so that was an example that was evidence of the power of this transaction utility when it comes to folks looking for a deal. Yeah, they're they're playing into the fact that that's what we want. At our core is we want to be bargain hunters and we want something off. We want to feel like we scored a deal, even if it's not the deal.

But because it's so powerful for the bottom line for these retailers, it's important for us to know that that's what they're doing so that we can be aware of our actions as we go into that scenario. Right as we go into a shopping mall, which I don't know that many people do that anymore, or we're shopping online, we're ever it is. We have to know that tendency and know that that's how retailers are trying to get us,

and man, we need to be savvy shoppers. Uh, let's kind of talk about now a positive behavior technique that we can implement, and that is proper framing. This can be immensely helpful because it can lead us to the correct action that we need to take. So for example, um, it's it's much easier for us to save five bucks a day than it is to say we're going to save a d fifty dollars every single month. Right, it's the same overall amount of money, but the way you

think about it makes all the difference in the world. Um. However, on the flip side, the way things are framed can also lead you to make a poor decision too. It's a double edged sword. So for example, if you're saving four retirements, you might be saying yourself, but it's you know, this is forty five years away. I don't need to worry about that now. That's a poor way of thinking about it, because you know, like we do need to

start saving and start worrying about that now. And so instead, the proper way to think about it is, man, one million dollars, Like, that's gonna be a lot of money for me to save up for retirement. Luckily, I can start saving for that now. We want to encourage folks to adopt helpful framing that would allow you to reach your financial goals. Yeah. The great thing is if you start now, you have to save way less. That's another

way to frame it. Right, When you look at the numbers of what you need to save, if you start at age fifty versus age thirty, it's dramatically different. So you're like, oh, I can put away two or fifty bucks a month, but if you wait till age fifty, you're gonna be talking about two months exactly seriously, And that's because of compound interest. Yeah. Uh so framing yes

is hugely helpful, Matt. You know, I read this article recently by Dan Egan, who's a behavioral economics expert, and he wrote about diverting our negative emotional energy into positive behavioral action. And I love the picture that he gave of martial arts and how oftentimes in a lot of martial arts moves, you're not necessarily none chucking somebody in the face. Like, what you're doing is you're diverting their energy into a move that benefits you. Isn't that the

core of like judo or like jiu jitsu? Yeah? I think it's jujitsu, right. You're using the other person's energy momentum. Yeah, and you're turning it into a power play for yourself. And I think as you do that, you say, suck it. That's what I do at Are you all right? Did you ever do martial arts as a kid or as an adult? I did. I did like karate like one year as a kid, But everybody did karate for like

one year as a kid. Actually, like looking back. I don't know if I did Kredi for a year or if my mom just bought me like a white karate outfit just so I can pretend while I watched reruns of kredit Kid on TBS. Totally man, But I think it's helpful to think about some of our our money mistakes like this. We can actually use the momentum from what we've learned from poor financial decisions to help us

rebound into putting ourselves into a much stronger financial position. So, for example, you might have a significant amount of student loan debt or tons of credit card debt that forces you to learn how to finally handle your money well. You might have kind of pinned yourself in a corner, but because of that, you'll end up in a much better financial position down the road when you've got that debt paid off. Now you can use that money to do positive things, save and invest and think about your

future goals. And I think Matt sometimes that framing right and using that negative behavioral action to influence your future positive moves that can make a huge difference between attacking a problem well and actually paying that debt off or kind of floundering for a long period of time just kind of being bummed about the situation that you're in. Sure, man, that's a classic example of taking lemons and making lemonade. Right.

So the other thing, too is as you're working to frame things properly in a in a way that you can find helpful to your goals, make sure that you are aware of recency bias. That's when your most recent experience, whether you know that experience is good or whether that experience is bad, but if you let that experience kind of dominate your thinking right like, it will dictate your

viewpoint to a large extent. So, for example, these mostly positive return is that we've experienced in the stock market over the past ten years, over the last decade, that might cause some investors to make overly risky moves where they're maybe they're picking individual stocks, they're trying to hack the stock market. That can be a bad move. And then more recently, the coronavirus scared like that might cause you to be overly conservative and not invest at all.

