Baggage

We all have baggage.

We’re used to thinking this in the context of relationships and personal hang-ups. In recent years, there are more people talking about it in the context of money, though I suspect a majority of “serious” finance people dismiss this as snowflakey, touchy-feely nonsense. The dismissiveness is kind of a LOL for me. I’ve met some fancy investor types who carry pretty heavy bags.

Some argue we should handle money with cold, calculating rationality. Here, financial decisions are reduced to straightforward cost/benefit calculations. Financial problems are first and foremost optimization problems. Some quant and engineer types might get close to this “rational ideal.” But most of us don’t even come close.

Like all baggage, financial baggage is rooted in our formative experiences with money. Childhood experiences with money are particularly powerful.

My own baggage came a little late in life. I graduated into the Great Recession. What I took from the experience was a certain baseline level of paranoia, and heightened risk-consciousness. No one is looking out for you. You are expendable.

To paraphrase a wise man: you can operate within the system; you can respect the system (parts of it, anyway); but you should never, ever trust the system.

For the purposes of this post, it doesn’t matter whether this worldview is “correct” or not. What matters is recognizing it colors my attitude toward financial and career decisions. It shapes my priorities. It’s a background process that’s always running on my internal OS. Some people call these background processes “money scripts.” There is a whole taxonomy of money scripts. Maybe this is the “right” taxonomy. Maybe not. It strikes me as at least directionally correct.

What do we “do” about these deeply ingrained scripts?

It is the wrong question. Ultimately, we’re the sum of our scripts.

What is the “right” set of scripts? Does a dog have a Buddha nature? They’re the same question. They have the same “answer.”

Frugality

I saw this screencap making the rounds on Twitter:

The post reminds me of a favorite koan. The Buffalo Koan.

Wuzu Fayan said, “It is like a water buffalo (an ox) that passes through a window. Its head, horns, and four legs all pass through. Why can’t the tail pass through?”

From The Gateless Gate

One commentary on the Buffalo Koan, from Sitting with Koans, goes something like this… it is awful difficult to get a buffalo through a window. It is as difficult as practicing non-dualistic thinking. But what about the tail? The buffalo’s tail should fit through just fine, if the rest of its body has already gone through. How can the tail get stuck? One way of thinking about the tail is as representing our natural dualistic way of thinking. It is easy to fall into the trap of thinking that non-dualistic, “enlightened” thinking is superior to dualistic thinking. Seeing reality in non-dualistic terms is difficult. It is like squeezing the buffalo through a window. But non-dualistic thinking is not superior to dualistic thinking. Thinking of one way of seeing or being as superior to the other is itself just another form of dualism.

So it is with frugality.

Frugality is a useful way of seeing and being. But frugality is not an end unto itself. Managing money well is a useful skill. It gives you options. But which options should you exercise, and when? A meaningful life lies in answering that question. Sooner or later, all the options we’ve accumulated during our lifetimes expire worthless.

My answer to the Reddit poster is to start living. Funny that something so simple can seem so difficult. You’ve got almost all of the buffalo through the window (a 28-year old with $200,000 has a lot of options). It’s only the tail that’s stuck!

This dilemma is a good example of a psychic prison. We are used to thinking of people becoming slaves to addictions and other compulsions. Frugality can likewise degenerate into addiction. In extremis, frugality is no different from any other compulsion. It’s a fear-based response to scarcity. This degenerate form of frugality creates the illusion of control. It’s pseudo-freedom. Another form of selling your soul.

Frugality is a means, not an end unto itself. The pursuit of freedom can become another kind of prison.

Marshmellows

(apparently the correct spelling is “marshmallow.” I’m not going to go back and change it)

There is a famous experiment called “the marshmellow test.” It is a popular point of reference in behavioral finance circles. Here is a summary courtesy of Wikipedia (footnote annotations removed for clarity):

The Stanford marshmallow experiment was a study on delayed gratification in 1972 led by psychologist Walter Mischel, a professor at Stanford University. In this study, a child was offered a choice between one small but immediate reward, or two small rewards if they waited for a period of time. During this time, the researcher left the room for about 15 minutes and then returned. The reward was either a marshmallow or pretzel stick, depending on the child’s preference. In follow-up studies, the researchers found that children who were able to wait longer for the preferred rewards tended to have better life outcomes, as measured by SAT scores, educational attainment, body mass index (BMI), and other life measures.

