We are misled

This is what we’re told:

 

This is what we’re served

There’s an obvious disconnect here.

As people, we seek guidance in our life decisions. We fundamentally want to trust someone to give us a framework with which to make choices, and we want to believe that that guidance is legitimate. We buy into the food pyramid. And we also want to put our trust into restaurants and think that they're using a degree of integrity in the food we're served.

But what happens when the nutritionists say one thing and then the companies that are in the business of feeding us do another? What happens when restaurants knowingly design entrees that have twice the calorie count for our entire day?

It necessitates that we use discretion. That we operate with a degree of skepticism with regard to things around us, and make decisions using critical analysis. We know that the food pyramid instructs us to eat more vegetables than meat, and yet we have adopted a culture of defining our food not by the veggies but by the meat that it features as the central focal point. (You would never order your meal at a restaurant by identifying it as “the spinach.” No, we identify it as “the salmon” or “the chicken.”)

This is not the only conflict like this in our society.
Good decisions require that we identify and challenge the contradictions in things we’re led to believe.

On the lottery

I am opposed to the lottery.

This perspective is rooted in both financial and moral reasons and, though my moral reasons are the stronger drivers, the financial ones are much easier to discuss. Sociologically and psychologically, I understand why the lottery exists – who wouldn’t turn down a chance to end all their money woes for a few bucks - but I also feel that the numbers aren't given nearly the attention they deserves.

Your personal finances lose

Lotteries are marketed towards the low-income demographics, and there’s a reason for it: they are for people who are bad at math. An education in statistics often dissuades an individual from playing the lottery – the odds of winning the Colorado Powerball are, as of today, 1 in 196 million. (That is, according to an article from the New York Times, about the same probability of being eaten by a shark and a tiger in the same day. Sounds ridiculous, right? I agree.) And yet we struggle to conceptualize those preposterous odds when buying our lottery tickets, because we fail to translate the odds into context we can understand. Even worse, though, are the folks who buy two tickets. Their new odds of winning? Essentially the same.

The lack of that statistics comprehension, combined with a state of economic desperation, makes the lottery seem like an easy bet. "I might not win" we challenge: "but for a dollar, just maybe I could get out of this trailer forever."

Consider this, though: our odds of not winning the lottery are almost 100%. So if you buy a lottery ticket once per week for 40 years (and I understand that many of us who “dabble” don’t do that, but there are also many, many people who do), you would end up spending $2,000 over that time for a 1 in 196 million chance at winning. If you put this in a savings account instead, you would absolutely have a balance of $4,000 at the end of those 40 years. Versus the very likely balance of $0.

Even the winners lose

When people discover they are the proud new owners of such large sums of money, they also have the unfortunate fate of having acquired it without first developing an understanding of it. Few of us would argue that managing our finances takes at least some basic skills – memory of our latest transactions, a quick guestimation of our account balance, some percentage calculations in determining tips, etc. – and many of us would likely agree that, when you increase the amount of money so dramatically in such a short period of time, it’s unlikely that your skill set will sufficiently evolve in the same timeframe.

The sad reality is that many lottery winners end up bankrupt for this reason – about one third file within a few years of winning.

The answer to all our problems and our ticket to happiness is not being handed a lump sum of more money than we can even wrap our mind around. Playing the lottery is more likely to instill in us feelings of desperation and disappointment over something that, statistically, was never meant to deliver on our hopes. In this sense, the lottery is more successful at cementing our economic and social state than facilitating our escape from it. It would behoove us to direct our mindspace at achieving our own means of transcending it than wallowing in turmoil over not winning the big one.

Read the fine print

You have two options for breakfast: a Clif Bar or Pop Tarts

Which do you choose?

Maybe you’re thinking: “oh, man! Pop Tarts?! I haven’t had those since I was a kid! I’m definitely gonna have me some of those!”

But, on the other hand, just maybe you’re thinking: “Oh, I like to eat healthy. I’m gonna go for the Clif Bar.”

And I share that logic. It makes sense. Because here’s the thing: Clif Bars are marketed to health-conscious consumers, wouldn’t you agree? I mean, they sell them at Vitamin Cottage, right there alongside the “vegan-barley-soynut-antioxidant-immortality granola.” The package has an image of a mountain climber, for Pete’s sake, as well as a really compelling story of how a cyclist founded the company. Guys, this stuff is for outdoorsy people. For athletes. For people who are in shape. And healthy.
That’s what I want to be, too.

