The Dumb Things Smart People Do with Their Money Thirteen Ways to Right Your Financial Wrongs - Jill Schlesinger

BOOK LINK:

CLICK HERE

• The book provides accurate and authoritative information on personal finances but does not constitute legal, accounting, or other professional services. Readers should consult professionals for advice specific to their situations.

• The author Jill Schlesinger will not be responsible for any liability, loss, or risks resulting from using the information in the book.

• The book uses some real stories and names have been changed for privacy.

• The book explores 13 common mistakes smart people make with their money, including not buying necessary insurance coverage, taking on too much debt or risk, failing to plan for aging parents or one’s own retirement, and trying to time the market.

• One example story is about a man named Randy who started his own business after working at a bank but declined to buy disability insurance, thinking he wouldn’t need it. He was later diagnosed with multiple sclerosis and could no longer earn a high income, depleting his savings much faster than if he had the insurance.

• The book aims to help readers avoid costly financial errors even intelligent people sometimes make through sharing these cautionary tales and insights.

This passage discusses common financial mistakes even intelligent people make and how emotions can cloud rational decision making. It provides examples of two men, Ben and Tobias, who worked at the same company. Ben diversified his retirement portfolio on the advisor’s recommendation, while Tobias refused due to confidence in his company’s stock continuing to rise. When the tech bubble burst, Tobias lost nearly $1 million from not diversifying, while Ben’s portfolio was protected. The passage argues emotions like fear, greed, and biases often lead smart people astray in their financial decisions, costing them significant money and opportunities. The advisor has seen many examples of this over decades of financial advising.

• The passage discusses common financial mistakes that intelligent people make that could cost them tens or hundreds of thousands of dollars.

• The first mistake discussed is buying financial products like annuities, gold, reverse mortgages, or hedge funds without fully understanding them. Complex products may have hidden fees that eat away at returns over time.

• An example is given of someone moving their retirement savings into an expensive variable annuity when they didn’t need its tax benefits, costing them $14k in fees.

• Gold is discussed as another misunderstood product. While it sounds like a safe haven, historically it has been volatile and not always protected assets during market instability. Better options exist like inflation-protected bonds.

• The key takeaway is to avoid buying any financial product you don’t fully understand. Asking questions of advisers is emphasized to avoid costly mistakes from lack of understanding of products and their true risks/costs.

• The passage discusses why owning physical gold is usually a bad investment option compared to gold ETFs or gold mining stocks, which are easier to sell.

• It cautions against reverse mortgages due to high fees, predatory practices by some lenders, and not understanding the complex terms which could lead to heirs losing the home. Doing thorough research and planning is recommended before getting a reverse mortgage.

• Hedge funds are portrayed negatively - only 10% outperform the market long-term, they charge high fees, and investors can’t easily withdraw their money when they want to. An anecdote is provided of someone who lost 2/3 of their investment in a hedge fund during the 2008 crisis because they couldn’t access their funds. Mutual funds are recommended instead.

In summary, the passage advises against physically owning gold, reverse mortgages without thorough planning, and hedge funds due to high fees and lack of consistent outperformance of regular investment options. Research and understanding complex products is emphasized before investing.

• A hedge fund portfolio managed by Protégé Partners delivered a return of only 2.2% annually over 10 years, much worse than the S&P 500’s return of 7.1% annually.

• The hedge fund portfolio was part of a bet between Protégé Partners founder Joel Greenblatt and financial journalist Rob Arnott.

• At the end of 2017 when the bet concluded, the hedge fund portfolio had underperformed the market significantly.

• The $1 million proceeds from the bet was donated to Girls Inc. of Omaha, Nebraska, the designated charity that would receive the money.

So in summary, a high-profile hedge fund badly underperformed the market in a decade-long bet, and the charity Girls Inc. of Omaha received the $1 million proceeds.

• Many smart people take financial advice from people whose primary goal is to sell them a product that earns the advisor a commission, rather than provide unbiased advice in the customer’s best interest.

• An example is provided of a doctor who was advised by his financial adviser to purchase a 529 college savings plan from Rhode Island rather than New York, where the advisor earned a commission. The New York plan would have provided better tax benefits for the doctor.

• Another example is given of friends who purchased an expensive whole life insurance policy on the advice of a childhood friend of the wife, even though cheaper term life insurance would have met their needs. The advisor earned an 80% commission on the more expensive policy.

• The lesson is that people should be wary of taking advice from those who have a financial incentive to sell specific products, rather than providing objective advice. Customers need to understand whether their advisor is required to put the customer’s interests first.

Here is a summary of the key points regarding fiduciary responsibility in financial advice:

• Not all financial advisers are fiduciaries - they are only legally obligated to provide “suitable” advice that may not be in the client’s best interests. True fiduciaries must put the client’s interests first.

• During the 1980s-90s, informal standards of putting clients first eroded as firms faced more pressure to sell their own products. This highlighted the need for a legally mandated fiduciary standard.

• The Obama administration proposed rules requiring all retirement account advisers to be fiduciaries, but the financial industry lobbied heavily against it due to the compliance costs.

