Why we’re all so weird about money

By Caitlin Kelly

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Few issues are as fraught with emotion as how we get, spend, save or give away our money.

If you don’t have enough to survive, every day becomes an emotionally and physically exhausting battle.

And when you live in a country devoted to bare-knuckled capitalism like the United States, if you don’t have enough, the social safety net is weak and thin.

The federal minimum wage is still an absurd $7.25 an hour — I’ve never paid any of my part-time assistants less than $12 an hour, even 15 years ago.

American unions now have the lowest membership in a century, even as one third of American workers lurch into what’s now widely and risibly called the “gig economy”, a jaunty and inaccurate euphemism for fiscal insecurity.

This week Richard Thaler just won the Nobel Prize for Economics.

From The New York Times:

 

Professor Thaler’s academic work can be summarized as a long series of demonstrations that standard economic theories do not describe actual human behavior.

For example, he showed that people do not regard all money as created equal. When gas prices decline, standard economic theory predicts that people will use the savings for whatever they need most, which is probably not additional gasoline. In reality, people still spend much of the money on gas. They buy premium gas even if it is bad for their car. In other words: They treat a certain slice of their budget as gas money.

He also showed that people place a higher value on their own possessions. In a famous experiment, he and two co-authors distributed coffee mugs to half of the students in a classroom, and then opened a market in mugs. Students randomly given a mug regarded it as twice as valuable as did the students who were not given a mug.

This “endowment effect” has since been demonstrated in a wide range of situations. It helps to explain why real markets do not work as well as chalkboard models.

Money is so often a proxy for other, often deeper, darker issues: power, control, status, humiliation, (why Hollywood power broker Harvey Weinstein could be a sexual predator and so many people who relied on his goodwill to help them get or stay rich remained silent for so long.)

I’ve been fairly obsessed with money for a long time.

It’s caused no end of drama within my family and I’ve been handling my finances alone since I was 19 and moved out of my father’s home to live alone in a large city and pay for university from my earnings as a writer and photographer, with a small monthly income from a grandmother.

It taught me very early to know my worth and to bargain hard for it. I still remember the joy of earning 18 percent on a Canada Savings Bond, whose value quickly doubled.

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One place I do spend money freely — travel

 

I also remember vividly being so strapped then that it took me months to save the $30 I needed to buy tights and slippers so I could attend a free ballet class.

My living expenses were phone/rent/tuition/books/clothes/groceries/answering machine.

No car. No TV. No cable.

My family has plenty of dough, but made clear to me to never ask for a penny of it, nor ever expect to run home for help. I inherited some money from my grandmother in my mid-20s, which helped me to to buy an apartment, a security for which I’m very grateful as I’ve bounced in and out of the job market, survived three recessions and work as a full-time freelance journalist — an industry now in complete chaos.

I break into a sweat when spending money on more than the basics; (except for making our home lovely and travel.)

My cellphone and computer are probably four or five years old, (no big deal.)

But our Subaru has 180,000 miles on it, is 16 years old and cost us $1,800 in repairs in recent months — so we’re finally about to lease a gorgeous luxury vehicle.

The thought of committing to anything beyond our monthly health insurance and mortgage payments is scary even though we have the cash, (money we’ve saved for years), and emergency savings, so this is not — as Thaler would nod knowingly — 100 percent rational thinking.

 

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Airfares? I’ll splurge on those…

 

Some of the financial challenges I see so many women struggling with:

1) being scared to ask for more (i.e. raises, bonuses, negotiating a higher salary or fees)

2) giving money and gifts to children and grand-children to their own financial detriment

3) under-earning because of sexism, racism or other institutional barriers

4) under-earning while taking time away from paid work to care for children and/or others

5) failing to understand the devastating financial impact of divorce and planning for that. I had a prenuptial agreement in my first marriage and could have ended up in very dire straits without it.

 

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Does handling and managing your money cause you anxiety?


 

If I were Queen…

The Sceptre, Orb and Imperial Crown of Austria...
The Sceptre, Orb and Imperial Crown of Austria in the Schatzkammer, Vienna (Photo credit: David Jones)

Oh, the possibilities!

As I get older and crankier, (OK, even crankier), I have a growing desire to enact sweeping changes.

Because: 1) I’m right; 2) you’re wrong; 3) if you disagree with me, I can have you drawn and quartered.

