In this week’s Ten Money Questions, we speak with Dayana Yochim. Dayana could be called a happy fool... as she’s the consumer finance expert at The Motley Fool dishing out advice on a variety of topics that deal with spending and saving. I often quote Dayana in reference to her writings on money and happiness. She delivers some fresh zingers below. Enjoy!
1. Are their gender differences in how men and women approach investing and wealth accumulation?
Absolutely. Here's a simple illustration of the Men v. Women money debate. Ask a man to describe what his retirement will be like. He'll talk about freedom -- freedom to leisurely pursue his passions; freedom from The Man breathing down his neck; freedom to watch every single one of those 700 sports channels to his heart's content every single day of the week. (Apologies for stooping to stereotyping on that last point, but you get the picture.)
Ask a woman the same question and she'll also mention pursuing some of her dreams, but her answers are often clouded by fear -- fear of outliving her spouse and her savings; fear of spending her golden years managing a shoestring budget; fear about being financially wiped out by a medical or family emergency; fear of becoming a bag lady.
Unfortunately, her fears are not unwarranted: We earn less over the course of our careers; spend more time than men out of the workforce raising families and shortchanging our retirement benefits and social security/pension payouts; we outlive our spouses and are statistically more likely to live out our golden years in poverty.
This opportunity v. angst angle plays out in how men and women invest, too: Research shows that men are much more aggressive investors -- angling for opportunities and going out on a limb for the chance to earn above-average gains. Women tend to be much more risk averse -- playing it safe with long-term investments (like CDs and Money Market Funds) in order to preserve wealth.
Here's the kicker: When they set their mind to it, women are actually better investors than men, based on surveys of all-women v. all-men investment clubs. Our innate human nature is helps us edge out the boys' portfolio performance: We're methodical, willing to dig into the research, less prone to react to hype for short-term gains, and resist the frequent trading that kills portfolio returns.
My advice on managing your dough?: Go ahead, be a woman. Play up those feminine wiles as you max out your company 401(k), faithfully fund your IRA, cut coupons, cut corners, and research stocks. Even when your budget is stretched, invest at least something every month to keep the savings momentum going. And do it all in high heels and while dancing backwards. You've innately got what it takes to kick some serious butt.
2. What is your most significant memory about money?
The childhood scene that plays with the clearest focus in my mind is that of my mother paying bills. As a kid my impression was that "paying the bills" was a laborious, weeks-long process requiring the utmost concentration, the entire surface of the kitchen table, and the lowest volume setting for whatever my brother and I were watching on TV.
Another memory was revived when I stumbled upon a pair of thank-you notes written by my brother and me to our grandparents nearly three decades ago. His went something like this: "Thank you for your generosity. You really shouldn't have -- especially since you already gave us a set of encyclopedias. I don't need the money... but I promise to spend it responsibly."
Mine read: "Thank you for the 5 dolars [sic]! I bought a doll!! Her name is Cinnamon!!!"
Jordan : "I will consider my options and vow to treat the money in the spirit in which it was given."
Dayana: "Cinnamon is mine!!!"
Thankfully, the corrective lens of adulthood has prevailed and my thank-you notes and spending impulses have greatly improved.
3. What is your worst habit around finances?
Laziness. Sloth is probably not the attribute Motley Fool readers want to see me cop to in public, but my feet-dragging, procrastinating, dilly-dallying nature coupled with my full-time job of helping people best manage their finances has led to some pretty creative advice about effective financial shortcuts. Basically, I've turned a major character flaw into a somewhat lucrative and altruistic career.
4. I understand that you come from a long line of teachers. I've read plenty of stories about teachers who retire as millionaires. What's the big money secret about being in education?
There's clearly something in the teacher DNA that enables educators to overcome that whole salary-to-millionaire equation. My hunch is that teachers go into the profession with the recognition that they will be grossly underpaid for the important work that they do. They innately understand that choosing to teach is a labor of love -- from the moment they played "teacher" on the playground right through to those unpaid summers off. Perhaps the years of psychological groundwork of what it takes to work in their chosen field prepares them better than the rest of us for the single best get-rich-slowly scheme: Spend less money than you make.