• Even smart investors often don’t understand whether their adviser is a fiduciary or not. They wrongly assume advisers are legally required to act in their best interest.

• The key things clients should ask advisers include: Are you legally obliged to act as a fiduciary? What certifications do you hold (CFP, CFA indicate fiduciary status)? Have you ever been sanctioned? How do you get paid - commissions could mean conflicts of interest.

• True fiduciary advisers who prioritize clients’ interests through fee-only or commission-free models provide the highest level of protection for investors.

So in summary, it’s important for investors to understand whether their adviser is legally bound to put clients first, or simply obliged to provide “suitable” advice that may benefit the adviser more. Fiduciary duty provides the strongest safeguards.

• The passage discusses when it may or may not be necessary to seek professional financial advice.

• It outlines three criteria that most people should address on their own before seeking professional help: paying down consumer debt, maximizing retirement contributions, establishing an emergency fund.

• It provides examples of friends who made poor financial decisions by not seeking advice in complex situations like tax issues or withdrawals from retirement accounts.

• While some people want hand-holding on spending control, most can address that on their own by tracking purchases and saying no.

• Seeking advice is worthwhile for complex, unusual situations like inheritance, employment negotiations, creditors/foreclosure.

• Even if the three criteria are met, consider advice if managing money strains relationships or feels like too much work.

• Warning signs that advice may be worthwhile include getting large tax refunds every year (leaving potential earnings on the table unnecessarily) or not having an accurate handle on expenses and net worth.

So in summary, the passage discusses when DIY financial management may or may not be sufficient, using examples and outlining criteria to help determine when professional help is advisable.

• The passage discusses how excessive obsession over money and making it more important than it really is can actually lead to unhappiness and poor financial decisions.

• Research has found that individuals report feeling happiest when earning between $60,000-75,000 annually and feeling best about their lives overall around $95,000. Money becomes less important beyond providing for basic needs.

• When people overvalue money, they start comparing themselves to others, feel they never have enough, become attached to their lifestyle, worry about losing what they have, and may work excessively to earn more while neglecting relationships and life. Clients have reported feeling wealthier with less money.

• Obsessively overvaluing money can lead people to behave irrationally in financial situations, like one client who spent months meticulously researching retirement plans but already knew the right answer, being too fearful of not having enough. Excessive focus on money beyond basic needs often backfires.

• Jim wanted to retire with his savings but felt anxious about investing it due to fear of making the wrong investment decisions. As a result, he did nothing for two extra years, missing out on investment returns.

• One woman held onto a stock too long due to fear of taxes if she sold, and ended up losing hundreds of thousands when the stock declined in value.

• Another woman took out an adjustable rate mortgage to save on payments but didn’t refinance when rates went up, forcing her to sell her home for $200k less than its value earlier.

• Unhealthy attachments to money can cause paralysis and poor financial decisions due to fear, anxiety, need for control, or past trauma. Traumas from childhood like parental behaviors or financial struggles can shape views of money.

• Sudden wealth gains can also lead some to become misers while others spend excessively to cope with identity changes or fill voids from their prior circumstances. Psychological disorders can exacerbate money obsessiveness due to using it as a manifestation of underlying issues like anxiety.

The key message is that when money is overvalued due to various psychological or life experiences, it can prevent optimal financial behaviors and decisions due to resulting fears, anxieties or need for control/security. This highlights the complex emotional underpinnings of how people relate to money.

• The passage describes how even people with good financial situations can become overly anxious and preoccupied with their money. Engineers at a radio studio are constantly checking retirement accounts and funds.

• Experts say money provides diminishing returns for happiness past a certain income level. Wealthy patients can develop anxiety-like symptoms from their financial worries. One woman was unwilling to share her wealth with her children due to numerous financial fears.

• Research shows uncertainty is very stressful. In one experiment, participants felt most stressed when there was a 50% chance of receiving an electric shock, rather than 100% certainty or very low likelihood. Financial lives involve much uncertainty, fueling excessive worries.

• Relationship issues can exacerbate money anxieties. One client secretly gave his son $125k without telling his wife, saying she wouldn’t have approved. Rebuilding trust took years of effort.

• Signs of being too preoccupied with money include keeping financial secrets, losing sleep over money, perfectionism around finances, constantly comparing oneself to others financially, and changing financial goals. Self-awareness is needed to address unhealthy money attitudes.

Here is a summary of the key points in the passage:

• The passage warns that being overly attached to money and focused on it can have huge costs beyond just financial losses. It can drain your life of joy, harm relationships, and damage your health through stress.

• It describes the story of a client who missed out on huge investment gains because he was too risk-averse and obsessed with avoiding any losses. This cost him hundreds of thousands over many years.

• It advises taking steps to address an unhealthy relationship with money, like making a financial plan, taking small actions first, being self-aware but also holding yourself accountable, exploring childhood influences, and seeking help from others if needed.

• It discusses the story of a business owner named Joanne who was very successful but also hyper-focused on money and clawing every penny. This damaged her business relationships and employee retention over time.

• The overall message is that having enough money for your needs is better than obsessively chasing more, as that can seriously detract from life quality and relationships in the long run. Being balanced about money is key to lasting happiness.