That is also a bad move. But what we need to do instead is to make sure that we're keeping the facts forefront in our minds to make sure that we are making informed decisions. Now you're seeing someone's profile pick where they basically edit a group of other people out of their pictures so it's just them because it was a really good picture of them in that picture with other people always look so awkward. It does, It does.

That's what I think of though, when I think about framing, right, it's almost like they they've cut everything else out of the picture to build a zoom in on the awesome picture that they were able to take that day and cut everybody else who wasn't looking that good out of it, and proper framing puts everybody else back in the picture. It zooms out a little bit. It looks at the longer timeline, let's say, of kind of stock performance over a hundred years as opposed to over the last five,

six or ten. It helps us get a better idea of what's actually happening as opposed to just our most recent interactions with it. Yeah, man, it's definitely that's a way for us to kind of fight these negative behaviors. And we'll cover a couple more ways that we can battle these tendencies right after the break, all right, that we'll back from the break. We're talking about behavioral money tendencies that wreck us. And let's get to the next behavioral issue that I think has a major impact. I'm

gonna call this the Pinky in the Brain effect. Don't nobody else has called it that. This is my does the original take. This is the scholarly term that I'm giving to over confidence. Of all, you're gonna need to explain it because I'm maybe watched Pink in the Brain like once. I mustly spent my time watching like Inspector Gadget because he was super technical. Obviously I'm into that. So Peaky of the Brain was these two rodents that tried to take over the world every night and it

was never gonna happen. They never got close, but they were pretty confident they're gonna be able to make it happen. So that's why I'm as signing. And It's been a long time since I've seen Pinky of the Brain, but I'm just I'm going with it. So like it, over confidence is a behavioral issue that we have to wrestle with. One or two. Great money moves doesn't necessarily make us a genius, and it can lead to a willingness to

take risks that we shouldn't because our confidence level sores. So, for example, you might have crushed it buying your first rental property, but the market it's always changing, and no two houses are the same either. You might have bought your house when the market was great, So be aware of that tendency to be overconfident and have a check and balance the system in order to help you make

a wise decision. You might have bought in this killer market, Matt, where let's say in two ten it was pretty easy to buy an affordable house that was going to make a good rental house, and in two twenty, you know what, the numbers are harder to come by. So just because you were able to make a good decision a while ago doesn't necessarily mean your genius at it and that

you can have just an insane amount of confidence going forward. Yeah, that over confidence that can come oftentimes before the fall, before you make those many mistakes. Right, But once we have messed up and made those mistakes, we want to make sure that we learn from our mistakes. That is paramount, right, Like that is so important when it comes to growing and making better decisions in the future. But you know what, man, that doesn't always happen. Sometimes we don't learn from our mistakes,

and some or or it takes a couple of tries. Right. One of the reasons that we may not learn from our mistakes is because of confirmation bias. Uh. That is the term I think that's often most associated with an unwillingness to learn, and that's obviously when we look for facts that back us up instead of taking in all

of the information. I'm thinking about if somebody is a devout Fox News follower or seen in follower, right, like the have their angle that they like to spend on the news, and so if you're only receiving your information from sources that back up your pre existing beliefs, then you're not gonna be able to learn much about the

world or those around you. When we only turn to these sources that back up our intuition, makes us feel like that we are making an informed decision, but really we've likely sidestepped other information that would have helped us to make an even better decision. Yeah. Man, when you look at the headlines, no matter what economic cycle you're in, there's always somebody predicting a boom in the economy, and there's always somebody predicting a bust, and they're always outsized

compared to what normally happens. Right recently, Tesla was hitting kind of some some big time highs in the stock market, and people are saying that it was gonna triple in price in the next year, and other people were saying, no, no, no, no no, it's going to be devalued by by two thirds. And so everybody's got this prognostication and the reality often

lies somewhere way closer to the middle. So if we're only looking for these sources that are going to confirm what we believe while they're out there, you're gonna be able to find them. But it doesn't necessarily mean that you're gonna have an informed decision. It can lead to over confidence. And it's definitely true that if we go the confirmation biased route, it's gonna be much harder for

us to learn from our money mistakes. Yeah, and and so the solution or like maybe the antidote to confirmation biasedal is just to make sure that you're getting the right information right. Like this isn't necessarily a groundbreaking tactic, but that's something that we so often fail to do.