My grandparents faced the double-whammy in the make-no-money-ever lottery: They were artists and art educators. Despite the handicapping of their take-home pay, they lived a very rich life -- foregoing certain indulgences, living in a one-bedroom apartment in Chicago (even after my dad was born), and squirreling away their pay so they could take exotic summer trips around the world to paint, experience life, and later on spoil us grandkids rotten. As a kid I always thought that my grandparents were rich. As an adult I realize that I was right: They were "rich" -- not in the traditional sense of the world, but in a much more meaningful and life enriching way.
5. You talk about the "hedonic treadmill" in your writings about money and happiness. What does this mean? Can money impact happiness?
The hedonic treadmill is the term used by behavioral economists (or "money shrinks," as I like to call them) to describe a glitch of human nature whereby we strive to improve our circumstances, quickly adapt to our new and improved condition, and then hop back on the treadmill in an effort to better our lot once again. In other words, we grab that carrot at the end of the stick -- the raise, the bigger house, the nicer car, the cuter shoes -- and in no time we set our sights on the next carrot (the even bigger raise, larger house, flashier car, snazzier kicks). It's like an itch that keeps moving just out of reach (just in case the treadmill or carrot-stick analogies aren't working for ya).
This never-ending cycle of searching for the thing that will finally make us content does indeed affect our happiness -- but not exactly the way that most people think. Once we have enough to provide for our basic needs and then some -- a roof over our heads, food in our bellies, job security and room in the budget for some fun -- we can reach a set level of happiness. After that, a 20% raise won't make you 20% happier -- at least not for as long as you think it will.
The hedonic treadmill workout isn't the only thing keeping us from true happiness -- our inability to recognize what truly makes us happy (and for how long and to what extend) in the first place drives us to do some pretty reckless things with our money.
One of my favorite recent books on this topic is Daniel Gilbert's "Stumbling on Happiness." In his research Gilbert found that people tend to mis-remember how happy (or sad) -- and for how long -- something made them feel in the past. This faulty emotional recall in turn drives us to re-create those embellished feelings of happiness over and over again. We buy bigger, faster, brighter shinier stuff because we don't recognize the short in our emotional system.
6. What's your view on student loan debt?
Debt is one of the most complex four-letter words in finance. One person's $10,000 IOU burden is another's $10,000 borrowing deal. At The Motley Fool we differentiate between "good" debt and "bad" debt. "Good" debt tends to carry these common attribute: a low, fixed interest rate and the likelihood that the asset in which debt was used to secure will appreciate in value over time (e.g. a house). "Bad" debt is identifiable by high, non-fixed interest rates and being used to buy things that lose value over time (like cars and pretty much anything you put on a credit card).
While student loan debt is not a tangible asset you can sell off at a gain, it does tend to carry the attributes of "good" debt -- something worth borrowing money to obtain. You get an education because it will improve your future job prospects, earning potential, and, heck, maybe even widen your dating pool.
That said, I think it makes sense to rid yourself of student loan debt as soon as you can. Paying off any debt gives you a guaranteed return of whatever percentage rate you're paying to borrow that money (also factoring in any tax breaks). There's also the psychological benefit of having no IOUs hanging over your head. For some, that means striking a balance by investing some of their extra cash and allotting a portion to paying down the debt, even if the investments are doing well and the debt carries a very low interest rate.
7. What's the best financial advice you have ever received?
I've pried a lot of great advice from some pretty fantastic folks over the years. I'd say the one nugget that really resonates with me and helps guide my personal financial decisions is this very simple one: Sweat the big stuff.