Here is a summary of the key points made in the passage:

• Taking on too much student loan debt can severely limit people’s financial and lifestyle options after college. It can force them to live with parents longer, delay home buying, start families, retire later, and even accept unwanted job offers just to pay off loans.

• Student loan debt in the US totals over $1.4 trillion, with 40% of borrowers behind or defaulting on payments. Average debt per borrower has risen 62% in the last decade to almost $35,000.

• Excessive debt stresses leads some to avoid desirable career or investment opportunities. Others must work multiple jobs to make payments or settle for jobs they dislike just to pay loans.

• While college degrees generally provide income and employment benefits, rising education costs have reduced the overall value of degrees if taken on at inflated prices.

• People often assume any degree is worth any price, but too much debt closes off the opportunities they seek. Students and parents need to carefully consider degree ROI and affordability based on intended career instead of assuming all degrees are automatically worth the cost.

• The passage describes two examples of people who went to expensive private colleges and racked up significant student loan debt without clear benefit.

• Kelly graduated with $70k in debt from St. Michael’s College but struggled to find a job in her field. She ended up moving back home and only got a job through her father’s connections, which likely could have happened if she went to the more affordable URI.

• Vince went to an expensive law school at Cornell but then started a business instead of practicing law. The law degree cost him $250k plus lost earnings, for essentially no benefit.

• The passage argues smart families don’t think through higher education decisions carefully enough and overestimate the value of private/name brand schools. Work experience and skills matter more than school name for jobs.

• Parents often don’t have an honest conversation with kids about affordability limits, wanting their children to have the same privileges but not realizing tuition has far outpaced inflation. This leads kids to take on unnecessary debt.

So in summary, the passage cautions against excessive and unnecessary student loan debt by analyzing examples where expensive private schools did not provide clear career benefits to outweigh the costs. It urges families to think more carefully about options and have open conversations on affordability.

• Gail financed 3 children’s college educations, taking out loans for her son and younger daughter.

• Her income declined unexpectedly during her son and younger daughter’s college years, due to changes in her career.

• To make up the difference, she took out $50,000 from her retirement savings to pay off her son’s loans.

• Her younger daughter accumulated $105,000 in debt for college.

• Gail later had to cut her spending further and move to a lower cost area after another pay cut. She was forced to work longer than planned with a smaller retirement income.

• The author argues parents should fully fund their own retirement before paying for children’s college, to avoid financial precarity in older age. Prioritizing retirement allows parents to help children affordably through options like state schools or smaller loans.

Here are the key points from the passage:

• Judy and Don decided to be upfront with their kids about how much they could realistically contribute to college costs. Their daughter ended up getting a merit scholarship to attend a private college. Their son attended a public university.

• Judy and Don were open to considering alternative options to fully paying for private college. They adjusted their expectations and saved hundreds of thousands more for retirement as a result.

• The passage advocates for treating college decisions as financial/business decisions, not purely emotional ones. It recommends thoroughly researching options like state grants, institutional scholarships, 529 plans, etc.

• Lower-cost public colleges may offer equally good or even superior programs to expensive private schools. Out-of-state tuition could still be significantly cheaper.

• Students should negotiate scholarships and grants, not be afraid to leverage other offers. This can save tens of thousands in costs.

• Taking on debt less than expected starting salary is a good guideline. Getting debt organized and prioritizing highest interest loans helps repayment. Parents can help kids navigate repayment process.

• Having honest conversations about college costs and ambitions early can help families make smarter choices to benefit retirement savings and student outcomes.

• The passage advises parents to be honest with themselves about their child’s academic abilities and interests early on, to avoid wasting tens of thousands of dollars on tuition at a school that may not be a good fit.

• It suggests letting children experiment at a cheaper local school first before committing to an expensive private university, to determine what they really want to study.

• The story of Jocelyn illustrates how being upfront about financial limits can motivate a student to work harder and get creative about finding scholarships/funding to attend their dream school. By accepting college funding realities, Jocelyn became more focused and determined.

• In general, facing limits promotes personal growth through greater discipline, appreciation, financial maturity and responsibility. Students often gain hidden benefits from not having college “handed to them.”

• Making wise college funding decisions also helps people make better financial choices later in life around home buying, investing, retirement planning by avoiding emotional decisions and conventional wisdom.

So in summary, the passage advocates honest assessment of abilities/interests and financial limits for college to avoid debt while still cultivating student motivation and life skills through personal responsibility.

• The author argues that people often make poor real estate decisions due to optimism bias - believing that negative outcomes like a market crash won’t happen to them.

• An opera singer bought a home shortly after getting married, then had to sell when she got a new job in NYC. She lost money on closing costs.

• Yet the singer wanted to immediately buy property in expensive NYC, thinking her “dream job” was permanent. The author advised renting first to see if the job worked out.

• Real estate has a strong psychological pull on people due to beliefs promoted since the 1950s that homeownership is key to stability and wealth. But the author is skeptical of these claims.

