Trenchant Research on How Birth Order Affects the Way You Spend Money

Thanks to Brown and Grable by way of Horkey for this description of how birth order affects the way we spend money.

Was blind, but now I see. By “trenchant” I mean amazingly facile.

First born. My oldest brother. The best editor I’ve ever had:

The oldest child in the family tends to be mature, confident and, more often than not, a perfectionist. As a result of the responsibilities and expectations placed on them by parents at an early age, older siblings are well organized and generally in control of their lives.

‘Firstborns handle money differently. I see a pattern in a lot of people that I know. They are viciously protective of making sure bills are paid on time and living within their means, which includes building savings and investments.’

Middle child(ren). My sissy and older brother. The best middle siblings I’ve ever had:

“While the oldest child is often given the lion’s share of attention from parents, and the youngest can typically do no wrong, the middle child might feel lost in the shuffle.

Middle children are resigned to the fact that someone is always both ahead of and behind them in terms of familial structure. As a result, they are often found to be naturally gifted problem solvers with excellent negotiation skills. And when it comes to financial habits, the middle child is a born saver, with nearly 65 percent of the group contributing money to their savings accounts each month.'”

The youngest. Myself. Such a perfect, little, Idaho potato that my parents immediately decided to procreate no more:

“More often than not, this person is. . . the life of the party.

While the youngest children might seem charming and fun to be around, they also tend to demonstrate bad spending habits and are typically the least financially responsible of their siblings. It doesn’t help that parents have often become more lenient about discipline by the time the second or third child is born.

Parents have a habit of overindulging and spoiling the youngest children in families. Ultimately, this desire to protect the baby of the family can backfire, causing the individual to spend rather than save for a rainy day.”

Thanks to these poignant insights, I’m going to start trying to save more money. All while remaining true to my life of the party, charming, fun to be around self.


All Things Considered–Long Weekend Edition

• How to teach personal finance.

• The power of the pen. The bin Laden papers were going to be released independent of Hersh’s London Review story of ObL’s death. And Hilary Clinton really wants all her emails made public. And Tom Brady’s never done anything wrong. The Obama administration says Hersh’s story is “filled with inaccuracies”. Which is a lot different than saying it’s untrue.

• Best sports presser of the week.

• Warren Buffet, minimalist. “Money has no utility to me anymore as I am very happy with what I have but it has enormous utility to others in the world. More possessions to me would actually be a liability more than an asset.”

The data was faked.

Seven uncomfortable truths about living in Norway.

• Minimum wages compliments of Look out Columbus, Seattle is closing fast.


Sentence That Restores My Faith In “The Public”

From today’s Wall Street Journal.

Investors pulled $12.7 billion from actively managed U.S. stock funds in 2014 through November, and put $244 billion into passive index funds from Vanguard and others, according to Morningstar.

Related factoid:

Vanguard is undercutting many rivals on fees. Investors pay 18 cents for every hundred dollars they invest with Vanguard, compared with $1.24 for the average actively managed mutual fund, Morningstar said. The company also is beating its passive rivals, which charge an average of 77 cents for every hundred dollars.


The 5 Most Important Things You’ll Read All Week

1) Have you noticed? Increasingly, bloggers are inserting numbers into post titles to increase readership and improve search engine rankings. “5” has replaced “3” for most popular number. “17” is trendy too. I don’t know why numbers increase readership and improve search engine rankings. I find it disingenuous at best and insulting at worst. As if all anyone can process anymore is a list. My one-time use of it here is sarcasm. I should start a movement. . . force a number into your title and we’ll refuse to read what follows. Who is in?

2) Imagine a world in which everyone reads and discusses books with people different than them. My favorite story from last week.

3) The Seattle Mariners are the best team in baseball when it comes to this.

4) Is this a trend. . . dad’s helping grown daughters who aren’t necessarily interested in their help? I’ve never offered unsolicited advice to my daughters. . . that’s an additional serving of sarcasm. One of my daughters’ friends laughed at her dad for sending her an article on “How to save and invest money”. Another “couldn’t believe” her dad mailed her bicycle to her at college, then assembled it during a visit. The “extremely large” bike box was difficult and embarrassing to pick up at the mail room. The two wheeler was used one or two times during the school year. This isn’t limited to dad’s and daughters. Parents often presume their young adult children want to save money, invest wisely, prepare healthy meals, bicycle, etc., etc. Maybe I should start a movement where parents let their young adult children know they’re interested in sharing different “lessons learned” if and when they’re interested. And then we’ll sit back and wait for our young adult children to ask us for help.

5) I’m filing this under “Sometimes I Amaze Myself”. I’ve done it again, I’ve come up with a brilliant idea. This one will enable me to extend my triathlon career for many more years. Based upon my swimming, cycling, and running training log, I have a very good feel for how fast I can swim 1500 or 1900 meters, how fast I can ride 40k or 56 miles, and how fast I can run 10k or 13.1 miles. That means all I have to do is guess how bad my transitions would likely be, and presto, I can spend a few minutes on-line on Mondays to see what place I would’ve finished had I actually shown up at that weekend’s races. This way I save tons of coin and race every weekend without swimming through seaweed or increasing my exposure to the sun. I “won” my age group at a few recent races.


