On Human Nature and the Challenge of Accumulating Wealth – part 6 of a series

Why do so many people experience problems in managing their finances? As Tolstoy famously wrote in his novel Anna Karenina: “Happy families are all alike; every unhappy family is unhappy in its own way. And so it is with our financial lives. Any one aspect of a family’s finances that is not working well can cause a unique form of unhappiness.

We have already covered some of the reasons people struggle: external events, the uncertainties of life, take us off track.  Cars break down, layoffs affect our income, we have unexpected health expenses, the roof needs replacing.  These, and more, are all significant and throw people off track.

But in many ways, we are our own worst enemy. Advertising is carefully designed to make us make impulse purchases. Stores are designed and staffed to up-sell.  A shopper goes into the store or visits a website to look at just one thing (and maybe buy it) but ends up buying that and more things, and probably the higher-cost version of the original item.

Very few people have any financial education that prepares them to make good long-term plans for their lives, once they reach adulthood. Instead, they rely on a few ideas a parent may (or may not) have told them or by watching what their peers are doing. These stressors bring out a host of behaviors that become self-reinforcing.  It is fair to say that we have a “financial personality,” formed both by experience and by our nature.  In fact, there is the famous “marshmallow experiment,” which claims that the propensity to consume now vs. saving for later, is set in a person’s habits by the age of four. Some say this has been debunked.  I am not certain of that.

In the midst of our ambiguity and confusion, we look for someone who can help us know what to do. There appear people who are trying to convince us their solution to our financial woes is better than anyone else’s. The answer comes from outside of us: Just buy this product, and your problems will go away.  Financial experts may make sophisticated models to describe what they are selling; yet every advertisement for securities is required to state that “past performance is no guarantee future results. Every investment has risks.” Still, people flock to experts because they tell us they know what will happen in the future.  So, we would rather look anywhere else than in the mirror, for the solution to our futures.

Most people’s financial personality cannot, and should not, be categorized summarily. But financial behavior patterns are deeply ingrained in who we are and can be difficult to change without external coaching.  When the tendencies to save (vs. spend) or to take reasonable risks (vs. safe investments) are out of balance, there can be financial dysfunction, with life-long effects. Bert Whitehead, in his book, “Why Smart People Do Stupid Things with Money,” names several. Here are four extreme types:

The “Scrooge” personality has a propensity to save, and with the savings, they are willing to take risks in the hope amassing great wealth over time. These people can end up with so much money by retirement that they will be unable to spend it all.  Since they have saved their whole lives, it can be hard for them to enjoy what they worked so hard to attain.

The “Miser” personality has the same high tendency to save but is also unwilling to take risks. Misers usually end up having less in retirement than others because their overriding concern has been the avoidance of loss. When a miser passes, sometimes the children find a coffee can filled with gold coins buried in the back yard, or crisp bills slipped in the pages of books. The miseries of the Great Depression of the 1930’s formed a good number of misers.  It seems likely that misers will be well-represented from those entering adulthood in the years from 2008-2012.

Others tend to the opposite extremes:

“Gamblers” take outsized financial risks but let wins slip through their fingers with overspending. They have a high propensity for both risk-taking as well as spending. Gamblers are well-represented in employees and founders of startups. In Silicon Valley there is a vast mythology surrounding IPOs. If someone hits it big once, they can spend the rest of their lives in search of hitting it again. They may think it was purely their talent that caused the first win, and that luck played little role in their success.  No journey is more perilous than the one that begins with a good idea and ends with turning that good idea into money. It is with good reason that there is a saying, “lightning never strikes the same place twice.”

“Shopaholics” derive pleasure from spending money, and the more they spend, the more pleasure they get. Saving for the future sometimes is not even a part of the picture; whatever they get, they will spend. This personality type often needs an enabler, someone who makes the money that he or she spends.

Often the opposite personality types attract, so one spouse will be a miser and the other a shopaholic.  Sometimes that works out, and sometimes it does not.

To be fair, most people do not fit these personality types, or only dwell in them infrequently. We are all unique.  It is wrong to oversimplify human behavior patterns, but it can be helpful to observe our behaviors, so we can discover how to bring these tendencies into better balance.

Economic challenges have made it harder to get ahead in life. Globalization, regulation, cartelization, and competition for work have devalued the labor of many people. In part, this is why many of the simple maxims we may have picked up from listening to our parents are no longer effective approaches. Moreover, social change and migration have left some without mentors or role models, feeling excluded.

Earlier generations could expect to have an employer pension.  Between the rise of the 401K plan and competitive pressures on employers, private sector pensions are almost non-existent.  The average person works at many more employers today than was the case 50 years ago. Small 401K matches are forfeited, or entire accounts are cashed out when changing jobs. Young people must bear extraordinary education costs and resulting debt.  Housing costs have escalated in most parts of the country, making saving for a down payment daunting. The tax code has become much more complex.

Looking back, it can seem that if some horrible misfortune does not overtake us, or if we do not succumb to our own ignorance or human weakness, the tax code or our employers will finish us off. Just as people rarely get it all right (though some do), most do avoid getting to all wrong. While much information is at our fingertips, making sense of what applies is another question.

Some people are able to succeed on our own, just as some people are able to build their own houses and fix their own cars. However, as we become ever more specialized, it can be helpful to hire an advisor can help us navigate the complexities of taxes, investing, insurance and planning for our incapacity.

In choosing the right kind of advisor, there are plenty of wrong turns. Most financial advisors have incentives from their employer (typically a large bank or brokerage) to sell more products, such as insurance, annuities, or complex investments. Others have the incentive to increase their employer’s “assets under management,” trying to capitalize on their firm’s scale. These are tempting offers, because investments that offer security or sophistication make the investor feel safer or smarter. They can cost more but may not perform as well.  The reality is that financial products are now fully commoditized.

The benefits of working with a financial coach or advisor are many. An advisor can help us keep from making wrong turns and maintaining a balance across our many competing goals. An advisor can recommend inexpensive, yet effective solutions to help a client reach his or her goals, while not recommending costly or “fancy” solutions.  And we have not even mentioned the impact of taxes, which are most people’s largest single expense.

By listening carefully, often a financial advisor can help us discover the solutions that come from within. Are we living below our means? Are we saving as much as we can? Do we have a realistic prospect of meeting our stated goals?  Do we know what they are? Are we hiding from the hard questions of life, such as who will take care of me or my spouse when I am unable? Are my adult children able to handle the wealth they stand to inherit from us?  Will we leave a better world than the one we found?


A strong coaching relationship can also show us creative solutions to reach what we may think of as unattainable goals, while helping us face these uncomfortable questions.  A coach can provide encouragement to act in our own best interest and can (gently) nag us. When done right, that helps, too.

And just maybe, help us see for ourselves that there is more to our financial lives than mere money.


Financial planning is a process, not an event.  We offer ongoing services to support all areas of your financial life, including tax preparation, investment advice, insurance and estate planning. We put your best interests before our own. Engineer Your FutureTM: You can contact Michael by visiting https://michaelgarber.com/contact/

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