• Every month spent paying a large mortgage could be money going to other goals, like retirement savings. The future is uncertain, so renting provides more flexibility than buying based on optimistic assumptions about the housing market and one’s own career trajectory. Caution is advised when making real estate decisions.

• Retirement housing prices being 20% lower than anticipated could be beneficial, but there are risks to consider. Many have prioritized home ownership over retirement savings, leaving them unprepared now.

• Renting out investment properties seems attractive but can be a major hassle with tenant issues, maintenance costs, and losing money when factors like time and stress are considered.

• Homeownership itself has downsides like unexpected repair costs that many underestimate. It’s difficult to time the real estate market and profit from price fluctuations.

• When considering a home purchase, focus on paying off debt, maxing retirement savings, and having a solid emergency fund rather than just aiming for total housing costs under 30% of income as a guideline. Doing thorough financial analysis is important to avoid being house poor or underwater on a mortgage later.

• Jerome and Sandy, a retired couple living in New York, had the opportunity to buy their apartment for below market value as their building was converting to a co-op.

• They had $1 million in retirement savings and were considering using some of that as a down payment. However, their financial advisor told them the smart choice was to continue renting and not use any of their savings for a down payment.

• Even though rent was increasing, renting was still cheaper than owning once you factored in maintenance costs, property taxes, etc. Owning would also tie up their savings and leave less of a financial cushion.

• The advisor pointed out that keeping their $1 million in savings intact was the real “asset” they could pass on to their kids, not the apartment. Jerome and Sandy agreed and decided to keep renting rather than buy.

• The passage goes on to discuss how renting can provide flexibility and financial security in retirement compared to owning, using an anecdote about a friend who happily chooses to rent after his divorce.

So in summary, the advisor convinces the couple not to use their retirement savings to buy their apartment, as renting remained the more financially prudent choice given their situation and goals. Keeping their savings intact was viewed as a better asset than owning the apartment.

• Recency bias is a cognitive bias where people give too much weight to recent events and assume they will continue in the future. This distorts one’s perception of risk.

• As cavemen, our brains evolved to have shorter time horizons of 30-40 years, not understanding concepts like compound interest that unfold over decades.

• Recency bias leads people to make poor investment decisions by choosing last year’s best performing funds, ignoring that past returns don’t predict future performance. It also causes people to avoid necessary precautions like flu shots or insurance.

• Both excessive risk-taking and excessive fearfulness can stem from recency bias. Some investors miss out on stock market gains after the 2008 crisis due to fearing another crash.

• A passive investment approach where you stick to a long-term plan is better than reacting emotionally to short-term gains or losses due to recency bias when managing investments actively. This cognitive bias often causes investors to make the wrong moves.

Here are the key points from the passage:

• Many people take on more investment risk than they can psychologically handle, leading them to make poor decisions when markets decline. They overestimate their ability to tolerate risk.

• People also take excessive risks to keep up with peers or feel inadequate compared to what others have achieved financially. This “keeping up with the Joneses” mentality can lead to risky gambles.

• The passage outlines a 5-step system for minimizing investment decisions and avoiding cognitive biases:

1. Pay off debt, build an emergency fund, max out retirement savings first before investing.

2. Create a comprehensive financial plan with realistic goals based on expected future income and risk tolerance.

3. Determine an appropriate asset allocation across major asset classes based on risk needs and time horizon.

4. Invest accordingly using low-cost, diversified funds rather than trying to pick individual stocks.

5. Rebalance periodically to maintain the target asset allocation over time.

The key idea is developing a disciplined, long-term approach focused on one’s own goals rather than reacting to peers or short-term market fluctuations. Minimizing active decisions reduces the influence of cognitive and emotional biases.

Here is a summary of the key points about failing to protect one’s identity:

• Identity theft is a serious problem that costs billions each year in losses as criminals file fraudulent tax returns and change bank account info to steal refunds.

• Even smart people often ignore threats of identity theft by reusing passwords, not checking credit reports for fraud, using unsecured Wi-Fi networks, and clicking suspicious links.

• The author’s father likely had his identity stolen after unwittingly clicking a phishing link and divulging his Social Security number. Fraudsters then filed a bogus tax return in his name.

• Simple steps like using strong, unique passwords, two-factor authentication, checking credit regularly, and avoiding risky online behaviors can help prevent identity theft. However, many people do not take these basic precautions even after major data breaches.

The key message is that identity theft is a real threat, but it can often be avoided through good digital security habits that most people fail to consistently practice. Not protecting one’s identity and data carefully leaves one vulnerable to fraud.

• Identity theft is a serious problem that can have significant financial and emotional costs for victims. It can take years to resolve all the issues caused by identity theft.

• Personal information is vulnerable due to data breaches at companies like Equifax and information being available for criminals to buy on the dark web.

• Even smart, tech-savvy people underestimate the risks of identity theft. The author provides an example of a friend with a PhD whose client’s email was hacked and wired money to fraudulent account details.

• Identity theft is an intangible threat so it’s easy for people to ignore the risks compared to more visible threats like car accidents. Thieves may access information over time from multiple sources before causing major damage.

