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?


 

Money: getting/spending/saving it

By Caitlin Kelly

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One of my pleasures is enjoying culture — and yes, it costs money!

A friend recently saw an ATM receipt that left her gobsmacked — $139,000 — in the hands of a young woman, maybe in her 20s.

My friend is a single mother who works in a creative field, frustrated that she has yet to hit the level of income she craves, deeply envious of the stranger with so much more than she.

I get it — when I found out that a friend of ours, someone our age, earns $500,000 a year, I was stunned.

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The level of poverty in the U.S. is deeply shocking — given the astonishing wealth here

My husband and I are both working full-time freelance, with a mortgage that won’t be finished for another five years unless, somehow, we make a lot more money and can pay it off sooner.

What’s currently killing our ability to save — or enjoy much beyond basics — is $1,800 month in health insurance costs; his, heavily subsidized by his former employer as a retiree while they soak me the full price.

Yes, there is cheaper insurance, but it all comes with huge deductibles and co-pays.

The getting and spending, (and saving and investing, ideally), of money is often a lifelong challenge for all but the very wealthy.

But it comes down to basic economics: if you’re always broke, you’re under-earning or living beyond your means.

If you’re mired in poverty — with little education and/or weak job skills, multiple dependents and/or health issues — it can feel, and be, almost impossible to climb out.

And I know far too many women, of any age, who remain somehow terrified of money — especially when asking for it or more of it, (i.e. negotiating an initial salary, asking for raises/bonuses/commissions/better freelance rates), and handling their finances confidently and intelligently.

As if, for some reason, we don’t deserve it.

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It does mean taking charge.

It does (gulp) carry consequences, no matter how much action (or inaction) you choose.

I once attended an information session at the U.S. firm where I keep my retirement money.

It was laughable.

As in laughably bad, full of jargon and weird, arcane advice possibly of value to people with millions to manage — or waste.

Not me!

Selfishly, as a journalist, I get paid to learn, and, in writing about personal finance for the Times and Reuters and others, have learned (and taught readers!) a lot about handling money.

I also read the financial pages of two newspapers daily and read several business magazines to keep abreast of what’s happening in the domestic and global economy.

If you don’t know the word fiduciary, learn it and make sure anyone going near your money professionally is one.

One of my favorite people, and bloggers, is writing candidly about getting smarter about money. I admire her for being forthright and questioning her decisions publicly.

People rarely do.

I urge anyone thinking about how to better handle their finances to read this fantastic book, (which I reviewed in The New York Times, and am now friends with its author), Pound Foolish. It’s not a how-to, but a smart and insightful overview of the personal finance world.

She also writes a smart and helpful advice column for Slate.

My other favorite money columnist is Michelle Singletary, with the Washington Post.

ALL IMAGES COPYRIGHT CAITLIN KELLY 2013.
Still there, since 1927, the Monte Vista Hotel in Flagstaff, Arizona — travel has always been a priority for me

Jose and I were were lucky to both have attended and graduated from college debt-free; he on full-ride scholarships, I attending Canada’s best university for $660 a year. (No, there’s no missing zero.) Neither of us attended (or needed) graduate or professional school.

Nor did we have children, saving us an estimated $200,000+ per child to raise.

Nor do we have dependent relatives.

My priorities have been travel and retirement.

But I admit it — it really did feel useless and annoying to keep putting money away year after year after year for what I hoped would one day help fund a retirement, denying myself so many purchases, (newer car, nicer clothes) and pleasures in order to do so — until that sum finally grew to six figures and I thought, with relief and pride: I did that!

And, yes, for many reasons, saving money is difficult for some people, and impossible for those who don’t earn enough to get past subsistence.

But it’s also urgent (and tedious!) to distinguish between wants and needs, between what everyone around you may boastfully own, often on credit, (new phone, new car, huge and lavish wedding, bigger house, etc.), and what fits your financial priorities.

Peer pressure to keep up — i.e. spending! — will kill you and your financial future.

It’s one reason I constantly urge women, especially, who earn less and live longer, to always, always ask for more — and to read this book that tells them how to do it.

Do you find handling money frightening or intimidating?

Any great tips to share?

It’s all about the Benjamins (or euros or pesos or pounds) — are you saving?

That’s the American $100 bill.

Saving money is my single greatest challenge. (That, and earning a lot more — like trying to double my income this year in a dying industry. No pressure!)

Today’s New York Times paints a grim picture of how tough it is to save money now, especially for younger people:

A new study from the Urban Institute finds that Ms. Brady and her peers up to roughly age 40 have accrued less wealth than their parents did at the same age, even as the average wealth of Americans has doubled over the last quarter-century.

Because wealth compounds over long periods of time — a dollar saved 10 years ago is worth much more than a dollar saved today — young adults probably face less secure futures for decades down the road, and even shakier retirements.

“In this country, the expectation is that every generation does better than the previous generation,” said Caroline Ratcliffe, an author of the study. “This is no longer the case. This generation might have less.” The authors said the situation facing young Americans might be unprecedented.