It's really important for us to play devil's advocate. Um, you know, ask yourself, what if the purchase you really want to make is actually a terrible decision, Like, think through what that would look like, kind of put yourself on the other side of that equation. Make a list of pros and cons before you go for it. Not just the list of pros like that's obviously what you're gonna be thinking about. You're gonna think about how this decision or how this purchase, you know, how is this

gonna make my life better? It's gonna allow me to do this, this, and this, But think about the cons, think about the drawbacks as well, and that can help you to make a better informed decision. Taking stock of all sides of that decision before pouncing can help you to make more rational and more objective decisions. Yeah, I agree, Matt. And and and also consider listening to someone who you vehemently

disagree with. I think sometimes times hearing the opposing viewpoint, hearing the other side can actually help lead you to, in a healthy way, question what it is that you believe or that the side that you've come down on. And another reason, Matt, that I think that we fail to learn from our money mistakes consistently is an unwillingness to seek help. Sometimes we have a tendency to go

it alone. Sometimes we lack crucial information, and yet we still refuse to tap resources that can help pull us out of our money mess. Right listening to a podcast like how the Money is a start for sure, but don't be afraid to dig deeper. Are you in lots of debt? Well, outside help could help you progress more quickly, Yet you might be stubborn insisting that you have to do it on your own. So, for example, NFCC, we've talked about that before on the show, the National Foundation

for Credit Counseling. If you go to NFCC dot org, there are affiliate chapters all across the country where you can get free help to create a budget or to get out of debt free. Have we talked about how much we love free things before? Joe Preece us the best? But yeah, I think, Matt, we do kind of live in an individualistic society, and it's easier to think that we have to go it alone. But when you step back and lies their resources at our disposal, there are

people that are willing to help. And just like they say, right, it takes a village to to raise a kid. It's helpful if you have other input. If it's helpful if you have more hands on deck. The same thing is true with helping you think through and solve money issues. It's gonna take a lot longer if you don't learn from the wisdom of others and you're not willing to

kind of include other people in that process. Yeah. One of the ways you can include others in that process and include them in your life is by creating community, right, Like when you can have people who you talk with about money, like that is so crucial, you know, it's so important to be able to bounce ideas off of your friends or maybe a partner who has also interested in money and who have similar financial in life goals

as well, Like this can be such a huge help. Joel, our friendship, you and me man, Like we've talked about this many times before, how our friendship has helped both of us to financially be in a better position, Like we have both made better decisions regarding our money, you know, when it comes to saving and investing, but also to like not even on the nerdier you know, super frugal side of things, but like I think times we encourage each other to spend money in ways that matter to

us as well, like we're able to encourage each other to live that balanced life where we're you know, we're certainly focusing and talking about the different goals that we you know, we each share for our families, but you know I are both talking about just ways that we are making sure that we're living our life according to our different values. Yeah, man, I agree, man, our friendship has been been huge and helping me think about money well, helping me think about how I spend money and actually

thinking about it more positively. And I think too, you know, my marriage has been a big part of this. Emily has helped me think through, you know, my issues with money, my tendencies. Like I mentioned at the beginning of the show, it'll be a great gaspy. You don't want to be richie rich, but I don't want to have those negative associations either, And so I think we've been able to positively together develop a better approach towards money that feels

a lot healthier. Yeah, man, relationships are so important and we know as well though that not everyone like right now, as you're listening to this has someone in their life where they can just start talking about investing or paying off their debts. And and for those folks, we would recommend checking out our Facebook group. If you get a Facebook dot com, if you just head over there and search how the Money, you'll you'll find our page. But

then you also find our group. We would appreciate a like on the page, sure, but really what we want you to do is join the group. That is where all the helpful conversation is going on. That's where members are encouraging each other, pointing each other to helpful resources, answering each other's questions. Like there's just a robust conversation going on there. And I love seeing the online community thrive like that and seeing folks point each other to

make better financial decisions. Yeah, it really has become a place where nine percent of everything on there is just hyper encouraging and really helpful. At the same time, I agree, our listeners are the people who make up that Facebook and we have the best listeners because it shows it's evidenced every day in the Facebook group and how they

help each other out. And Man, I think as behavioral economics grows as a field, will have the increased ability to take a peek behind the curtain of how we work internally, and hopefully to be able to make better decisions based on what we see. These conclusions are already making differences in how businesses function and how public policy gets made. Even too. We didn't really touch on that much in this episode, but awareness for us as individuals