• There are constantly evolving scams that target personal information, from phone calls to dating sites. It’s hard for people to stay aware of all the risks.

• Companies share personal information in ways consumers may not understand, so data breaches at one company can impact information provided to others for credit reports and other purposes. Vigilance is needed to protect against identity theft.

The passage emphasizes the need to be proactive and skeptical when it comes to protecting personal information from identity theft. It recommends 10 basic steps people can take, such as guarding personal details, using strong and unique passwords, enabling two-factor authentication, checking credit reports annually, and freezing credit.

The overall message is that while technology exposes us to new risks, basic vigilance like these steps can go a long way in reducing vulnerability. The author encourages people not to be lazy about security just because technology promises convenience. Some level of inconvenience or hassle is necessary until systems improve. The passage closes by stressing the importance of taking active precautions rather than passively relying on companies or assuming “it won’t happen to me.” Vigilance is painted as crucial for self-protection.

• Spending too much money on luxuries and travel during the early years of retirement can potentially leave you with little savings later on when you’re older.

• Two examples are provided of people who indulged themselves too much and blew through much of their savings in their 60s: Gloria, who spent on an expensive car and rental and ran out of money in her 70s, and Nate/Leslie, who took expensive trips and saw their annual draw from savings reduced from $100k to $65k.

• Having a large retirement savings, like $2 million, may seem like a lot but you can only safely withdraw 3-3.5% annually, around $60-65k per year. Factors like taxes, inflation mean that amount needs to last for decades.

• Expenses in retirement are often similar to those while working, and healthcare costs rise significantly. So a couple may need closer to $4 million saved to generate the $120k annual income they want, not just the $2 million they have. Indulging early risks running out of money later.

Here is a summary of the key points about the cost of long-term care:

• Long-term care costs can be a major expense in retirement and are often underestimated or not planned for adequately. Things like nursing home or home health care costs are very expensive.

• Downsizing expenses may not save as much as people expect when all the costs are considered - things like capital gains tax on home sale, higher condo fees, moving costs, furnishing a new place all add up.

• Retirement presents many lifestyle changes and losses of structure that can be psychologically difficult to adjust to, potentially leading people to make poor financial decisions to cope.

• It’s important to realistically assess retirement expenses and income needs well in advance through exercises like calculating monthly budgets, Social Security estimates, retirement savings goals. This helps identify any gaps and allows time to improve savings/planning.

• Not facing the numbers can result in regret later if retirement ends up being less affordable than expected due to underestimating costs or overestimating ability to lower expenses through things like downsizing. Early planning is key.

• Social Security is facing challenges as baby boomers retire and relatively fewer people are actively contributing. By 2034, the trust funds will only be able to pay out about 77% of promised benefits unless reforms are made.

• However, the program is unlikely to simply disappear due to political pressure from retired citizens who depend on it. More modest reforms like raising the retirement age, increasing tax contributions, or subjecting more income to taxes are possible outcomes.

• Working longer is an effective way to boost retirement funds and standard of living. Each additional month worked past full retirement age increases Social Security payouts by 8% permanently.

• Many people don’t think concretely enough about how they will spend retirement. Dreaming more about specific goals, activities, hobbies, volunteering opportunities, etc. helps make retirement plans more grounded and prevents boredom or overspending.

• Exploring “gray areas” of partial retirement through consulting, adjunct teaching, or other flex work can provide income and purpose in transitioning to full retirement. Creative solutions that blend work and leisure can enrich retirement.

• The passage discusses how parents sometimes unintentionally saddle their children with their own money issues and emotional baggage related to finances.

• It provides an example of Fernando, an immigrant father from Portugal who worked hard to provide for his family but held onto a “scrappy immigrant spirit” even after finding financial success.

• Fernando continued working weekends and fixing things, and had a difficult time spending money on nice things for himself or his family due to lingering feelings of scarcity from his early immigrant experience.

• He would save receipts from every purchase and scrutinize bills, passing on anxieties about money to his daughter Maria in an emotional and psychological way rather than in a financial way.

• The passage encourages parents to be more thoughtful about how they communicate about financial matters with their kids to avoid burdening them with emotional baggage or therapy bills later in life. It’s important not to saddle kids with one’s own money issues.

• In summary, the passage warns against unconsciously imposing personal financial anxieties and hangups onto one’s children in a way that psychologically impacts them long-term. Parents are advised to reflect carefully on how they discuss money with kids.

• Maria grew up in a household where her father constantly lectured her about money and made her feel guilty for any non-essential spending. This gave Maria unhealthy views about money.

• As a parent herself, Maria overcompensated by indulging and spoiling her own kids, never setting limits on spending. This prevented her kids from becoming independent and self-sufficient as adults.

• Maria’s father likely thought he was teaching solid money values, but his harsh approach backfired by causing neuroses in Maria. Similarly, Maria thought she was helping her kids avoid what she went through, but her permissive approach also backfired.

• The emotions parents attach to money conversations and spending habits can significantly influence how children view and handle money as they grow up, for better or worse. Balance is important in teaching children healthy money lessons and behaviors.

