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In the world of finance, as in life, we sometimes cling to beliefs that just aren’t true. Such beliefs are actually misbeliefs, and though they may seem obviously true, they can end up costing us dearly. Let’s examine some of the typically accepted misbeliefs and why they prove to be so costly.
1. People who feel good about their retirement finances have saved more than others.
That seems pretty self-evident, but I’ve found the opposite is true. I’ve had people who haven’t saved much at all ask me to confirm that they can retire soon. I’ve also had others who tell me they would never be able to retire who already had more than enough.
The optimists never learned to defer spending and feel that things will take care of themselves, so they don’t have enough money to retire. Pessimists (like me) are afraid of ending up living under a bridge and get joy and comfort from saving. They have the money to retire, but don’t.
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2. Buying stuff makes you happy.
Did your neighbor just get that expensive luxury car you’ve been longing for? Don’t be envious. That new car may make him happy for the first few weeks, but the joy will begin to wane once the insurance and registration bills roll in, or he gets the first ding on his door. Free yourself from the lure of shiny objects. Say goodbye to keeping up with your neighbors and accumulating stuff. Instead, consider spending that money on experiences that will bring priceless memories, such as a trip with the grandkids. Research indicates that is far more likely to bring lasting happiness.
3. Disclosing conflicts of interests protects the public.
It turns out that making financial advisers disclose that they are not obligated to act in the best interests of their clients may not be a good thing either. This is according to research on “moral licensing” led by George Loewenstein of Carnegie Mellon University.
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