Flip the packages over, however, and you see this:
Pop-tarts:                     Clif Bar:
Calories: 200                 Calories: 245
Total Fat: 5 grams         Total Fat: 5 grams
Sugar: 16 grams            Sugar: 22 grams
Carbs: 38 grams            Carbs: 42 grams

But what about the protein, KG? It’s a protein bar.
And you’re right. A Clif Bar has a whole 11 grams.
If protein is what you’re after, though, you’re better off having cheese sticks – two of them have more protein (12 grams) for about half the calories (120) and only two more grams of fat.

(“But wait, KG,” you might remind me, “this is for breakfast. Nobody eats cheese sticks for breakfast!” To which I might say, “well, actually, there’s no rule against it – I’m sure people do – but I see your point. In that case, if you’ve got some time on your hands and are feeling a little crafty, you could hard boil three eggs and eat the whites. They’ve got the same 12 grams of protein but with much fewer calories (about 50 calories for all three) with 0 grams of fat. Better?”)  

In any case, the Clif Bar remains the least healthy of your options.
And I can't even begin to guess how many Clif Bars I ate before I thought to compare them to Pop Tarts.  

There are a lot of things in life like this – things that are presented as one thing but then fail to deliver on the subliminal expectations. But few of us take the time to read the fine print – to pick it apart and figure out if it actually is what we are led to believe it is.

Time value of money

Most of us understand the time value of money, and many of us learn this concept within the context of money saved. If you put $1,000 into a savings account now, you’ll have $3,000 in 30 years.

And so we save for retirement with the assumption that our investments will earn money for us; if we want to retire with a million dollars, we really save less than half that over the course of our careers.

And yet, when we purchase something, the dollar amount often escapes this same “time value” scrutiny. We understand what our “saved” dollars are worth twenty years from now, but we fail to calculate what the future value is of our “spent” dollars. And if each dollar can only be used once – for either savings or spending – it behooves us to compare them within the same “future value” context. What amount are we really depleting from our future retirement account by spending a dollar now?

So, at inflation alone (which is less than you’d feasibly be earning in an investment account)….
That $4 daily coffee? In forty years, it could have been an additional $20 in your retirement.
Get one every day? You’ve elected to have $7,000 less in your retirement account.
The $20 lawn ornament? It could have been another $100 in retirement.
Oh yea, and that $500 iPad? It depleted $2,000 from your retirement.
How about if you want a nicer car and increase your payment by just $100 a month?
(That can’t hurt, right? I can afford it.)
Over the course of forty years, that’s $114,000 less in your retirement account.

I know what some of you are thinking: I’ll have a million dollars in retirement. What do I care about an extra $100? Or maybe you’re thinking: I already saved my obligatory 10% this month. I deserve that lawn ornament!

And it’s a valid point. My response to it is: consider which will make you happier. Imagine you’re traveling in Europe with your spouse in retirement; that extra $100 could mean the difference between one of the most spectacular meals of your life or another night of 2-euro slices of pizza in Italy. But you’re right – maybe that lawn ornament does make you happier. You can certainly take comfort in that fact as you’re wolfing your pizza together, huddled under an awning on the cobblestone street, wondering what else to do with your week in Italy without spending the money you already spent.

related WSJ article:

http://online.wsj.com/article/SB10001424052748703696704576223242020954846.html

Is home ownership overrated?

Smart Money recently wrote an excellent article that articulated the recent societal questioning of home ownership.

Home ownership – and mortgage payments – have long been regarded as the sacred cow of our society; an obligation used to justify our other financial decisions and the heart of empathy-inducing pleas (e.g., “I would quit, but I’ve got a mortgage to pay.”) It reigned as the pinnacle symbol of adulthood and was commended as a sound investment and source of moral virtue, stability and community.

But now, in the wake of the real estate crisis, people are looking around and wondering where we could have possibly gone wrong; how we could have let ourselves fudge the formula, only years after inheriting it from our parents and grandparents? Where did we go wrong at something made so perfect in their hands?

Real estate was always intended as a forced savings plan – and in times of social or economic unease, a vehicle whose attractiveness was rooted in its comparative stability. When the world was at war or consumed by inner-city crime, at least we had a home to which we could return at the end of the day. But, being little more than a forced savings account for the majority of home owners, it had little potential of upholding the standards of a true investment (outside of the housing boom.) Over the course of our nation’s history, homes earn their owners little more than inflation. You would likely fire a financial planner who, beaming, presented those kind of returns to you, promising you could expect the same return for 30 years.

And if the financial concepts of home ownership, once held as absolute truths, have come unraveled, logic dictates that the same must hold true for the social assumptions. While we idealized the white picket fence imagery – which conjured up sentiments of a happy home – the reality is that a home doesn’t always deliver the same happiness we were promised, especially if we can have it only by saddling ourselves with the stress of meeting hefty mortgage payments.