Ooops, sorry. Not queen just yet!

But in the deluded if pleasantly optimistic fantasy that I will soon awaken to the news that I am, in fact, in possession of: 1) ermine robes; 2) an orb and sceptre; 3) a big shiny crown; 4) power; 5) a throne…Look out.

I would:

Make every single person of able body work retail for a month, during the holiday season. You might be bagging groceries, or using one of those nifty folding boards to make a pile of T-shirts all tidy or stocking shelves. But you will definitely be exposed to the rudeness, demands, in(s) anity, germs, badly-behaved children, dumb questions and finger-snapping of shoppers. (If lucky, you will also have amazing moments of connection with some very cool people.) Only then can you possibly understand why “They’re so slow!” and learn to control your eye-roll and sighing when service fails to meet your needs. That low-paid, physically-grueling, intellectually-deadening job most likely doesn’t meet much of theirs.

Show every child, at age 12, (or earlier), the tools necessary to care for themselves and their home — and teach them to use them. Then make sure they do! Gender-free training, this would include household appliances, clothing and dish detergent, cleaners, polishes, dusters, brooms, mops, toilet bowl scrubbers, Windex, an iron and ironing board, a needle and thread, shoe polish and brushes and shoe trees, a lint roller.

Toilet bowl swab.
Toilet bowl swab. (Photo credit: Wikipedia)

Make sure every child over the age of 12, (or earlier), knows how to shop for groceries, compare prices and make wise choices on their own. When is a melon fresh? What can you make with a mushy banana? Is that cut of meat really cheaper?

Make sure every child over 12, (possibly quite a bit earlier), can read a food label, read and follow a recipe, prepare food safely and cook meals from scratch, using no canned, frozen or processed ingredients. I’ve never owned a microwave; you can make a great meal in about 6 minutes if you have the right ingredients.

Insist that no child be allowed to leave high school, (drop out or not), without passing a mandated financial literacy test. They would fully comprehend how to balance a checkbook (or ensure they are not spending beyond their means without full awareness of that); apply for a loan; understand an APR, a FICO score, a SEP and the value of a low-interest line of credit. The complex language of a vehicle loan, home mortgage or other major commitment — like college debt — would be familiar and accessible to them as they move into the larger world.

Factors contributing to someone's credit score...
Factors contributing to someone’s credit score, for Credit score (United States). (Photo credit: Wikipedia)

Repeat this test — like renewing a driver’s license — every two years, as the economy changes and people forget, become distracted and/or their needs change.

Make sure everyone knows the essential importance of prompt, sincere and personal thank-you notes. On paper, with a stamp.

Give every teen leaving home a toolbox with hammer, screwdriver, cordless drill, screws, nails, a level and a tape measure so they they can use them safely to maintain, repair and improve their homes.

Make every designer of every public space — especially the enormous expanses of American grocery stores — much more aware of the 47 million Americans who suffer from arthritis. Many shopping environments completely ignore the needs of those living with chronic pain and impaired mobility.

Create quiet zones in every possible public place, with severe fines and enforcement, to reduce cellphone abuse, earbud leakage and the blaring televisions that now assault us in airport departure lounges to (yes, really) hospital emergency rooms. When I am jacknifed in pain with a 104 degree temperature, television only makes me feel even worse. Surely people can distract themselves quietly and privately in shared space. Research increasingly shows that constant exposure to noise is extremely detrimental to our physical and emotional health.

Make every affluent teen spend a month, alone, in a developing nation — or zone of extreme poverty within their own country. Only by living among people earning pennies per day can someone understand what poverty is really like, what wrenching choices it imposes, what family damage it inflicts and what decisions, personal or political, perpetuate it.

Require every graduating college student, no matter their field of study, to learn a second language. We live in a global society. Insular thinking is dead.

Create many more affordable, attainable ways for lower-income teens and young adults to leave their homes for six to 12 months, working overseas or in a foreign country, to learn firsthand what other nations are doing better, (or worse), with their citizens’ lives. The “news media” is no substitute for firsthand experience. Trans-national friendships and experiences, whether created in high school, college, grad school or through your own initiative, are often life-changing.

Force Big Business to donate a fixed percentage of profit, (tied to CEO bonus and compensation as well), to re-patriating jobs to the United States. Call it a tax, a tariff, whatever. Just do it. Business must not be rewarded solely for raking in billions of corporate profits while stiffing millions of Americans of the chance to earn a living here.