Frugality’s Point of Diminishing Returns

Frugal people like me sometimes take bargain hunting too far. We need to be smarter about frugality’s point of diminishing returns.

Writing in the New York Times, Henry Petroski states the obvious—U.S. airports, harbors and highway systems are often poorly designed, built, maintained, and funded.

He adds:

. . . infrastructure can also refer to things on a much smaller scale, like private homes . . . . Thinking about the construction, aging and care of this domestic infrastructure can provide insight into how we as a nation might better respond to our mounting public works problems.

Our 60-year-old home is an example of how infrastructure can be built to stand strong, age gracefully and be almost maintenance-free. The foundation sits firmly on solid granite. From the full basement you can see how the exposed beams, joists and underside of the flooring were made of good wood, built to last.

When I see a commercial building under construction today, I see nothing like this in the materials and workmanship, perhaps because it is simply a function of finance, expected to survive only until it is fully amortized in a company’s budget.

I can see the same decline in quality when I try to do work on our house. When it was built, two-by-fours were actually only an eighth of an inch short of those nominal dimensions. Today, a two-by-four is a full half-inch shy. This sort of thing frustrates carpenters and do-it-yourselfers alike, making old construction more difficult to fix and encouraging tearing down and starting over with inferior newer materials and less skilled labor. What a waste of time, effort and money — and, more important, superior infrastructure.

Why the marked decline in the quality of home building? Petroski argues it’s because “expert craftsmen—carpenters, roofers, painters—who work with precision and pride, are increasingly being pushed out by cheaper labor with inferior skills.”

And then adds:

This is not the fault of homeowners, but of the industries whose practices favor the use of inferior products and labor that drive modern construction: the developers, lenders, builders and realtors who, to make quick money, have created a stock of domestic and commercial infrastructure that is a waste of resources and will not last.

One commenter vehemently disagreed:

“‘This is not the fault of homeowners’. Wrong wrong wrong! I work for homeowners remodeling their homes in San Francisco and environs, and their relentless pursuit of the lowest cost is costing them dearly in the long run. Many do not want to hear that I am licensed, insured & bonded; that I have only full-time long-term employees on whom I pay all required taxes and insurances, and who are respected with medical & retirement benefits; that I pay to have my hazardous waste disposed of legally (rather than pouring it down the toilet); that their toddlers will be in college before they will need my services again; in fact that their toddlers will not be intellectually impaired by improper disturbance of lead-based paint. No, many prefer the fantasy that Yelp is wise, that the China price is obtainable, that my price is merely my opening bid. We here have just built a multi-billion dollar bridge that took a quarter-century, went to the lowest bidder who subbed out major components to China, which is already showing alarming signs of premature senility, and which may not even meet it most elementary function of surviving the next Big One. Some bargain! No, we homeowners, we taxpayers, you & I, us cheapskates, we are at fault.”

In this blame game debate I side with San Francisco. My relentless pursuit of the lowest costs helps create the razor thin profit margins that give rise to all kinds of corner cutting. Us cheapskates are at fault.

This is true with respect to home building and our national infrastructure. Petroski returns to our faltering infrastructure:

We have seen short-term fixes and shoddy workmanship at home, and we see our bridges and roads the same way.

. . . we do not have to be homeowners or highway engineers to know that good materials are better than poor and a job done well from the outset will outlast one done shabbily.

As we debate how to pay for infrastructure, we should also have a discussion about raising expectations for what we’re buying. Homeowners, project managers and legislatures alike must call to account suppliers and contractors who do not produce the quality of materials and work they promise.

Again, Petroski places the blame on “suppliers and contractors” and is silent about my tendency to do everything possible to reduce my tax liability.

Meanwhile, some fellow citizens shout that they are “Taxed enough already!” and mindlessly argue that “the government is so wasteful and incompetent, it must be starved.” Any notion of public goods is lost on them. As is the quality of life of our children’s children.

My politics are different than theirs, but I’m susceptible to the same mindless, short-sighted frugality. Until I adopt a more nuanced, enlightened form of frugality, I’m partly to blame for our deteriorating homes, airports, highways, and harbors.

What People Get Wrong About Financial Literacy

Every spring a friend in North Carolina and I have a NCAA college basketball tournament bet. He takes the teams representing the Atlantic Coast Conference and I get those representing the Pacific-12. If his teams win more games, I send him a t-shirt, if mine win more, I anxiously await my cotton trophy. This year, neither conference did well, but I barely won a stylish long sleeve Guilford College tee*.

