[Music]
i was leading a session
on our relationship with money i just
was curious about
where people were with this at this
point this was in 2016.
we had 50 people in the room we circled
up and we went around a room just
say something about your relationship
with money and i realized
every person in that room was in fear
about money
from the 80 year old who i know has
millions of dollars
and to the 20 year old who's like
already 20 000
in debt and it was it just
honestly it infuriated me like what kind
of society
requires that everybody participate in
something that terrifies them
this this feels so amiss to me people
are not fully rational and they make
many choices
that if they reflected upon them they
would do differently
no question about that the major
tendencies of
people tend to frame things very
narrowly
they take a narrow view of
decision-making they look at the problem
at hand
and they deal with it as if it were the
only problem very frequently it's a
better idea
to look at problems as they will recur
throughout your life
and then you look at the policy that you
are to adopt for a class of problems
difficult to do would be a better thing
people frame things narrowly in the
sense
for example they will save and and
borrow at the same time instead of
somehow treating
their whole portfolio of of assets
as as one thing if people were able to
take a broader view
they would in general make better
decisions so that is certainly
one one of the weaknesses of human
decision making
we call it narrow framing
[Music]
first of all i'd like to i'd like to
distinguish between independence and
freedom
so financial freedom is like freeing
your mind
financial freedom is is understanding
that
i'm me and there's an economy out there
and i have a relationship with it but it
doesn't run my life
you know it's freeing my mind from the
messages of the messages of the consumer
culture the messages of the economy
the messages that you know a house is a
starter house
no that's my house i could die in my
house you know
it's like there's so many presumptions
that drive us
into uh wage slavery debt
and it doesn't matter whether you are at
the low end or the high end
if you are engaged in that sort of
anxious process
of more and more more you are not free
so the first layer of financial
independence
i talk about is this freedom of the mind
is freeing your mind
of going saying like i am sovereign the
economy
is secondary i will move i will move my
sovereign self
into the economy for my own purposes
you know rather than i am a slump and
the economy is my
is my mega boss and i don't know my boss
seems to be as big as the sky
and so i will just let my life be run by
my boss and the tax system
and i'm just going to let myself be run
by this thing no so you are sovereign
being so that's your first layer of
financial independence is your own
sovereignty
and then the second layer is to get out
of debt and for some people
debt feels endless and the first step to
getting out of debt is stop going into
debt
there's many people who've written to us
who flattened their debt in a couple
years
impossible debt debt that was going to
be endless they would die with this debt
and once they see what the debt is doing
to
them in terms of the actual
opportunities the future opportunities
of their lives
that's what we're trying that's the sort
of link that we try to
to get people to make so that something
in the future is more important than the
immediate pleasure of buying one more
tchotchke that you're never going to use
the third level really is to get those
six months of savings
in liquid assets whether it's bank
accounts
you know some place where you can
actually within 24 48 hours you could
realize that money
so that you have an emergency fund so
that you are you are not tumbled back
into debt as soon as
something happens a miss you lose a job
which
you know many people now feel that even
their
very very important and significant jobs
are precarious
so you want to get out of the zone of
precariousness
and part of how you get out of that
precariousness
is savings and then over time the next
layer of financial independence is
is you start to see that surplus savings
can be invested
in such a way that it throws off an
income and over time
if you become a systematic and sometimes
obsessive saver and you can see
you could chart it you can watch your
passive income grow
knowing money is your life energy you
track
everything you buy and an easy way to do
it if you don't like you know like
writing a little notebook every time you
do a transaction is just use your debit
card i said debit not credit
you use your debit card and your bank
has a complete record of all your
purchases
every month you take a look at your
purchases you sort out in categories
that apply to your lifestyle
you just look at that and you kind of
tell yourself the truth about whether
spending your life energy in that way
makes a difference
you need to be numerate for certain
kinds of decisions so
numerous people have a significant
advantage over those who are not
uh understanding compound interest makes
a huge difference whether you're a
credit card borrower
or somebody with saving people have a
very hazy idea
of compound interest and and it's
very detrimental so i would say that
first of all you need to be numerate
but many people are then you need to
frame things broadly i mean that's
uh it frequently goes with numeracy but
it's not quite the same thing
by taking the broad view it is very
important
not to have overly strong emotional
reactions to
to events and what i mean by that is
that most of us
tend to respond to gains and to losses
to changes
that happen in our life actually you're
better off
if you frame things broadly and you
think
you win a few you lose a few and you
have very limited emotional response to
small gains and do small losses
there's so many ways in which we project
onto money the ability to not only make
us happy
but to make us better or better than
other people or
or safe or you know so many
deep gut level emotional feelings
are playing themselves out in our
relationship with money we want more
money and we want more happiness
so maybe if we get more money we'll get
more happiness and it turns out that the
relationship is really a lot more
complicated than that
it's not too surprising to say that
money can't buy you happiness we've
heard that phrase a lot
but that doesn't help us understand then
what kind of spending
will actually make us happy and what
kind won't so we've got a certain
limited time on the planet we're going
to spend a third of it sleeping
