How Extreme Money Vigilance Can Impact How You Spend in Retirement

On this episode of The Long View, author and financial psychologist, Dr. Brad Klontz, breaks down where our financial attitudes stem from, how to break from the past, and lessons from his latest book, Start Thinking Rich: 21 Harsh Truths to Take You from Broke to Financial Freedom

Here are a few highlights from Klontz’s conversation with Morningstar’s Christine Benz.

How Extreme Money Vigilance Can Impact How You Spend in Retirement

Christine Benz: I want to delve into money vigilance, because I do think you referenced that wealthier people tend to have that characteristic or have that thought pattern. So, it does appear to be correlated with better financial health, but then people can take it to an extreme. I have to say that I’ve encountered that a fair amount, especially in the retirement realm, where people who have the wherewithal to spend a lot more in retirement really pride themselves on spending much less than they actually could spend. And maybe they have a reason to do that. But can you talk about that, about the extreme parsimoniousness that some people have, and it’s their identity to be an underspender? That can mean that they short shrift their lives and opportunities for giving to their loved ones and so on.

Brad Klontz: Yes. And it is important to take a balanced view. I think I’d have a much larger audience if I just went extreme on it. But as a psychologist, just knowing that an extreme, intense emotional relationship with something is rarely the most healthy relationship.

So, what’s so fascinating is I spent a lot of time trying to make part of the population much more money vigilant. Like, people need to worry more about their future. People need to have a future orientation. The squirrel who’s not worried about starving to death in the winter saves no nuts. The fascinating world of squirrels, by the way, where when they’re hiding nuts, they’ll look around. And if there’s another squirrel within sight, they’ll pretend to hide the nut there and then go hide it somewhere else. They’ve got an entirely evolved way of living through the winter. So, part of it is promoting that you need to think about the future. You need to be concerned about it.

I don’t want to go off on a tangent here, but I’ve got to tell you this. We did a study, where we got people to increase their savings rates by 73% after one hour, one hour of coming up with a real exciting vision of their future financial goals, because we are wired to spend right now. We’re wired to do it all wrong. The only people who are really successful at saving and investing for the future have a very clear and exciting vision of the future. It actually could be a really emotionally intense fear of being poor in the future, too. But the key is that there’s real strong emotions attached to this that override the natural impulse to just spend right now.

Another side note. They’ve done studies on meditation. By the way, I’m a huge fan of meditation. But when it comes to your finances, the more focused you are on the here and now, which is one of the goals of some forms of meditation, the less likely you are to invest for the future. So, it actually harms your future in terms of financial investments and looking toward the future, as well as your investment decisions now. They do studies where the more people meditate now, the more they’re going to respond to a stock market dropping—they’re in the moment. They’re not future-oriented. So, you really do need to have a future orientation if you want to grow your net worth.

However, to your original point, you can definitely take it too far. This is where the psychologist in me comes in, like a straight-up financial advisor, perhaps, who has all the spreadsheets would be like, “Oh, no, no, keep the vigilance going; look at those numbers. They keep growing. Look at that graph.” But I feel like that’s not what it’s all about. The goal isn’t just to have whoever has the most money wins at the end. To me, it’s about quality of life. It’s about using that money in the service of your values. Like what are you on earth to do here? Collect a bunch of money and then die with it? Or what does that money mean for you? Of course, a sense of safety and security. But what about a sense of adventure? What about being able to be with your family and friends?

And one of the tragedies I see are people who are financially successful, but they can never turn it off. I’ve seen, and I’m sure you’ve seen, people who are so vigilant and so anxious, they destroy their relationships. Their kids don’t like them. The studies on workaholism show that their children actually have more negative feelings toward them because they’re not around as much. They neglect their health. They are on their deathbeds with all these unlived experiences that they wish they would have had. And nobody’s sitting there saying, I wish I would have—who’s wealthy—I wish I would have spent more time at work. So, to me, it really is about a balance.

And the challenge is, we think that once you retire, then you’ll do all those things. No, you won’t. This is something you have to practice. So, what I like to teach my kids, and frankly, what I’m trying to teach myself because I am really, really money vigilant. One of my challenges and my own psychology is this fear that there’s not going to be enough. So, what I challenge myself to do, and I’m getting better at it, by the way, is using some money to enjoy my life today. So, once you’ve set aside money for your future, you know you’re executing on those goals, then I think you also need to focus on what can I do to enhance my life today. To me, that’s what financial wellness is. You’re saving for the future and you’re spending today in service of your values.

How the Goal of Financial Freedom Can Help Investors Save

Benz: You referenced getting people to care more about their future selves and getting them to step up their savings rates. Do you think that maybe we do young investors a disservice by focusing disproportionately on retirement, which is a goal so far into the future, you probably don’t identify with your 65-year-old self? Should financial education focus more on nearer-term, shorter-term goals, as well as the thing that’s way, way into the future?

Klontz: So, one of the chapters in my new book, Start Thinking Rich, is called “Retirement is for Dead People.” We have 21 harsh truths in there. And it’s like, oh, that’s a harsh one. Like, what are you talking about? It’s the idea of retirement in and of itself, I think is a terrible financial goal. What do you mean by retirement? Well, I actually looked up what retirement means, and I’ll give you the definition. It means to stop working. Well, of course it does.

But what is the definition of work? Well, work is a mental or physical effort designed for a purpose or to produce a result. I’m just going to suggest to you that if all of a sudden you decide that you will take no more action, mental or physical, to serve a purpose or to achieve a result, that is a terrible, terrible thing for your psychology, you’ll probably slip into a depression. You’ll be isolated, home alone, no friends. So, the idea of, “retirement,” I think, really needs to be examined and reexamined.

One of the reasons that people don’t save for retirement is because there’s no connection to it. It’s like, what does that mean? And what I want people to do is really flesh out, like, what exactly does that mean. Because I’ve seen a lot of people go through that transition and really suffer because they have no vision, exciting vision of retirement. And for many people, you’re taking away with work, and when you stop working, there goes your social connections, there goes your sense of purpose, your motivation, your passion. A lot of that gets baked into a job, even ones we hate. Studies also show, by the way, that people are happier at work than they are on vacation, which nobody believes me when I say that.

But if we asked you, you’d say, “Yeah, I’m definitely happier at vacation. Yeah.” Well, that’s not how the studies go. The studies actually have you rate your happiness throughout the day, and then they go back and figure out were you on vacation or were you at work? It is unstructured free time that is actually really bad for you psychologically. So, I do think we need to have people create exciting visions of what they want next in life. But “retirement” is not a very exciting one. So, I want to know, who are you with, what are you doing?

I actually like financial freedom better, because it suggests that you are free to pursue the things you most want to pursue. I’ve seen a lot of people retire and then go back and get another job because they’re bored and miserable at home. We actually talk about retired husband syndrome, which is an entire syndrome in Japan, that they have treatment programs around, because it’s such a miserable experience. It’s focused on husbands whose entire life is wrapped up in work and now they’re home and making everybody miserable. So, just really thinking through that.

So, I do think it’s important to have intermediary goals, too. So, when we do our studies, we’re encouraging people to have long-term goals and then have some other ones like, is it a house, is it a vacation you want to save for? And then, the key really psychologically, too, is to capitalize on what’s called a status quo bias. So, we had people identify their top goals, name accounts after those goals. So, really attach meaning to those accounts and then automate their saving and investing toward those goals. That’s the psychological hack to really focus on achieving those goals. Because with the automation, you’re just going to achieve it automatically. It’s amazing.