The Smart Money article:
http://www.smartmoney.com/spend/real-estate/is-home-ownership-overrated-1304357558340/

We are social creatures

The majority of our life decisions are made on the basis of our assumptions regarding where they will position us within the social context or with people in general. That's not to say that we do everything comparing ourselves to others – although we certainly often do – but rather that we understand that we are an organism of our environment and are always - consciously or otherwise - reflecting on how we fit into our world.

It is this highly ingrained instinct – present in every person who functions as a part of society, regardless of his or her level of materialism or “Joneses” Achilles heel – that influences our sleeping habits, what time we eat meals and how often, the non-verbal cues we give a speaker to indicate our attention. It also influences our preferences.

And studies have shown that, despite the fact that many of us regard trends with skepticism and maintain an individual outlook on our lifestyles, it is only a select few that have the power to inspire these trends among others. And once those with influence indicate to a social group that a brand of shoes or a particular book or a political candidate is the “right” one, the mass is content to follow. This doesn’t happen by chance, but is ignited by a select few with the capacity to understand the depth of our instinct to follow, and what metrics we use in deciphering which trends – and social norms – to align ourselves.

Check out these WSJ articles:
http://online.wsj.com/article/SB10001424052748704436004576298962165925364.html?mod=WSJ_article_RecentColumns_IntheLab
http://online.wsj.com/article/SB10001424052748704436004576298962165925364.html?mod=WSJ_LifeStyle_Lifestyle_6

On regret

On Thursday, May 5, I spent a few minutes looking at the horses lined up for the 2011 Kentucky Derby. (This was when Uncle Mo, the favorite, was still in the running of 22 horses total.) I sent an email saying, “I want two bets for the Derby, one for Dialed In to win and the other for Animal Kingdom.” (Within a few hours, I had also picked Nehro to come in second place either way – he had taken second in every race during his career.) So I had two bets total.

On Saturday, May 7, in the brief sunshine of late afternoon on a spectacular spring day, I placed that first bet, the one with Dialed In and Nehro for first and second. In my julep-drinking haste, I then thanked the track employee and skipped lightly away from the betting window. And I never placed that second bet – the one with Animal Kingdom and Nehro for first and second.

Less than an hour later, in the most exciting two minutes in sports, the first two horses to cross the finish line were Animal Kingdom and Nehro. The odds were so stacked against the pair finishing together that the payout for even the minimum $2 bet was several hundred dollars. Such odds were described in papers the next day as being "the perfect storm" for those who had had the foresight to bet both together. (And, of course, actually place the bet.)

And after those two horses won, my first reaction was to cheer and exclaim to our box, “somebody just won a lot of money!” It wasn’t until moments later that I realized, "oh, wait. That was my pick."

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

When we had gotten dressed the morning of the Kentucky Derby, I had thought out loud: “whatever happens today, we’re going to have a good time. I honestly don’t care if my shoe breaks or it’s a torrential downpour. This is going to be a good day!"

And that was our objective: simply have a good time.

That’s what something like The Kentucky Derby is for, isn't it?

And so, after a half day of fancy summer drinks, when I was in line at the betting window, I thought: “I’m not going to worry about placing all these bets trying to secure the winning combination. I’m going to make one bet and not worry about the rest.”

Because I'd come to enjoy my day and, by mid afternoon, we'd already accomplished that. There was, I realized, little more that anything I could do at this window could contribute to the afternoon.

Even if I had won, it wasn't about the money for me.  I'm not a person who cares about being handed free cash - I genuinely wouldn't have pocketed but rather shared - in some capacity - what I would've won. (Actually, after buying a round for the box and an extra round for the newlyweds who remained huddled in the back the whole day, I likely would've taken a select few out for a great dinner or flown an even more select two of us to Charleston some weekend.) So I think the desire to win may have been rooted in the simple satisfaction of being right. And of pulling the trigger when you know you should.

And even though that realization nudged me a little on the inside, I smile as I recall the laughter that that same select two of us shared at the event - the people-watching, his ease with the cigar mirrored against my sheer awkwardness with it, the thrill of a cheering crowd, the fun of dressing up, some of the fun people we had the chance to spend some time with.

In short, I recall: I set out to have a good time, and that is exactly what we achieved. And though that second bet I never placed stayed lodged there in my ribs for a good 24 hours, I look back now and smile at the whole experience. When you have the right mindset, winning really can't add a ton to an already amazing weekend.

So, if you’re going to have regrets, only dwell on them long enough to conclude some lessons for next time.

The rules that came out of this?

1.    Always keep the big picture objectives as top priority

2.    Always. Bet. Before. Drinking. :)