Book Review and Summary: The Dumb Things Smart People Do With Their Money
You're smart. So don't be dumb about money.
This month’s book is The Dumb Things Smart People Do With Their Money by Jill Schlesinger. I’ve never heard of Jill Schlesinger before and sometimes I always feel like I live under a rock when I say that. I haven’t had the pleasure of being exposed to cable TV in over 8 years and limit my time on news sites, but per her bio, she is a CFP and an award-winning business analyst for CBS News. You can find her at jillonmoney.com and on her podcast Jill on Money.
I came across this book in the new non-fiction section of the library which is where I find most of the books I read because they are the most recent. I like browsing that area because there’s no algorithm there to tell me what I should read, and by the way, I don’t only read personal finance books. See some of my other recommendations here.
Each chapter of the book is a topic on the dumb things smart people do with their topic. Dumb is a heavy word to use here, but all of the topics make sense. I have to admit, I’ve made these mistakes before, but I am correcting them and that is what matters. She has a very straightforward writing style. Easy to understand, without a lot of financial product jargon. She lists 13 areas where smart people fail to follow through. Some of the chapters are peppered with anecdotes of stories of her clients and/or friends making the mistakes. I didn’t comment on each chapter as a few are self-explanatory.
1 - You Buy Financial Products You Don’t Understand
2 - You Take Financial Advice from the Wrong People
3 - You Make Money More Important That It Is
4 - You Take on Too Much College Debt
5 - You Buy a House When You Should Rent
6 - You Take on Too Much Risk
7 - You Fail to Protect Your Identity
8 - You Indulge Yourself Too Much During Your Early Retirement Years
9 - You Saddle Your Kids With Your Own Money Issues
10 - You Don’t Plan for the Care of Your Aging Parents
11 - You Buy The Wrong Kinds of Insurance or None At All
12 - You Don’t Have a Will
13 - You Try to “Time” the Market
1 - You Buy Financial Products You Don’t Understand
This make sense and it’s easy to get caught up in buying financial products we don’t truly understand especially when new articles gloss over the keywords without a full explanation of what the true product is. In the end, if it doesn’t make sense to you, then you need to read more or learn more about the product before proceeding. This goes for hedge funds, reverse mortgages, annuities, gold bars, etc. Most financial products are boring and some can be complex so it’s doubly important to read the fine print. It’s also equally important that even if you know who is selling the product and you may trust them with your life, they may also not understand the product itself and are incentivized to sell it regardless. Her advice is to ask the following questions:
How much will this financial product cost me?
How easy is to get my money out of this investment?
Are there penalties if I withdraw or withdraw early?
What are the tax consequences of this product?
What’s the worst case scenario could you potentially face with this financial product?
What are the alternatives to this financial product?
2 - You Take Financial Advice from the Wrong People
“Don’t take financial advice from broke people.”
“Don’t take advice from people incentivized to sell you the product.”
“Don’t take advice from people on the internet.”
This is something that we all have to be weary of, especially in the age of the influencers. Many people tout their knowledge without credentials to back it up and while we may not need everyone to have credentials, it’s important to be discerning about the source of information and the kinds of information being shared. I see this too in the FIRE community, heck I blog about money too, but this is also why I read a lot of stuff on personal finance and other topics because it helps me cross reference facts, statistics and figures. It’s equally important to really read into the advice others are giving. Advice that comes from experience can be helpful, but advice given out of context or it’s because the latest Twitter trend can really hurt you. As with Dumb Thing #1, question your source, question the advice and run it against other people.
3 - You Make Money More Important That It Is
This is an all important lesson. Money can buy lots of things, but there are some things money can’t buy. Studies have shown that once all of our basic needs are met, it doesn’t take a lot more money to be happy. Sure money is important, but this is a good reminder that money doesn’t buy happiness. Depending on our old belief systems and what we experience, we may see money as a source of power or misery, as good or bad, but remember that money is just a medium of exchange. It’s also equally important to know your Enough Point when it comes to money the book Your Money or Your Life addresses the concept of Enough very well and it’s worth assessing what your Enough Point is.
The Fulfillment Curve from Your Money or Your Life.
4 - You Take on Too Much College Debt
College debt has become the bain of many people’s existence especially as the cost of college continues to rise and the ROI on college isn’t what it used to be. There’s something to be said about education, but sadly most young adults these days graduate with a college degree that did not prepare them for work in today’s economy. A lot of jobs today don’t also need college degrees yet many are filled with college graduates with high student loans. In the book, It’s the Student, Not the College, (which I reviewed and summarized last month), the author provides a lot of compelling reasons why an expensive college degree may not be worth it and may not result in the kind of success we assume. I wholeheartedly recommend adding that book to your reading list for you as the parent and for you as the student. It will shed some light into some of the misconceptions we have about expensive brand name schools. The big advice from the book is to turn kids into go-getters instead of relying on a brand name college to get them places.
In a recent article from the NYTimes, titled, FAFSA Says How Much You Can Pay for College. It’s Often Wrong, the FAFSA grossly miscalculates what parents can/should be able to pay for college. It’s an important read especially for those that think the FAFSA will answer the big question of “How do I pay for college?” Regardless, the big advice too is to always fund retirement first before college. The kids can figure out a way how to borrow for college, but there’s no borrowing for retirement.
