Latest news with #moneydecisions
Yahoo
3 days ago
- Business
- Yahoo
Why Smart People Make Dumb Money Decisions, According to Humphrey Yang
According to the TIAA Institute-GFLEC Personal Finance Index, about half of American adults lack financial literacy, and even more fall short when it comes to decisions regarding risk. According to financial YouTuber Humphrey Yang, being smart can put you at a greater risk of making poor choices. Read More: Find Out: In a recent YouTube video, Yang covered three biases that often trap smart people into making money decisions that leave them poor. But even if you consider yourself intelligent and financially literate, that doesn't guarantee you'll do the best things with your money. Here are the signs to watch out for if you're making dumb money decisions, and tips to avoid falling for them. Authority bias is when you believe what a person — like a CEO, celebrity or financial advisor — says because of their high influence or position. This can get you in trouble since their advice might be completely wrong or not based on the reality of your situation. Yang gave the example of quantum computing stock prices. In December 2024, a Google Willow announcement led many investors to buy these stocks, which boosted their prices. But in January 2025, Nvidia's CEO said the tech had many years to go, and stock prices fell a lot. 'The truth is that many people probably didn't do any due diligence when it came to these stocks, and they probably bought them on a speculative future after the Willow announcement, and then they sold them on a whim after a negative comment,' Yang said. To protect yourself from this bias, don't rely solely on what a single person says to do with your money. Yang said you should also forget whatever is special about that person to improve your objectivity, see what other people say differently about the topic, and trust your instincts. Discover More: If you often look only for information that aligns with your beliefs about money and brush off anything that says differently, you've fallen for confirmation bias. Besides leading to bad money moves, this bias can make you an easier person to scam, according to the Ohio Attorney General. Yang explained, 'It's especially dangerous for those that are super logical because if you're a super methodical thinker, you can actually build a logical sounding argument to defend your pre-existing opinion.' He gave an example of how this can play out with tech stocks. If you favor those stocks, you might watch for positive news reports, listen to influencers who are fans of tech, and focus on friends who profited big. You might not consider any bad earnings projections or the investors who went broke. According to Yang, asking 'why' several times helps avoid bad decisions due to confirmation bias. This lets you dig into your motivation and reasoning for making the money move. He also suggested writing down the decisions you make so you can later look back on why you did certain things and what you expected. 'This is arguably the most dangerous cognitive bias for smart people, and that's basically when people overestimate their knowledge, abilities and their predictions,' said Yang. Overconfidence bias can cause you to not consider risks since you mistakenly think you have an advantage with money over other people, and that could even be due to expertise in an unrelated area. Yang explained that this mistake played a role in various financial crises over the last few decades. Being overconfident might also lead you to not diversify your money enough and risk major losses. Yang gave examples of copying Warren Buffett's portfolio with limited investment choices or investing substantially in your own employer's stock due to familiarity. To avoid letting overconfidence damage your finances, consider that some successes might have come from pure luck rather than a wise choice you made. Yang said you should also regularly compare your predictions to reality and stick to simple investing strategies, like using index funds instead of betting on the next big individual stock. More From GOBankingRates 3 Luxury SUVs That Will Have Massive Price Drops in Summer 2025 These Cars May Seem Expensive, but They Rarely Need Repairs Clever Ways To Save Money That Actually Work in 2025 This article originally appeared on Why Smart People Make Dumb Money Decisions, According to Humphrey Yang
Yahoo
18-05-2025
- Business
- Yahoo
Making money decisions comes easier when you understand your emotions, author says
Money and emotions are a messy tangle for many people. That's why for Mary Clements Evans, a certified financial planner, financial therapy is the linchpin of the work she does with her clients. In her new book, 'Emotionally Invested: Outsmart Your Anxiety for Fearless Retirement Planning,' Evans dissects the fear, anxiety, and guilt that money decisions can stir up and offers advice on how to calm down and find financial happiness now and in retirement. I sat down with Evans to learn more about what folks can do to take control of their money lives and make choices they won't regret. Here are edited excerpts of our conversation. Kerry Hannon: Why is it so important to understand our 'money why"? Mary Clements Evans: Our money why is what drives our decisions — the underlying reasons behind our financial actions.. It's how you feel about money. It's your relationship with money. I liken it to my relationship with brownies. I know how many calories