Five Mistakes You’re Making With Your Money

CBS News business analyst Jill Schlesinger outlines the major blindspots that so many of us fall victim to in her new book, The Dumb Things Smart People Do With Their Money

Katie Couric: The economy in general is doing well. Can you give us a snapshot of how you see things at the moment in terms of the bigger picture and how the recent Fed rate cut impacts average investors?
Jill Schlesinger: Citing the “crosscurrents” of slowing global growth, uncertainty over trade policy, and static prices, the Fed cut rates for the first time in more than a decade. A rate cut might seem strange, considering that the first estimate of Q2 GDP came in at a decent 2.1% annualized pace, but that pace has slowed significantly from last year.

Here’s a breakdown of how the Fed rate cut impacts YOU:
Savers: The past few years have been good ones for savers, but the tide could be turning now. It may be worth locking in longer term CDs with low fees — if you are worried about the economy losing steam and more cuts in the future. You can check out current rates for various savings products here and here.

Borrowers: With rates headed lower, some borrowers could see immediate relief, especially those who are carrying credit card balances, shopping for an auto loan or have home equity lines of credit (HELOCs) that are linked to the prime rate.

Long-term mortgage rates key off the 10-year Treasury bond, which the Fed does not control, but 15 and 30-year mortgage rates are hovering near three-year lows, according to Freddie Mac.

Katie: I love your book because you’re very honest about your own financial mis-steps even though you’re an expert. What’s an example of something you got wrong and learned from?
Jill: In the book, I describe how I tried to time the stock market. While I was able to correctly figure out a good time to sell, I wasn’t able to time when to get back in. I learned an important lesson: nobody is smarter than the market…NOBODY

Katie: There is so much fear and anxiety that surrounds financial planning that a lot of folks seem to try to avoid dealing with it altogether. Why do we so often take that approach? How can we counteract it?
Jill: We need to recognize that while much of financial planning is about numbers, it also involves our emotions. And when you factor in that a lot of the areas of your financial life involves complex issues, it’s not surprising that many smart people make dumb decisions with their money.

Katie: The economy is becoming more and more complex, and it’s more important than ever that we teach our kids to be financially literate. What can parents do to help their kids be prepared for their financial futures?
Jill: Talk to you kids as early as you can and keep talking to them…if you need help, there are a lot of resources (I like this one from the CFPB), but please do not hide from the topic—its as important as your big talks about sex and drugs!

Katie:
Your book outlines the dumb things that smart people do with their money. Can you fill us in on your top five?
Jill:
DUMB THING #1 You Buy Financial Products That You Don’t UnderstandMost financial products are boring…or complex. Sometimes fear lurks under the surface and prevents us from asking the right questions. Whether you’re tempted to buy gold, a reverse mortgage or a hedge fund, here are sample questions:

  • Cost
  • How easy is it to access money
  • Tax consequences
  • Cheaper / more expensive options

DUMB THING #5 You Buy a House When You Should Rent:
Not everyone should be a buyer. Consider your situation carefully and run the numbers. Remember, you are not throwing money out the window, rather you are buying flexibility and opportunity

DUMB THING #9 You Saddle Your Kids with Your Own Money Issues
It’s a more loaded topic than sex and it can ricochet down the generations. Try to:

  • Strike a balance – focus on learning
  • Communicate transparently
  • Keep your money problems to yourself
  • Encourage kids to work
  • Be careful not to enable
  • Cultivate fin literacy
  • Nurture appreciation

DUMB THING #10 You Don’t Plan for the Care of Your Aging Parents
Just because it’s a difficult topic, doesn’t mean you can ignore it. Take baby steps and don’t dictate solutions. Make sure that you have real conversations with your folks while they are young enough to make smart decisions.

DUMB THING #12 You Don’t Have a Will
Do you really want to be known as the most stubborn, selfish member of your family? This is the WORST of the 13 Mistakes that I cover in the book! Please see a lawyer and get this done!