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united states currency eye- IMG_7364_web (Photo credit: kevindean)

Require every client hiring a freelance worker to pay a percentage of their fee up front.  The shoemaker does it. Upholsterers do it. Frame shops do it. Making people wait for their payments and stress over meeting their own financial commitments is immoral and obscene. Sweeten it with some form of tax credit, but make it happen. One third of Americans do not have “a job” — they work in this manner.

If you were Queen or King, what would you decree?

Are Women Still Fiscally Illiterate? What's In Your Wallet?

An assortment of United States coins, includin...
Image via Wikipedia

A new website for women, designed to help us figure out to better handle our money, has received $4.5 million from Accel Partners, a venture capital firm.

The site, LearnVest, is the idea of a 26-year-old Harvard grad, Alexa von Tobel, reports The New York Times:

Ms. von Tobel came up with the idea for LearnVest in 2006, during her senior year at Harvard. She speaks at an auctioneer’s pace and uses tidbits from Warren Buffett and neuropsychology to bolster her arguments. Yet in 2006, when she had a job offer from Morgan Stanley’s hedge fund, she realized there was something she was not confident about: managing her finances.

“How is it possible I’m going to be a trader and I don’t even know how to open a credit card properly or my credit score?” she asked herself.

Help me out here. How do you get into, and graduate from, a place as competitive as Harvard without a clue about your FICO score?

Is such fiscal illiteracy typical?

Writer Anya Kamenetz addressed it, and the many issues facing younger consumers, in her terrific 2006 book, Generation Debt.

Here’s an excerpt from an interview with her, then 25:

Going back to the personal for a moment, do you have any advice for people who are facing huge student loan debts, mounting credit card bills, and low-paying jobs in terms of practical day-to-day living?

Go to annualcreditreport.com and get your free credit report. That’s your real-life permanent record and it gives you a starting point for fixing your financial life.

Pay over the minimum payment on your credit cards, even if it’s just $10. You can set this up online, automatically. It can save you thousands in interest, depending on the size of your debt.

Open a savings account, even if you’re up to your ears in debt. Every time you deposit a freakin’ tiny paycheck, put a fixed amount into savings. It compounds over the long term and the next time there’s an unexpected expense, you’ll have something to fall back on.

If you’ve never heard of FICO — or haven’t recently checked your score — here’s the site.

Fiscal illiteracy is not an option!

I grew up in a family of freelancers, with no pension, sick days or paid vacation to look forward to, so knowing how much income I earned, spent, saved, invested — and owed, at what APR — became gospel for me as soon as I began working for myself, at the age of 19.

I’m disturbed by women who (why?) don’t take the time to understand their finances. There is no Prince Charming! There is, instead a sometimes confusing, overwhelming alphabet soup to learn, understand and use to your advantage, from FICO to 401(k) to IRA to Roth to SEP to ETFs to APRs.

The investment field is often dominated by men and who wants to admit you have no idea what they’re saying to you? Read “On Your Own Two Feet”, a smart book by two women on females and finances, and check out their list of resources and links. I interviewed Manisha a few years ago and she’s great; here’s her money management blog.

Like millions of others with excellent credit histories, I was really pissed off that my 9.9% fixed rate on my American Express Blue card had been switched for no reason other than their greed to 15% variable, so the other day I asked them to lower it. They did, by 1% that day, because I was annoyed and I asked.

My favorite book — because it addresses the underlying fear many women have of standing up firmly for their financial interests (Bitch! How dare she?) is aptly entitled, “Women Don’t Ask”. It partly explains why women’s salaries so often lag — from their very first job offer to their last – behind that of men. They’re scared to ask.

Libor? Black Swans? If The Business Section Is All Greek To You, Try This Glossary

Huizi currency, issued in 1160
Currency, circa 1160. Image via Wikipedia

I read the business section of every paper I read fairly carefully, in addition to the usual mass-media coverage of Forbes, Fortune, BusinessWeek and PRI’s Marketplace. But I don’t have an MBA or business or economics background, so I sometimes seek a little more clarity and need to better understand the language they’re using.

Check out this terrific glossary of business and economic terms. I found it tonight while roaming around one of my favorite sites, theguardian.co.uk.