Steven initially worked as an investment banker but hated the job and lifestyle. After a few years, he quit without telling his parents and enrolled in classes to become a certified financial planner. He knew this career path was less prestigious than investment banking but wanted to help people and find meaning in his work.

His parents were unhappy with his decision and saw financial planning as beneath him. They pressured Steven to pursue wealth and status. It took years for Steven to forge a good relationship with his parents again, as their views on money and success differed greatly.

The passage also discusses two examples of how parents’ anxiety around money can negatively impact their children. Chester’s father was an attorney whose variable income caused him constant worry, which rubbed off on his family. As an adult, Chester struggled with money-related anxiety for years. The other example is of a wealthy woman who refused financial support to her children out of various anxieties, which the children perceived as manipulative.

In general, the passage advises parents to be self-aware of how their own money issues and emotions could influence their children. It provides tips for communicating transparently about finances, keeping conversations fact-based rather than emotional, and allowing children to develop independence around money. An overall message is that parental anxieties should not be transferred to children in an unmanaged way.

• Give kids a general sense of your financial circumstances in age-appropriate terms and emphasize that money isn’t the most important thing in life.

• Discuss your own financial mistakes to humanize yourself and inspire kids to make better choices. Remain balanced and avoid negative emotions.

• While transparency is good, don’t unload your current money problems onto kids. Seek help if overly burdened.

• Encourage kids to work part-time jobs to learn the value of money.

• Carefully balance helping kids financially with allowing them responsibility over their own finances.

• Cultivate financial literacy from a young age by introducing concepts like coins/values, saving, budgeting, debt, credit reports, etc.

• Nurture gratitude in kids by focusing on what the family has, not lacks, compared to others. Discuss deeper meaning beyond money.

The key message is to discuss money matters thoughtfully, avoid oversharing negative emotions, and communicate that money is a means not an end while cultivating healthy attitudes like responsibility, literacy and gratitude.

• The author advises planning for the care of aging parents, as it can be emotionally and financially difficult if handled reactively instead of proactively.

• Failing to plan can lead to expensive, unanticipated costs for things like nursing homes, home health aides, medical bills not covered by insurance, and other eldercare expenses that increase greatly over time.

• Planning ahead allows families to better understand the care options and costs, adjust emotionally, and take a proactive approach rather than feeling overwhelmed when problems arise.

• Two examples are given of families who struggled financially and emotionally because they did not properly plan and communicate about eldercare needs and desires in advance. Planning may not solve all problems but helps provide a sense of control over an unpredictable situation.

• Gina and her siblings had to financially support their mother in old age due to the high cost of nursing care. Advance planning could have helped by investigating long-term care insurance, which many families cannot afford or is not available. They could have also planned for their mother to spend down her assets on a nursing home with the siblings sharing costs after.

• Planning is important to avoid unequal caregiving burdens falling on one sibling, which can cause resentment. Siblings need open communication about their parents’ future care plans.

• Not planning can have financial consequences like unexpected costs that sacrifices siblings’ savings. Planning allows everyone time to prepare financially.

• Four common financial mistakes families make when aging parents do not plan include: (1) putting the family home in a child’s name to qualify for Medicaid, but this saddles the child with high capital gains taxes later; (2) not discussing health care directives; (3) spending down assets without coordination; and (4) depleting retirement funds without a backup plan. Open communication and advance planning can prevent these issues.

• Parents transferring property title to children without telling them can result in unexpected tax surprises down the line when the property is eventually sold. It’s better to have an open discussion about planning.

• Many retirees don’t have enough liquid assets relative to illiquid assets like real estate. This couple had to sell their vacation property when the husband passed due to lack of liquidity. Advance planning could have avoided this outcome.

• Giving too much money to children each year from liquid retirement assets can deplete those funds too quickly, potentially leaving parents without enough later in retirement.

• Retiring too early significantly reduces retirement funds and standard of living. Working 4-8 years longer can boost funds substantially. Parents’ retirement plans and savings need to be carefully assessed.

• Starting aging discussions early allows time to plan for different phases of retirement. Go slowly, don’t dictate, accommodate parents’ desires when reasonable, and cover financial, living situation, and care responsibilities with siblings.

• Getting organized is important when devising a care plan for aging parents. Put the care schedule in writing so everyone understands their responsibilities. Designate someone to manage the ongoing process. Hire help if needed to fill gaps.

• Creative solutions may be required if siblings live far apart or have different capacities to provide care. One option described was for parents to live with a sibling in exchange for receiving the proceeds from selling their home.

• Bringing in an impartial third party mediator like a financial planner can help if siblings cannot agree on a care plan themselves to avoid potential conflicts and lawsuits later on.

• Having difficult conversations upfront and reaching a mutually acceptable arrangement is important to ensure appropriate care and avoid damaging family relationships long-term. Being flexible and creative in problem-solving is key.

• Many smart, educated people neglect or misunderstand insurance despite its importance. Insurance products are complex and boring, and we don’t like to think about potential negative events.

• Insurance policies have dense legal language and layers of fees, making it difficult to understand pricing and coverage. There is no way to directly compare policies.

