People Who Feel Poor Take More Risks


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Meir Statman is a finance professor at Santa clara University. According to Money magazine, he’s one of the most influential experts in behavioral finance (how your emotions and beliefs affect your decisions about money.) Statman thinks America needs to move from the polite nudge of encouraging people to save for retirement, to perhaps a push, and maybe even a shove.

Statman states, “People who save end up supporting non-savers.”

I’ve seen it. The parent who saved all their life, and their kids who are in constant need of support. Finally, the kid moves in with the parent. The agreement is for the adult child to put aside money, to build a nest egg while the parent helps them out. That’s not always how it goes. The adult child gets new clothes, travels, and spends time with their buddies doing activities that cost money. The parent has lost the deal, and most likely, the adult child has little money saved, even with their bills being paid.

People who are savers will save with a push. Just a nudge will do. They get the concept of needing money to function in this money-barter system we as humanity have agreed upon. More than half of the population, however, seems to be in crisis mode. They have no plan. They go for instant gratification rather than saving for something, especially retirement, which seems so far off, and so vague. What does “retirement” mean? For some it’s only about big vacations, or living a long time. And people will justify their lack of saving with, “I don’t travel.” “I won’t live forever.” “I’ll re-marry rich.” Oh, really? And then they meet the person they want to spend the rest of their live with. That person has saved money (for one), likes to travel, plans to live into old age, and isn’t rich (by the non-saver’s standard.)

Here’s what Statman proposes: Set a low minimum (8%) for a mandatory savings plan off one’s income. Other countries such as Israel and Australia set 15%. This would be on top of social security. People scream foul. They say it’s paternalistic. But, if they’re not saving, they’re relaying on others to carry them. By having a mandatory savings program, people are prevented from temptation now, to have it later.

Let’s say someone is honestly, super tight on money. Don’t start at 8%, but start somewhere! So many people say they can’t. It’s not the guy who socks away $10,0000 every couple years who comes out ahead. It’s the guy who consistently socks away $50. or $200. a week.

Statman says, “When people are feeling poor, they are willing to take more risks. You can have two people each earning $100,000 a year: One of them says, “This is plenty.” The other feels behind. That one is more willing to risk losses in the hopes of reaching his or her aspirations.”

Meir Statman’s 2011 book is: What Investors Really Want

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Be Money Wise


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Be money wise.

None of these tips cost you anything but will save you and others headache if you keep them up to date.

  • Have three-to-six months of income put aside.

I prefer not to call it an “emergency” fund, but I advocate putting money aside for the future. The money’s in savings, so as you save more, you have more money put aside, even without an “emergency.”

So, you don’t lose your job, or don’t land in the hospital for months on end. You’ll have money saved  for a smaller unexpected something (a car’s flat tire, a dishwasher that conks out, a dog needing a visit to the vet.) Did you know 70% of people don’t have money put aside that could over three-to-six months of living expenses. Can you save $20 a week? Make sure it’s accessible; liquid.By putting this money aside, you build a cash-buffer over time. You don’t have to start big, but you do have to start.

 

  • Check your credit reports.

Credit reports are free (one a year from each credit bureau), just make sure you’re on the legitimate industry’s official website www.annualcreditreport.com. Eighty-one percent of people don’t check their credit reports. It’s not only about your money, but your identity that your checking. The three major credit bureaus are Experian, TransUnion, and Equifax. Stagger your report requests every four months. Related post: Credit Report/Credit Score

 

 

  • Update your will.

Eighty-six percent of Consumer Reports survey respondents said they either didn’t have a will, and other  estate-planning documents, or hadn’t updated it in over five years. Even if nothing has changed in your life, check your beneficiaries on your will, insurance accounts, and retirement policies. I had a friend who didn’t update his will and when he died, his surviving wife was left with a mess. Some of the people he’d listed as beneficiaries had died years before. It complicated the process, and relatives had their hands out on behalf of the deceased beneficiaries. What a hassle. Update your will.

 

These are easy, free things you can do to keep your finances in good condition. Make becoming money wise a habit!