A replication attempt with a sample from a more diverse population, over 10 times larger than the original study, showed only half the effect of the original study. The replication suggested that economic background, rather than willpower, explained the other half. The predictive power of marshmallow test was challenged in a 2020 study by a team of researchers that included Mischel.

There is quite a bit of worthwhile material here, from both a philosophy of science perspective and a practical perspective. The philosophy of science is (mostly) beyond the scope of this blog. So we’re not going to open that can of worms here. Instead, I’m going focus on the practical angle.

The practical angle is that this study is often referenced in the context of teaching children, and people in general, about delaying gratification. In a financial context: saving instead of spending. Given the results of replication attempts, and variations on the original study, I’d argue the marshmellow test should be regarded more as a parable than anything.

We’re talking about a marshmellow here.

If someone puts a marshmellow in front of you, and you want to eat the marshmellow, then eat the marshmellow. I don’t care if you’re five or fifty-five. The advice stands.

It is difficult for me to adequately convey the supreme irrelevance of the decision to immediately eat a single marshmellow or wait 15 minutes for some incrementally better reward.

Some decisions matter and some don’t. It is easy to focus on decisions that don’t matter. Decisions that don’t matter are easy decisions. They are marshmellows. People sometimes ask me things like: “should I put 1% of my net worth into crypto?” This is another kind of marshmellow. Sure. Go ahead. Whatever makes you happy.

There is a whole genre of marshmellow-centric “latte finance.” Don’t buy that Starbucks Coffee and you will save $1,200 per year. Compound that out over 30 years, blah, blah, blah. There’s something to be said for getting people to think critically about their purchasing decisions. But in terms of long-term impact, a daily coffee habit is dwarfed by decisions like how much house you choose to buy; what car you decide to drive; whether you send your kids to private school; what you can, can’t, will or won’t do to increase your earnings power.

When we get into things like houses, cars and kids we start to get into territory involving deep-seated emotions around values and status. Much of the consumer debt industry in America is built on a deep reluctance to sacrifice status to save money. If anything, the culture encourages the opposite.

This is not an argument for hairshirt frugality. If you want to live a high status lifestyle, you either need to make a whole lot of money or take on a whole lot of debt.

Treat yourself on the coffee. Save your energy for the tough. stuff.

Religion

In a prior post I wrote that money is like religion for a lot of people.

In fact, money IS religion for a lot of people.

We’re all familiar with the concept of conspicuous consumption: consumption as social status marker. We don’t talk as much about conspicuous asceticism: extreme frugality as gateway to financial nirvana. There’s a kind of yin and yang thing happening here. The internet is full of arguments about whether it’s better to increase income or cut spending. These arguments will rage forever, for the same reasons we will always have religious wars. (aside: most modern religious wars have secular optics)

Here is my favorite zen story dealing with personal finance:

A man visited a local monk and said, “my wife is so stingy, she’s making life miserable. Please help.”

The monk visited the wife. First, he held out a closed fist. “What would you say if my hand were always like this?” he asked.

“Your hand is deformed,” the wife replied.

The monk opened his hand so his fingers were outstretched. “And what if my hand were always like this?”

“Deformed,” the wife replied.

“If you understand this then you are a good wife,” he said, and left.

From then on the woman helped her husband spend as well as save.

At its core, this stuff is pretty simple. However, the business of religion and the business of personal finance are a lot like the business of golf instruction. They tend to deliberately overcomplicate things. People want Answers. The more confused people are about what they’re trying to accomplish, and how they might accomplish it, the more money there is to be made selling Answers. Maybe that’s a gap wedge with a diamond dusted face. Maybe it’s healing crystals. Maybe it’s rental real estate.

Don’t get me wrong. I, too, am selling something. I just happen to be selling process.

Ask yourself: am I living the life I want to live right now?

If the answer is Yes, then STOP. You are done! Keep doing what you are doing. Enjoy the journey.

If the answer is No, then ask: what can I do right now to move myself in the direction of the life I want to live?

People will claim they can’t answer these questions. I call bullshit. You’ve thought long and hard about this. We all have. If you think you can’t answer, I’d suggest you just don’t like the answers. Probably because the answers imply you need to endure some material hardship, or confront some deep-seated fear, or acknowledge some personal weakness that threatens your ego.

You can sit on your ass and shell out subscription fees to some grifter and wait for Answers to fall from the sky, or you can get off your ass and do something about it.

Religion can offer real value. But you’re not going to realize that value obsessing over esoteric doctrinal issues.

The value is in the praxis.