you know we're going to spend another
third of it you know commuting
and showering and you know and and
sitting at a desk and doing somebody
else's
bidding yeah that's not a lot of life
so you think i got a third i have a
third of my waking hours are mine to
do whatever i want you know who am i so
it's like
it then sends it into an existential
question
who am i what do i care about what do i
want the impact of my actions to be
what do i want to learn what do i want
to understand what do i want to feel
taste
touch you know what do i want in what
mary oliver calls my one wild and
precious life
what we tend to find when we look at the
data is that the biggest category of
things that people spend on is stuff
for themselves of course we need to pay
rent or our mortgage we need to have a
car we need to have food and clothes
but it seems as though people are
spending an inordinate amount of their
money on stuff for themselves
and the biggest problem from our
standpoint as psychologists is
the percent of money that you spend on
stuff for yourself is completely
uncorrelated with how happy you are with
your life
it doesn't make you unhappy it's not
like if you buy a lot of stuff you're
miserable which sometimes we think is
the case
it's just the case that it's flat no
matter how much it seems you buy for
yourself
nothing really seems to happen once
people start to pay attention to the
flow of money and stuff in their lives
in this way
their consumption drops by about 20 to
25 percent
naturally because that's the amount of
unconsciousness
that you have in your spending
so when you become conscious that falls
away many people say they don't even
know what they used to spend their money
on they just oh
surprise i'm spending less i don't know
how that happened i just paid attention
i just asked myself you know is this
purchase of something making me happy
when you focus on other people you sort
of
reverse the arrow from me to you it
seems that on average when people give
to others which can be
giving to charity can be treating a
friend to lunch it can be buying people
gifts
that those actions of giving rather than
keeping
seem to be associated with more
happiness but another opposite of stuff
for yourself
is to think about changing you can still
spend on yourself
but change from stuff to something else
and lots of research over the last
decade has shown that on average
when people buy experiences it tends to
pay off in more happiness
than buying stuff for themselves often
when we buy stuff for ourselves we end
up
by ourselves with our stuff think of
yourself on your phone
playing a video game whatever else it
might be you're often alone with your
stuff
whereas experiences yes we do some
experiences solo
but many many experiences have built
into them that they're social if we go
out to dinner or go see a movie
or go on a hike or whatever else it
might be now we're with other people
turns out that talking to other people
makes us happy even casual interactions
with other people make us happier
than sitting by ourselves in a room
[Music]
eighty percent of children eight zero
get to college
having never had a conversation with
their parents about money where it comes
from how it's earned how it's spent
what debt is you can't just give your
kids
launch them into their lives without
giving them the tools
so i went to what i thought would be the
smartest people to talk to about this
warren buffett's bankers they advise the
wealthiest families in the country and i
thought
they must know more they can help my
family turns out
that these wealthy families are making
even more mistakes
and i walked away from this conversation
with a number of takeaways
takeaway number one show them the money
it's incredibly important to talk to
children
about money at an age appropriate level
but you need to talk as buffett's banker
said to me
i spoke to the richest woman in america
and she said it's a burden if i tell my
children
how much money they have and he said
it's much more of a burden
to burden them with ignorance than to
burden them with the truth
number two actually try to limit the
influence of money
after doing all this research in our
home we have chores
we have allowance we do not overlap the
two
because if you do it turns out the kids
will do the chores just for the money
you get an allowance as part of being a
member of our family
but sorry someone's got to put the
dishes in the dishwasher someone's got
to make their bed
you're part of the team you have to take
care of yourself
and the last thing is let them make
mistakes
buffett's banker chided me when i told
him we we're kind of forcing our kids to
put their money into different pots
spend save give away etc he said let
them decide
for themselves and i said but what if
they make a mistake what if they want to
buy something and they've spent all
their money on candy
what if they drive into a ditch and his
answer was
one of my favorite quotes in the secrets
of happy families
he said it's much better to make a
mistake with a six dollar allowance
than a sixty thousand dollar a year
salary or a six million dollar
inheritance
the point is when the kids are young
when the stakes are lower
let them make their own mistakes then
you're there to pick them up
you don't want to get that call when
they're 24 and suddenly they're in debt
and they've made bad decisions and
they're really in a hole
there's several ways to expand markets
one is you export
and another is to educate your citizens
to want more than they need
and then you've got an infinite way to
you've got an infinite market called the
endless willingness
of people to buy into the story of more
is better and keep buying stuff
so that is the old road map growth is
good
more is better game over the new road
map says
that there is something called enough
and
and enough is not sort of like this
oppressive ceiling that you know
okay i've got enough and i can't have
any bluer
no enough is this sort of vibrant vital
place what we
teach is an awareness about the flow of
money and stuff
in your life in light of
your true happiness and your sense of
purpose and values
and that your enough point having enough
is having
everything you want to need to have a
life you love
and full self-expression with nothing in
excess
it's not minimalism it's not less is
more because sometimes more is more but
it's that sweet spot it's the goldilocks
point and
and so enough for me is like one of the
absolute fulcrums between the old
road map for money and the new road map
for money
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