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When I was nine years old, I asked my parents for an allowance.
Since I've been diligently feeding the cats, they agreed,
and we settled on $3 a week payable on Fridays.
The first Friday rolls around and I am so excited.
We're sitting at the dinner table, and my dad slowly pulls out a crisp,
$2 bill, and then a stack of four quarters.
Then he takes out these two plastic yogurt cups with Sharpie on them.
One of them says family.
The other one, charity.
Dad, what's with the cups?
>> [LAUGH] >> My parents calmly explained to me that
out of every paycheck come certain contributions.
And that from my $3 allowance, $0.25 was going
to a family tax and $0.25 was going to charity.
>> [LAUGH] >> [LAUGH] Nine-year-old Alexis was pissed
[LAUGH].
>> [LAUGH] >> I had done all of the calculations, and
it was now going to take literally forever for
me to buy my summer pass to the amusement park.
>> [LAUGH] >> So as you can imagine,
this was my first taste of the frustrations of personal finance.
>> [LAUGH] >> As we all know,
this really pales in comparison to what a lot of people face on this front.
People rank money-related concerns as worse than death and
just behind being alone for the rest of your life.
>> [LAUGH] >> And maybe it's no wonder,
when we look at it and we find out that almost half of
Americans don't have $400 in case of an emergency.
And some people really can't make this math work.
But I know a lot of highly educated,
highly motivated people with resources who still
seem to make irrational decisions about their money.
I spent the past seven years working with people who know a lot about how you and
I manage our finances.
I was at the Consumer Financial Protection Bureau in DC doing strategy consulting for
big retail banks and most recently at a consumer FinTech.
And even in these environments,
I came across people who made irrational decisions.
One day, I asked my teammate, what about his money habits?
He's an expert in helping banks manage risk and plan for the long term.
He let me know all his savings in a checking account earning zero interest.
There has got to be something deeper going on here.
The solution, I argue, is to start from
psychology, not from spreadsheets.
Picking a psychology first approach to personal finance
gives me hope that we can each learn to better manage our own money and
also change the way that we as a society talk about personal finance.
But how can we make this happen?
I've come up with three steps that I'm going to share with you today.
So step one, understand your personal financial psychology.
A few examples of what this could look like.
As millennials,
we're investing a lot less in the stock market than previous generations.
And experts say,
we may have developed risk aversion from growing up during the recession.
People from poor households may have a scarcity mindset,
which can come from having grown up in an environment where money is
uncertain as you end up spending more than you should be saving.
Personally, I come from a house that kept spending and
personal finance top of mind, as you may have gotten from that yogurt cup bit.
>> [LAUGH] >> So [LAUGH] this, unfortunately,
can have its own ramifications.
And two weekends ago, I was up in San Francisco and
I walked half a mile in 5-inch heels instead of paying $5 for parking.
>> [LAUGH] >> This is something I'm working on
[LAUGH].
So where are you coming from?
And what does that lead you to do today?
Step two, implement a system to counteract those tendencies.
Here at the GSB, we talk a lot about culture building,
about setting up incentives for our teams.
I'm saying, we should do the same for ourselves.
And there's a lot of great new innovative tools out there that can help with this.
But they only help when you start from where you are and
build a system around that.
So for example, if it's risk aversion,
you can outsource your investing activity to a robo advisor.
You can take that accountability off of your plate and
make you feel more comfortable.
If the issue is a scarcity mindset, instead, you can use an app that will help
you with different saving activity, like rounding up your purchases to
the nearest dollar and setting aside that extra change into a savings account.
One thing we can all benefit from is finding ways to associate our
financial chores with positive experiences and with rewards.
Every month, I get a calendar alert that says, adventure fund.
And there's just a bunch of exclamation points over here and
like maybe a few emojis.
>> [LAUGH] >> And this is my alert to move my extra
cash from my checking account into a high interest savings account.
So that I can earn a few extra points of interest on money that would be sitting
around anyway.
By finding a way to take this financial chore and
associate it with something I love, with travel,
with the feelings I'm going to have when I actually get to use that savings,
I get to move that future feeling of reward to the present.
These are some of the ways that we can actually build habits.
It's the ways that we can end up sticking to our goals.
And through automation and association with positive feelings and
rewards, we can actually end up changing our behaviors.
Which leads me to step three.
You have the system, now what?
Share it. A whopping 43% of Americans don't
know how much money their spouse makes.
Think about that.
>> [LAUGH] >> How are we supposed to plan for
shared futures when we don't have this information?
How are our loved ones supposed to hold us accountable to our goals?
How can we help the people we care about in our lives?
We're taking classes right now on accounting and finance.
We're making these huge decisions about taking on debt, about what career we're
going to have, what implication that's going to have for our salaries.
And yet, none of us are talking about money.
Even if you're in a good place with this, I guarantee you someone
close to you is sitting here with a really bad pit in their stomach.
>> [LAUGH] And we all have a responsibility to change the ways that we
talk about money, to take away the shame from that conversation.
So if you've recently gone through a salary negotiation,
you can help someone else get a raise.
If you've got a great system for your savings,
you can help someone else get over that hurdle.
If you just start talking about money,
you can welcome someone else who needs help to do the same.
Tackling these three steps understand, your personal financial psychology,
implement a system to counteract those tendencies, and
share it will empower each of us to live better financial lives.
And change the ways that we as a society approach money.
I care way too much about my friends and
family to let them struggle unnecessarily with their finances.
You can bet someday I'm going to tax my own kids' allowance.
>> [LAUGH] >> And by that point,
it will probably be more like $1 instead of $0.25.
So pay it forward with a little lesson about inflation.
>> [LAUGH] [APPLAUSE]
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