• The author shares an example of a friend who neglected flood insurance and suffered financial difficulties after a flood damaged his home. He was forced to downgrade his retirement plans.

• While buying certain insurance seems obvious now, people routinely fail to properly insure against many risks like disability or long-term care. Underinsurance is also common.

• The author actually loves the concept of insurance - that it allows societies to collectively bear risks that could be financially devastating for individuals. For modest premiums, insurance protects against high-impact but unlikely events.

• The key danger zones are underestimating life insurance needs, neglecting disability or long-term care coverage, having inadequate property/casualty coverage, and not reviewing policies periodically for changes in needs. Taking insurance seriously can provide valuable protection.

• Life insurance is important not just for the primary income earner, but also for stay-at-home spouses. Losing a spouse who cares for home/children would require significant costs to replace that labor.

• Permanent life insurance has benefits like tax-deferred savings growth, but it is usually more expensive than term life insurance due to high fees. Term life is adequate for most needs if premium savings are invested elsewhere.

• Permanent insurance may make sense for very long-term needs like funding a special needs child or estate taxes.

• Insurance needs change over time as life circumstances change, like marriage, children, home improvements, jobs etc. It’s important to periodically review coverage and update as needed. Don’t let insurance policies get outdated from life changes.

• Shopping insurance every few years is wise, as rates and available policies change over time. Maintaining adequate, up-to-date coverage tailored to one’s needs provides financial protection.

• The passage discusses falling to take full advantage of employee benefits, like life insurance policies provided by employers that may provide coverage worth multiple times annual salary. It recommends purchasing additional coverage if available from employers as it could cost less than private coverage.

• It also notes to be careful not relying solely on employer coverage as jobs change frequently and new employers may not provide the same benefits.

• Finding an insurance agent to help get competitive quotes takes just a few clicks online. It’s better to find a good agent referred by an adviser, CPA or attorney who understands your specific needs.

• To shop around, it takes just a few clicks to get competing insurance quotes online. But getting help from a fiduciary adviser and good insurance agent referred by trusted professionals can provide better protection tailored to your needs.

So in summary, it emphasizes fully utilizing benefits from employers like life insurance, but also not relying solely on employer coverage long-term. And while online quotes are easy to get, getting recommendations and help from financial professionals leads to better tailored protection.

• The passage describes a woman named Eileen whose husband Jim died without having written a will. When Eileen searched for the will after Jim’s death, she couldn’t find one.

• Eileen struggled through the grieving process and also had to deal with financial difficulties because without a will, she couldn’t access Jim’s accounts to pay funeral expenses or other debts.

• Going through probate without a will was a long and expensive process for Eileen, costing her tens of thousands in legal fees.

• The author argues strongly that everyone should have a will, even young people or those without significant assets. Dying without a will can disadvantage loved ones and cause legal and financial problems.

• Failing to plan one’s estate is seen as selfish and irresponsible by the author, who wants to guilt readers into taking action to write a will. The passage emphasizes that anyone living should have a will in place.

• Charles is 48 years old and became a widower 17 years ago when his wife died of an aneurysm. He and his wife had no money or will at the time.

• Charles built a successful career and now has $2 million in assets. He has been dating Diana for 3 years. His kids dislike Diana.

• Charles is diagnosed with bladder cancer. Diana quits her job to care for him over 2.5 years as he undergoes treatments. His health improves.

• Charles never updated his will. When he suddenly passes away during a business trip, his old will leaves everything to his kids.

• Diana is kicked out of the condo she shared with Charles. She sues but loses after 4 years of litigation, receiving nothing. The kids lose $250k fighting the suit.

• The story highlights the importance of estate planning and updating wills/documents as life changes occur. Not doing so can leave loved ones vulnerable and lead to conflict and unintended consequences.

• Key documents for estate planning include: will, letter of instruction, power of attorney, health care proxy, trusts (often used for estates over certain thresholds). Planning avoids problems and ensures wishes are carried out.

• Some states like Massachusetts have lower estate/death taxes than the federal level. State estate taxes are not impacted by changes to federal law.

• A trust can allow heirs to access inheritance more quickly than going through probate, as trust assets do not need to go through the probate process.

• It is important to plan your estate with an attorney, including deciding who inherits assets, establishing any trusts needed, naming an executor and guardian, and documenting end-of-life healthcare preferences like a do-not-resuscitate order.

• Estate planning requires considering tax implications, how to treat heirs equally or not, and communicating plans to your heirs.

• It is helpful to plan small aspects of your passing like wishes for a funeral and compiling important financial documents for heirs.

• Starting estate planning conversations with elderly parents can be difficult but focusing on isolated issues and using others’ examples can help start the discussion. Leaving it alone may be best if they refuse to engage.

• Knowing a father’s full estate plans and end-of-life wishes through open communication made deciding to cease aggressive medical care less difficult for his family during his final days.

• The author describes trying to time the market in the early 2000s after the dot-com bubble burst. They successfully sold tech stocks at the peak but then waited too long to buy back in, missing out on profits as the market recovered in 2003.

• Market timing, or trying to predict exactly when to get in and out of the market, rarely works. Even experts fail more often than not because markets are unpredictable and no one can avoid all downturns while capturing all upturns.