We met teaching and playing noon basketball at Guilford College in Greensboro, North Carolina, in the 90s. This year, along with the shirt(s—one for the Good Wife too, and a coffee mug, Christmas in April), he included four copies of recent Guilfordians, the liberal, liberal arts school’s student paper.

Reading them made it seem like time had stood still. Faculty salaries were still the lowest among a large comparison group of peers. Enrollment was down. Faculty morale was flagging. Some well-liked faculty were leaving to the disappointment of students. Students were protesting the administration’s salaries, which had increased markedly, and were at least average among the same comparison group. Tucked in one of the articles was a devastating detail that will make the new president’s job especially difficult. The small Quaker school has $16m in deferred maintenance. They budget $1.8m a year for continuing maintenance, meaning they’re eight years behind. Some students complained about mold in the dorms.

Colleges on the financial edge routinely defer maintenance. “Let’s delay the roof on the science lab another year.” Eventually, the quality of life for students and faculty suffers, and as with mounting credit card debt, the financial challenges multiply and trustees fret they’ll never catch up. Public schools, churches, and city council’s everywhere face the exact same challenge. Can we manage our finite revenue—whether bonds or levees, charitable contributions, or taxes—well enough to maintain our existing buildings, roadways, and parks? If you want to assess the health of a school district, church, or city, find out how much maintenance they have deferred.

We’re fortunate that our Washington State home backs up to beautiful woods that we’ve enjoyed for sixteen years. In the woods there are hiking and running trails, deer, owls, and a path to a nice city park. Now the woods are for sale and three different developers are interested. Many in our community who have organized to save the woods from being turned into another housing development attended the City Council meeting last week to implore the Council to follow through on their own five-year plan for creating more park space.

The organizing committee has done great work thinking creatively about grants and related funding that makes the purchase seem feasible. imgres But the city has been deferring maintenance on our existing parks. One includes a nice boardwalk along the Puget Sound, a walkway so neglected, parts of it will be closed to the public this summer. While sympathetic to our arguments, the city manager and council both regretted that the city can’t afford to purchase and preserve the woods because they’ve deferred far too much maintenance.

It’s human nature to put off saving for future expenses. Just like colleges, school districts, and churches, I do it all the time too. I replace my nicked up bicycle tires after flatting a few times. I get my lawn mower tuned up when it won’t start. I go to the doctor when I’m near death.

I talked to the college senior recently about car ownership. Most twenty-one year olds think exclusively about the purchase price, “If I can just save $5k for that $5k car.” I impressed on her the need for a “cushion” for additional costs like insurance, gas, and regular maintenance including oil changes, the battery, and tires. In an ideal world, she’d also factor in replacement costs, but that’s pie in the sky. Once I broadened her thinking about car ownership, she realized it’s not financially feasible yet.**

Most financial literacy talk is seriously flawed. Everyone overemphasizes technical knowledge. Do you know the “rule of 72”? Do you understand the power of compounding interest? Do you understand asset allocation, mutual funds, investing costs, dollar cost averaging, and taxes impact on your returns?

People think if schools just taught that knowledge all would be well, but it’s not that people don’t know enough about personal finance, it’s that they lack the self-discipline to spend less than they earn. Including legions of college educated people who would pass a personal finance multiple-choice test.

Schools can’t teach young people to defer purchases, to set aside money to adequately maintain and eventually replace possessions, to live within one’s means. The only way to teach anyone the limits of consumerism, to delay gratification, the importance of savings, and how to live within one’s means, is to model it for them over time.

Fortunately, my parents, especially my dad, taught me those habits without ever sitting me down for any sort of money talk. For colleges, churches, cities, and families, “deferred maintenance” means “We’re in the habit of spending more than we have.” Like mounting interest charges, it ties the hands of college administrators, church councils, city councils, and families.

We are extremely fortunate to be able to meet our family’s basic needs each month with some money left over. We can do one of three things with our surplus. 1) Succumb to status anxiety and buy unnecessary luxury items; 2) Keep existential questions about life’s larger purposes at bay through mindless consumerism; or 3) Set some of the surplus aside for anticipated future expenses.

* During graduate school, my friend was a UC Santa Cruz hippie. The UC Santa Cruz mascot is the banana slug. Second Born and I had lunch in downtown Santa Cruz in late January. After lunch we found a must have t-shirt that featured a large banana slug with the caption “SLUG LIFE”. The perfect gift for my next loss. So good in fact we decided I had to send it this year win or lose. He was very grateful and assured us he’ll get a lot of grief for it from his Geezer basketball pals. That, of course, was our hope.

** Odd to me that she’s not more motivated to make it financially feasible. At eighteen, I couldn’t wait to own my own car. So I parked golf carts and picked up range balls for a few years and bought a VW Bug for $1,500. Most gratifying purchase of all time. For the time being at least, in keeping with her peers, she’s perfectly content to bicycle, use public transportation, or, and maybe this is the problem, use her parents spare car.