are in a brownie. Guess what? I am going to eat brownies because it makes me feel good even if there are lots of calories. The same thing happens with money. The smartest, most well-educated people make poor financial decisions because their money why is not in a good spot. By subscribing, you are agreeing to Yahoo's Terms and Privacy Policy There are two primary money whys: FOMO (fear of missing out) and FORO (fear of running out). Can you dig into what is FOMO versus FORO in terms of our money decisions? People who have FOMO are hyper-focused on today. These are the people who want to buy the car, take the vacation, redo the bathroom. FORO ones are hyper-focused on the future. They're always afraid they're not going to have enough money to retire. They're not going to have enough money if something bad happens. They're all about safety and security. There are shades of those in many people, of course. Let's talk about the title of the book. What do you mean by emotionally invested? We all like to think that we make rational decisions. We don't. We make emotional decisions, then we back them up with a series of facts that make us feel like we made a factual decision. If we acted completely on facts, nobody would have borrowed money that they shouldn't have. Nobody would be hoarding money that they could spend. How has saving for retirement profoundly changed for Americans? For a long time, many people had pensions. Corporations had them because they wanted to attract employees. But after the Employee Retirement Income Security Act, or ERISA, became law in 1974 that slowly changed. Retirement saving was turned over to the individual worker. The worst thing that happened is we told everybody, 'This is so easy, you can do it yourself,' which is crazy. Learn more: A step-by-step guide to retirement planning You're busy doing your job, raising kids, maybe taking care of parents. And in your spare time, you're supposed to have complete knowledge about the most complex system there is on earth. I've been in finance my whole life, and a week doesn't go by that something doesn't cross my desk and I say, 'What the heck is this?' You use the term 'saving for survival.' Can you discuss? Plenty of people don't realize the importance of saving for retirement. They think of retirement as something very far into the future. This isn't saving to have a wonderful retirement, take vacations, buy the beach home, and do all these other things. You have to save to survive — to have enough money for food, shelter, and clothing. In today's extended lifespan, you could be in retirement 20 or 30 years. Think about that. Even if you started when you were in your twenties, you're going to spend 40 years saving to live a life, with inflation, for 20 or 30 suggest an exercise where folks finish this sentence: Money is... Explain that for Yahoo Finance readers. People say: Money is the root of all evil. Money is fun. Money is scary. Money is confusing. Money is problematic. My favorite: Money is not my friend. Of course, the real definition is that money is the means of exchange for goods and services. That's what it is. But every answer I get is full of emotions. You spend a fair amount of time in your book telling people how to find a financial adviser. What is the most important thing people need to know? The most important thing that people need to realize is that in our industry, there are no standards. The two most-searched terms for financial help are 'financial adviser' and 'financial planner.' Yet there's really no set of qualifications for you to call yourself that. You can have somebody with a high school diploma and a weekend course, and they can call themselves a financial adviser. But then you have somebody who has a master's in finance, certifications, and years of experience, and they have the same title. Learn more: What is a financial adviser, and what do they do? There are several good certifications out there. I'm a big fan of the CFP, which is a Certified Financial Planner designation. It takes about two years to attain, and it's hard. It's like getting a master's in finance. It's a tough test, and it requires tons of ongoing education. Finally, Mary, what is the biggest takeaway from the book? I'm trying to remove the shame and blame around finance. Shame doesn't work. People should not feel bad about themselves. So often when I meet new clients, regardless of their education or their income, in the first five minutes they start apologizing to me, saying they should have done this or that. Removing that shame and blame is a good thing. And it's never too late to be empowered, become smarter savers and investors so you can ultimately enjoy a more secure and worry-free retirement. My job is for individuals and couples who feel frustrated and overwhelmed by money and have a hard time talking about it to figure out how their money whys subconsciously affect financial decisions, and, most importantly, how they can identify theirs (and their partner's). That is what can change your financial world. Kerry Hannon is a Senior Columnist at Yahoo Finance. She is a career and retirement strategist and the author of 14 books, including the forthcoming "Retirement Bites: A Gen X Guide to Securing Your Financial Future," "In Control at 50+: How to Succeed in the New World of Work" and "Never Too Old to Get Rich." Follow her on Bluesky. Sign up for the Mind Your Money newsletter Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