• Smart people are particularly prone to thinking they can outsmart the market due to overconfidence in their own intelligence. But no individual is smarter than the market itself.

• The author advocates a passive, diversified investing approach over market timing. This involves maintaining a balanced portfolio tailored to one’s goals and risk tolerance, and rebalancing annually to maintain the desired risk level. This approach aims for steady long-term growth without trying to precisely time short-term movements.

• Smart people have trouble acknowledging their own failed market timing behaviors. The author gives an example of a colleague who refused to sell appreciated company stock, locking in an emotional rather than financial decision. Overconfidence punishes investors who think they can beat the market.

• The passage discusses how many people try to time the market by buying or selling investments at opportune moments, based on their predictions of where prices will go. However, no one can reliably predict the market.

• It gives examples of people refusing to sell investments that had grown significantly in value because they predicted even more growth, only to see prices drop substantially later on.

• Even intelligent, successful people fall prey to seeing their past successes as evidence of skill rather than luck, and keep trying to time the market.

• Many who acknowledge they can’t time the market themselves try to hand their money to “experts” like friends or mutual fund managers to do it. But these people and funds are also not reliably able to beat the market through timing.

• Passive index funds that mimic broad market indices tend to outperform actively managed funds over the long run, after fees. The passage recommends passive investing over attempts to time the market or relying on others claimed expertise to do so.

• In the 1970s, investment manager Charles Ellis began noticing that financial information was being incorporated into stock prices much more quickly, undermining the ability of professional managers to beat the market.

• In 1975, Ellis wrote an article arguing that the premise that professional managers can outperform the market appears to be false. That same year, Vanguard launched the first index fund, making passive investing more accessible.

• Today, financial information spreads globally in seconds via the internet and social media. It is difficult for professional managers to gain an edge through research.

• Passive index fund investing is generally the wisest approach. Investors should decide on goals, risk tolerance, and allocate investments across asset classes using low-cost index funds. Rebalancing regularly forces investors to buy low and sell high over the long run.

• Even large professional investors and Nobel laureates like Warren Buffett favor low-cost index funds for their own savings. Trying to pick the few managers who can outperform is very difficult. With discipline and patience, index fund investing works well for most people.

• The key is controlling oneself, not trying to control the market. By understanding limitations and biases, and following a simple plan with discipline, individuals can take control of their own financial destinies through passive investing.

The passage recommends regularly reviewing your personal finances and protecting yourself from potential pitfalls. It suggests checking in quarterly to review investments, change passwords, and rebalance retirement accounts if done manually.

Annually, it advises reviewing investments and risks, performing a tax audit, securing your identity, and checking on plans for children’s college education. Every three years, it recommends examining homeowner/life insurance policies and updating estate plans.

It also mentions reflecting on unexpected spending to get back on track. Be cautious of flashy financial products and don’t deviate from long-term investing plans. Also consider talking to aging parents about any changes affecting their finances you may need to assist with.

In summary, the passage emphasizes the importance of routinely monitoring your finances, investments, insurance coverage, taxes, and plans - while avoiding reactionary or risky decisions - to stay on track with your long-term goals.

Here are summaries of the key articles:

7. Reported that a Whole Foods store in Brentwood, California was selling asparagus-infused water for $6 per bottle.

8. Discussed a study by the National Association of Colleges and Employers on the key attributes employers seek on students’ resumes, such as communication skills, teamwork, problem-solving, etc.

9. Referenced a report by Age Wave on challenges and solutions related to finances in retirement, such as rising healthcare costs, longer lifespans, role of family caregiving, etc.

10-11. Summarized reports by the Consumer Financial Protection Bureau on older consumers and student loan debt, including state-by-state data and statistics.

12. Referenced Tony Kushner’s play Angels in America: A Gay Fantasia on National Themes, Part 2, “Perestroika.”

13. Summarized a podcast interview discussing financial aid and student loans.

14. Referenced the author’s previous blog post on how to pay for college.

15. Referenced college rankings published by Time magazine.

The other references covered topics like 401(k) failures, vaccine hesitancy, investment biases, retirement savings by age, health care costs in retirement, teaching kids about money, long term care costs, wills, and planning for incapacity.

Here is a summary of the key points from the articles:

• Estate planning involves managing assets and financial accounts for aging parents while also supporting your own children’s needs. It requires balancing responsibilities and juggling many moving parts.

• Having open conversations about estate planning with parents can help ease the process when settling an estate after their passing. Discussing wishes, financial accounts, documents like wills and powers of attorney is important.

• Estate taxes must also be considered depending on the value of assets being passed down. Most estates do not actually have to pay federal estate taxes due to current exemption amounts that phase out taxes on the first $11.7 million for individuals or $23.4 million for couples.

• The author recommends having estate planning conversations sooner rather than later to help smooth the transition and uphold your parents’ wishes after they’re gone. Early preparation can reduce struggles and conflict between family members down the road.

• Reflecting on balancing responsibilities to aging parents and children seeking financial help underscores the importance of open communication and planning ahead regarding estate matters.