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4 Ways Smart Guys Go Broke

Here’s why — and how to get back on track fast.

Photo composite of Albert Einstein with an empty wallet

Fun fact: Two 50-something men recently lost more money than the combined gross domestic product of New Mexico, Idaho, and Wyoming.

Sure, Jeff Bezos ($38 billion divorce) and Elon Musk ($200 billion and counting from his Twitter/Tesla meltdown) are easy bloodsport. The point: Intelligent men make stupid money mistakes. Even guys with decades of experience

Here are four major mistakes older guys make — intelligence and experience be damned — and how to fix them once and for all.

#1: You still can’t resist the casino.

Equating investing with gambling is not new. Problem is, we still think we can beat the house — in this case, the stock market itself. 

We’ve lived through the ’90s tech bubble and meltdown, the real estate bubble and meltdown, and now a fresh set of shiny things like crypto, NFTs and meme stocks.

“I bought a little bit of crypto four years ago,” says Dan Ariely, 55, a professor of psychology and behavioral economics at Duke University and the author of Predictably Irrational. “There’s an addictive quality, no question about it.”

So how do you quit? The late founder of mutual fund giant Vanguard, Jack Bogle, invented the stock index fund. His investing philosophy was simple and boring and wickedly lucrative: Expose your money to the broad market for as many years as possible by making regular deposits into a stock index fund. And don’t look at your statements. “Be bored by the process but elated by the outcome,” Bogle said.

Put another way: Stop buying dopamine experiences with money you can’t afford to lose.

#2: We still let FOMO be our guide.

Ariely has a friend who invested in a start-up business — the classic get-in-on-the-ground-floor deal — and the man was so convinced he brought his family in on it. Now the money’s gone. 

“It was all a scam,” Ariely says. “The guy just believed. People love stories. You meet someone face-to-face and they promise it’s real, this isn’t like the others.”

Grown men become terrified they’ll watch the fat fastball go by. No matter what it is, we want in. Ultimately, we aren’t critical enough of the stories we hear to recognize where they fail the sniff test. 

Start-ups are the catnip, but even though a record 540 startups achieved “unicorn” status in 2021 ($1 billion-plus valuation), about 75 percent of venture-backed start-ups fail, and the Bureau of Labor Statistics shows only 57 percent of U.S. businesses started in 2018 still existed in 2022.

Crypto is the real scam example, however — even Matt Damon told us it was cool. But Federal Trade Commission data shows that over 46,000 people lost more than $1 billion to crypto scams since the start of 2021. 

“Being a skeptic is not as much fun,” says Ariely. “But it is financially smart.”

#3: Your piggy bank still makes no noise when you shake it.

The personal savings rate in late 2022 was 2.4 percent. It hasn’t been consistently above 10 percent since we were kids, from 1985 on backwards.

Fidelity manages upwards of 20 million 401(k) accounts and their median 401(k) balance for ages 50-59 is $62,700 (and a much lower $37,600 for ages 40-49). Numbers show the problem, but don’t get at the why. Why don’t we save?

Ariely suggests it goes back to how humans learn. “A lot of learning is looking around and seeing what people around you are doing,” he says. “You imitate what you see.”

You see your friend posting vacations on social media. You see your neighbor renovating a kitchen. What you don’t see? Their savings rate. Their debt levels.

Getting a $1,000 phone makes you feel like you’ve upgraded something. Topping $5,000 in a savings account makes you feel … what, exactly? It’s abstract.

“How do we make savings more enjoyable?” asks Ariely. “I don’t think it’s impossible. People enjoy mountain climbing and yoga. Give saving a sense of purpose and meaning, a feeling of improvement or competition. It’s unbelievably important.”

#4: You still would rather spend money than own money.

If you’re coming up short financially in middle age, it’s easy to say, “Spend less.” But that advice is as good as “eat less” for weight loss or “drink less” to an alcoholic. Useless without some real shift in mindset.

Here’s a stat: A British study of more than 100,000 people found that men, more than women, said money represented autonomy and power.

Technology is no help. It is designed to disassociate us from our money. When we were in college, credit cards were run through the carbon paper crank thingie. Now we tap or use our phones. Tech “makes it very hard for us to understand what we’re spending on,” says Ariely. “We don’t really think about the cost.”

You feel powerful spending money, but not when you save it. Market forces are designed to get us to spend, while buying stuff brings an empty short-term reward.

One asset we still have: time. We’re aging, but we’re not old. But we have to, once and for all, take our past and present relationship with money seriously.

Follow Article Topics: Money-&-Career