5 - You Buy a House When You Should Rent
The great debate, should you rent or buy? There are a million calculators online to let you know what makes financially, but people will still try to convince you that renting is throwing away your money. There’s two sides to this debate, but the side that matters is the side that works for you. Remember that when you buy a home, it’s not just about financials, though financials can be a significant part of it. It’s also about lifestyle, future plans and current needs and wants. If you are the type of person that wants to travel, then a large home that requires plenty of maintenance is probably not for you. It’s also very easy to get caught up with what your peers are doing, for some of them buying a house makes sense, for others not so much. Really review if buying a house or renting makes sense for your present and future self.
9 - You Saddle Your Kids With Your Own Money Issues
I’m glad she included this topic here. It’s rare that we think about where we get our money issues from. Most of our money mindset comes from our parents as they are the first to show us what money means. Most times, our parents don’t mean to pass along money issues, but we as children learn and observe quickly. When parents whisper about bills, they instill fear of not having enough. When parents argue about money, they project that money is bad. Our money mindset is formed early on in our childhoods whether we realize it or not. We all need to understand that we are influenced by other people and other people influence us. As a new parent, I’m now even more conscious of the words I use and how I talk about money. It’s also important that as we learn more, we teach what we’ve learned to others so that the same mistakes aren’t made. It’s very easy to remain in the cycle of bad money managers, but it’s possible to stop the cycle and raise kids that know the value of money.
10 - You Don’t Plan for the Care of Your Aging Parents
This has been a very important topic for me as last year I witnesses first hand my parents finalize their plans for retirement. It cemented in my mind that they were really getting older. Jill Schlesinger makes a good point here about taking a proactive approach to ensure aging parents are cared for. Many of us are what’s called the “Sandwich Generation” because we will raise children and take care of parents at the same time. It’s important that we start asking our parents what their plans are for retirement so that we can either advise them or help them along the way. I think it’s rare for many of us to want to talk to our parents about this and for our parents to want to talk about their finances, but it’s important to have this discussion as early as possible so that changes can be made ahead of time to ensure both parties lead the lives that they want to leave. Here’s some tips on how to have a financial checkup with your aging parents.
For those wanting to reach FI early, we have to take caring for aging parents into consideration. I would never want to leave my parents out in the cold in retirement especially for all of the things they’ve done for me. The reality though is that the job of a caregiver doesn’t pay or doesn’t pay at all. I’ve written about how caregiving for childrent doesn’t pay, but it’s the same when it comes to older adults. Caregiving is an honorable responsibility, it’s just unfortunate that it provides little to no benefits, little to no pay, and it has unpredictable hours.
There’s also greater risk that clients will face the need to interrupt their own careers to provide care for loved ones when viable professional help is not available or affordable. This usually impacts women, who already face higher hurdles achieving retirement security.A study released this year by the U.S. Government Accountability Office (GAO) found that spousal caregivers had lower retirement assets and less income. They had 50% fewer IRA assets, 39% fewer non-IRA assets and 11% lower SS income.
Fidelity Investments calculates that a 56-year-old worker leaving a $70,000-per-year job for three years to care for her mother loses $218,000 in salary and $63,000 in Social Security benefits, for a total of $281,000 down the drain.
Source: www.wealthmanagement.com/retirement-planning/retirement-caregiver-crisis
11 - You Buy The Wrong Kinds of Insurance or None At All
The Dumb Things Smart People Do With Their Money - Why Insurance? Because life is good…except when it sucks.
I never really thought about insurance until recently. For awhile, it seemed that all the insurance I had was to protect my stuff: car, apartment, phone. Insurance was sometimes bundled into employee benefits that I rarely reviewed it or looked at what it would provide, but after having a baby, I’ve found my insurance needs have changed significantly. The biggest thing the author recommends is to review your insurance needs often. Most people underestimate their insurance needs or they don’t update their insurance as the needs change. She also advocates for taking full advantage of employee benefits which can help defray some of the costs for insurance. Personally, an action item for me from this book is to review our insurance needs once more.
12 - You Don’t Have a Will
Is it possible to be too young to have a will? Do I have enough assets worth detailing in a will? That was my thinking all along. Lately though I’ve come around to this idea of a will. It’s inevitable that we will all pass and I want to make sure all of our assets are properly distributed. So I admit to this Dumb Thing that I haven’t done, but it’s on my To-Do List. This checklist from jillonmoney.com is also very helpful to ensure you’ve all all the documents in place.
Recommended Reading
13 - You Try to “Time” the Market
I reviewed and summarized The Little Book of Common Sense Investing by the founder of Vanguard John Bogle and one of his biggest advice was to never time the market. There’s no secret formula to making gains. In addition, the market is privy to so many variables and influences that by the time information reaches the average investor, institutional investors have already made moves that affected the market. No one can predict the future and there’s no point in trying. The best path forward when it comes to investing has always been slow and steady. Just look at the market now, the Dow Jones just hit a record of 28,000.
Dow Jones Industrial Average: 5 Years
Final Thoughts
I appreciate the book for the straightforward way the author described the Dumb Things. The topics are all worth reviewing and revisiting. It’s especially important if you are busy building wealth or hitting that FI number that there’s other things we all need to look at to protect our wealth and the security of our loved ones.
Book Review and Summary: The Dumb Things Smart People Do With Their Money