is at least half the battle. Being tipped off to the irrational ways that we approach money can help us change things so that we can make better decisions in the future. I love the field of behavioral economics amount I think it's fascinating. Humans are odd and interesting creatures and we have all these things that we're susceptible to. But I'm glad we were able to cover kind of some of those behavioral tendencies that can wreck us and wreck our money on this episode because they are important

things to be aware of. And we don't use the word wreck all that awesome, except you know, when we're talking about like a car accident or wreck, it makes me think of wreck it Ralph, which I actually watched recently with my with my kiddos. Have you seen that one dude that's one of my favorite one. Yeah, it

was surprisingly great. Like I pulled up the Rotten Tomatos reviews on and I was like, okay, this is you know, I try to watch the ones where I'm like, those are actually a good story going on, because a lot of the kid movies can be kind of weird. Like I'm just saying. I'm just saying, like there's a few that I've watched. Round was like, seriously, this is so weird. I don't want to waste my time watching this record Ralph so good positive message is a lot of fun,

like a lot of nostalogy going on there too. Yeah, man, I think we can highly wreck man. Both of the Record Ralph movies very very good. I mean it's not like I watched them like by myself either. I watch them all like kids. Just let me know in case anyone was thinking that that's what I do with my free time is watch cartoons by myself. No, not quite. That's like the second car you're like pinking in the brain reference as well. So yeah, I was just sitting

at home watching Nickelodeon or whatever I did. I'm just trying to get inspiration for the show. Okay, but all right, Matt, let's get back to the beer that we had on the show today. This one was called I d KFE by Ellipsis Brewing and I picked this I p a up when I was in Orlando. What do you think this beer, buddy? Yeah, man, this is one that you picked up. So another big things to you for for picking this one up while you were down there checking out Disney with the in laws with the family. I

really dug this beer, dude. I was a little concerned, to be honest with you. We're drinking this one out of a crowler, which is uh, basically think of a giant can. It's like a little mini oil drum. Basically, it's like giant and crowler. By the way, it's it's a it's a word smash with can and growler, and so it's like a thirty two ounce can and they fill it on the spot there with the draft. You know that they would feel your pine class with when you're there drinking in person, I will say this is

really good. I've really enjoyed this one. It tastes really fresh, even though it's you know, a couple of weeks old. But I really enjoyed it. It It was juicy, it had that dank copy noess going on, while at the same time not being too bitter. Like you mentioned, this is a New England style I p A, but it's not, you know, completely milky like sometimes some of these doing the I pas like you can't even see through it all. Like this one has a little bit of opacity going on.

So it's like a nice blend between the traditional I p A with that New England kind of dankness going on. And yeah, really easy to drink. Really enjoy this one, buddy, opacity, I like it. The opacity is a photoshop term from my graphic design days, so you adjust the opacity there with the different layers to you know, make things more or less invisible. Gotcha, Okay, And Ellipsis adjusted it to

where it wasn't too open. Yeah, man, this was great, and I agree it didn't really lose a step even being in the Crowler for for a couple of weeks. This beer was super green, a lot of hot flavor coming out strong. I really enjoyed it, and next time I'm in Orlando, I'm going back Ellipsus Brewing. Even though it's in some sort of like commercial strip mall, especially it's a terrible location with the beer solid enough that

it's worth the track. Yeah, we pulled up and I thought, really, this is actually gonna be that good, But it really was. You can't judge a book by its cover, buddy, That's true. All right, man, Well that's gonna do it for this episode. And for folks that want to check out the show notes for this episode, we'll go to how to money

dot com. And wherever you're listening to this episode, you want to make sure that you are subscribed, So head over there, hit that subscribe button, and if you haven't already, head over to Apple Podcasts where you can rate and review us. That helps us to get the word out. It helps others to find this podcast and you can help them to get on a path to doing smart

things with their money. Yeah, man, And for folks who have friends whose behavioral tendency is to not listen to this podcast, they should really help them overcome that too, right and tell a friend, well, really, what you just snatched the phone out of their hand? Pull up Apple Podcasts and hit subscribe from there, Yeah, hit subscribe for them.

It really helps It helps them, and it helps them, man, It helps to like what is the show that keep showing with my alright man, Well, that's gonna be it for this episode until next time. Best Friends Out, Best Friends Out,