By Sheila Mullan & David Graubard
There are those who think that managing money is all about beating the stock market and accumulating as much as possible. And then there are those who get it.
Jonathan Clements, a personal finance writer at the Wall Street Journal for more than 20 years and now a much-published financial book author, urged attendees of the NYFWA’s August networking event to “spend with care.” He offered suggestions on how to think about money, which parenthetically is the topic of his upcoming book. Clements recently published the Jonathan Clements Money Guide 2015.
“People believe that the key to happiness is having more of everything,” said Clements.
But he said this doesn’t work, thanks to the “hedonic treadmill” where we quickly adapt to material improvements in our lives. Instead, Clements said you should “spend money on experiences and not on possessions” to maximize satisfaction. “Use your money to create special times with friends and family,” he added. “These memories will go farther, over time” than a material purchase.
For example, he gave listeners the hypothetical choice of buying a luxury new car, or taking a lavish trip to Paris with friends or family. While the car would give a buyers’ thrill at first, the process of hedonic treadmill means we soon get used to the new car. So we would soon lose the thrill of driving the new Lexus, and then we would be saddened if the car got nicked and exasperated when it had to be taken into the shop for repairs etc. However, the pleasant memories of a trip to Paris could be revisited again and again in your mind, bringing great satisfaction at both the time of the trip, as well as later on when the memories can be called back up again.
Clements cited a poll of 900 working women in Texas regarding what brought them happiness. The top of the list was “intimate relations,” followed by the time spent socializing after work, which gave the women an “enormous boost” of happiness. “Friends and family do not just make us happier, they could also help us to live longer,” he said, with the social support having an effect on life expectancy equal to that achieved by not smoking. He noted that most of us will live extremely long lives, which has implications for how we manage our finances. “We are engaged in a vast real-time experiment, with people spending unprecedented amounts of time both in the workforce and in retirement,” said Clements. “Our investment time horizon is not measured in months and years, but in decades and decades.”
According to Clements, death is not a financial problem. The problem is outliving our savings. Accordingly, he urges consumers to delay taking Social Security for as long as possible. Workers may need to find not just one, but two or three careers over their lifetimes, he said. And it is crucial to find a job where you achieve the state of “flow,” or intense absorption in one’s work, thus bringing happy moments. “The journey is important,” said Clements. Additionally, he said “You need to find something to get you out of bed in retirement.”
One interesting fact Clements noted is that in the U.S., “our standard of living has more than doubled” from 1972 to 2014. Yet “satisfaction with our financial situations has actually declined.” Again, he said this is due to the hedonic treadmill. “We imagine that if we get this next raise, it’s all going to be better,” said Clements. “Money can buy happiness but only if you spend with the greatest of care,” he said.
One thing that Clements said that people can do to better manage their money is to focus on minimizing the subtractions. Your savings can die a “slow death” by being hit by capital gains taxes, for example, or you and your money can die a “quick death” by not having health insurance.
“We spend way too much today, and save far too little for the future,” said Clements. He cited a survey of millionaires, which found that the majority of them are “extremely frugal, otherwise known as cheap.” To emphasize this fact, Clements cited the late Dr. Thomas Stanley’s book on millionaires, which found that most millionaires lead quite modest lives. According to Clements, 64% of millionaires studied have never owned a second home and, when having guest over, they drink bottles of wine valued at a median $13 price.
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