A broad range of economic factors has conspired to suppress wealth-building for younger American workers; the trend predates the Great Recession. Younger Americans are facing stagnant pay — the median income, when adjusted for inflation, has declined since its 1999 peak — as well as a housing collapse and soaring student loan debt.

I grew up in a family with good taste and the money to indulge it — cashmere and trips to Mexico or France, a nice house, decent used cars, good food. My maternal grandmother inherited an insane amount of money and ran through it as fast as she possibly could, blowing it on jewels and furs and gorgeously-decorated apartments and a limousine service with a thin driver named Raymond.

It’s weird to grow up around a lot of money and develop tastes for luxury — and then choose a field, journalism, that has rarely paid me enough to satisfy them.

Saving money is so boooooooooring!

And so utterly necessary.

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American Buffalo (coin) (Photo credit: Wikipedia)

But I save 15-25 percent of my income every year, as does my husband. It means a lot of self-denial and self-discipline, certainly if your income is barely meeting your basic expenses, even pared to the bone.

I’d so much rather go to Paris and buy lots of pretty clothes and see Broadway shows and go away for romantic weekends. But to save the dough we need to retire — which we very much intend to do — demands it. Working freelance also means having no idea, most of the time, what my annual income will be. Not even next month’s.

So it means being aware at all times of what I’m earning, spending, saving and carrying in debt, (and at what rates of interest.) It’s only in the past three or four years — and I’m in my 50s — that saving diligently has finally felt worth it, as my retirement fund is now six figures.

It feels good! (Cue James Brown…)

James Brown (2001) during the NBA All Star Gam...
James Brown (2001) during the NBA All Star Game jam session (Photo credit: Wikipedia)

It’s terrifying to plan so far ahead, to hope we’ll live that long, and healthily, to wonder if all this daily self-denial is even worth it. I get why people don’t.

Saving a ton is certainly easier if you also earn the maximum you possibly can. That might mean working two or three jobs for a while.

Many women, though, remain deeply uncomfortable asking for more money, whether in a salary negotiation or freelance gig. No one is going to hand it to us!

One of my favorite books — every woman who works must read it — is “Women Don’t Ask”, which examines the many reasons women continue to receive lower pay than men for the same work. Mostly because we’re too damn scared to ask for more! (Men do, almost every single time.)

The more I make, the more I can save. (And occasionally splurge.) That motivates me every single time to ask for more work and the highest possible rates for it.

Here’s an honest and moving post about money — and being in your 20s and needing/wanting a lot more of it.

Here’s a really interesting interview with an expert in behavioral finance who thinks we should be forced into saving by the government, as they do in Israel and Australia.

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saving and spending (Photo credit: 401(K) 2013)

Do you save money?

Do you find it difficult?

Any tips you can share?

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.

The Scariest Couples Talk Of All – M-m-m-m-m-money

A Chinese shopper looks at the US dollar bills...
Image by AFP/Getty Images via Daylife

Do you know what your partner, husband or wife earns, spends, saves and invests? Do you know their FICO score? (And vice versa)?

Really?

Today’s New York Times has a terrific column on the four issues every couple needs to grapple with before marriage or serious commitment: ancestry, credit, control and affluence. We all bring patterns of spending influenced by our families of origin. Credit is how many of us get through life, whether a car loan, college loan or mortgage, but you can’t get far with a lousy FICO score. Control is the toughest. I don’t want to tell my partner he can’t play a round of golf, but when a day’s outing at a decent public course where we live costs $100, I wince every time he reaches for the clubs. Not fair, not fun. Somehow, we have to figure it out so I, too, can have my amusements without asking permission for every one of them.

Affluence is another challenge to unpack, certainly in a recession where the lifestyle you thought you married can suddenly fly out the window with job loss, prolonged job searches and perhaps a new job at half the old salary. Living “for richer, for poorer” tests any marriage, but especially one where no one’s hopes or expectations have ever been explicitly acknowledged or discussed.
Talking frankly about money and what you want to do with it — whether blowing it on a pair (or five) of Jimmy Choos or a new set of clubs or saving up a six-month emergency fund — is rarely easy. People set up housekeeping every day with no idea what their partner really values most or knowing how to even initiate the conversation. So many of us avoid it. Bad idea. I was so deliberately, lazily ignorant while married to an M.D. I did not know who held our mortgage nor the amount nor the due date. He walked out, for good, the day it was due. Ooops.

This week has been a real financial come-to-Jesus moment at our house for two reasons; my sweetie’s newspaper employer suddenly announced the need to cut 100 jobs before Christmas, including buyouts. No pressure. And we’re hoping to refinance our mortgage, reducing the interest rate from a usurious 8 percent to 5 or thereabouts. That means — ugh — writing out all our assets and liabilities so the bank can shine a light into every imaginable orifice. Before the bank sees it, we’ve seen it. Shriek.

Have that talk. Today!