Yes, the little stuff does add up. But unless you relish the idea of managing your money 24-7, it makes the most sense to spend the bulk of your money-saving energy on the big-ticket, big-payoff stuff (e.g. housing, auto insurance, healthcare, education). The math bears it out -- would you rather spend an hour or more trying to save 20% on a $500 purchase or a $50 one? If money's really tight, work your way down the list, that way when penny pinching fatigue sets in you've at least already tackled the high-dollar stuff.
8. How old were you when you got your first credit card? Who taught you how to manage debt and use credit responsibly?
I was a very late bloomer as far as credit cards go. My initiation into the World of Plastic took place about two years after I graduated from college. And that was probably a very good thing since I wasn't weighed down by the ball-and-chain of debt while starting my career like so many of my peers. When I finally did succumb to the siren song of Visa it was because I needed a credit card for a business trip. I remember getting my first bill for $430. The balance -- to the dime -- was equal to my then monthly rent. It felt like a financial Tasering (although Tasers weren't yet invented). I actually considered calling the credit card company to apologize for borrowing so much money during the first month of our fledgling relationship. Ah, youth!
9. Do you lease or own your car, and why?
Own. And reluctantly, at that. In the ranking of "things that I wish to spend my money on," auto-related purchases rank neck-in-neck with "funeral expenditures," "major dental surgery costs," and "prescription ointment expenses."
When I moved from New York to Alexandria , VA where The Motley Fool is located, I did everything I could to not buy a car. I re-created my New York City pedestrian lifestyle -- living walking distance to work, restaurants, groceries, and dog parks. I held out for four years by bumming rides and taking public transportation until my mother decided to give up her Honda and offered it to me. Cue "hedonic treadmill" reaction (See Question 5). Just as I got used to the freedom of mobility and actually shopping for more than a few days' worth of groceries, the '94 Honda was stolen. (In a lemonade from lemons attempt, at least the experience fueled my "Dude" series of articles: "Dude, Where's My Car?" "Dude, There's My Car!" "Dude, That's My Car?".)
After a few wheels-free weeks, I broke down and bought a replacement vehicle. Since the new car smell had no power over me, I decided to downgrade and bought a 1991 Camry -- one that had only 60,000 miles. (No, that's not a typo.) Since October of 2004, I've put exactly 10,000 miles on the odometer. The only car-related item that I have ever happily purchased is The Club.
10. If you could buy one thing right now what would it be?
A calendar with four blank weeks (starting tomorrow) printed on paper that does not allow ink to adhere to its pages or "to do" items that go un-done to have any lasting consequences on the calendar's owner. Translation: Four carefree weeks in a small Italian village and empty email and voicemail boxes upon my return.
More about Dayana Yochim
For the past decade Dayana Yochim has proudly donned a jester cap (even on good hair days) to take on the overwhelming, contradictory and just plain confusing world of money and investing at The Motley Fool. As the Fool's consumer finance expert and advisor of The Motley Fool Green Light service, she cuts through the tangle of money topics -- savings, spending, home buying, credit cards, insurance, IRAs and the psychology of money -- to offer concrete, actionable advice that helps people measurably improve their finances and make every dollar count. She strongly encourages readers to cheat off her homework.
She frequently shares her unique perspective and fresh personal finance advice in print and on the airwaves, showing up on "The Today Show," Fox News, PBS, CNN, National Public Radio, Real Simple, Glamour, Jane, Essence, Men's Health, Details, Newsweek, Bridal Guide, USA Today, The Chicago Tribune, The Washington Post and, of course, her hometown Kansas newspaper, The Lawrence Journal-World. (Hi mom!)
Dayana is the author of two books, The Motley Fool's Guide to Couples & Cash: How to Handle Money with your Honey and The Motley Fool Personal Finance Workbook, as well as a contributor to The Motley Fool's Money After 40 and The Motley Fool's What to Do With Your Money Now. You can keep up with Dayana's latest Fool.com columns on her Motley Fool archive page or take a free 30-day test drive of her Motley Fool Green Light service.
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