Month: September 2017

Spending Money on Experiences vs. Things

Research shows that people generally tend to be happier when they spend more money on experiences and less money on things. It can sound a little hippie and new-agey to those who are trained to look at the appreciation rates of commodities and other hard assets, but in my opinion, there’s an even more fundamental truism at work here: Time, not money, is life’s most precious commodity.


Taking a Second Look

If this advice sounds over-simplified, that’s because it is. The primary study for this claim comes from San Francisco State University and looks like sound science to us, but it suggests that people generally undervalue how much experiences have to offer their happiness compared to things. In other words, this doesn’t mean that all experiences are worth the price or that a purchase of a material thing can’t be a smart buy. It’s also worth pointing out that many purchases, including some major life purchases, seem to straddle the line between an experience and a material thing. Part of the value in buying a car or a house is the time and experiences you’ll have living and driving, but then where do you draw the line? Both gold and memories can last a lifetime, but do weekly trips to the shopping mall really make your life better if you end up swamped in consumer debt.


Moving the Needle

Even still, the research is provocative and reinforced by plenty of anecdotal evidence. And since we all face complex financial decisions, it doesn’t hurt to see what the hard evidence has to say on the subject. Again, finding a balanced approach is best—or at least an approach that’s balanced with your own personal priorities and living your best life possible. To this point, we like to think making wiser financial decisions involves moving the needle slightly more toward experience and slightly away from things.


Being smart financially doesn’t have to be a complex order. Watch famed financial scholar Harold Pollack discuss how all the financial information you will ever need can fix on an index card:

My First Memory of Brand Names

I’m sure there were plenty of encounters with other brands and merchandise along the way, but the first real memory I have with brand names is being in late grade school and throwing a huge tantrum in the shoe store because I wanted the Nikes and my mom was pushing the Converse. Nikes were cool at the time, and I remember she told me that Converse was the shoes to have when she was a kid. The Nikes were more. What’s odd is that I can’t remember which pair of shoes we ended up getting. I think it was the Converse but I’m not for sure. I remember that money was tight, but I can’t remember whether my dad was laid-off or not during this time.


I don’t think it was a coincidence that it was shoes, either. I don’t know what it is about shoes, but they seem particularly and perpetually swept up in social status, even more so than other items of clothing and even in the face of what one might assume was a primarily functional piece of apparel. My grandmother told me that during the Great Depression, a lot of other families were worse off than hers, so while she had shoes to wear, many of her school peers did not. So she would get picked on and her shoes would get stolen. Her parents would buy her more shoes, but these too would get stolen. Eventually, she would stop wearing them. Before school started each morning, she would go to a hiding spot and hide the shoes so that they wouldn’t get stolen anymore.


Anyway, this childhood memory continues to inform my attitude about brand names today. Which is to say, I now couldn’t care about brand-name shopping if I tried. It’s not even that I’m a crusader against brand names, or those who have their favorites. It’s just that, for me, anchored by this memory, feeling pride in a brand name seems like betrayal on a personal level that’s hard to change at this point. In fact, while I wouldn’t consider myself a crusader against brand names, it’s not so much that I don’t care about any brand names. It’s just that they’re all negative. Starbucks putting my favorite local coffee shop out of business. The customer service I’ve received from Comcast and CenturyLink. Stuff like that.


What about building trust and loyalty with a brand that has a track record of success? I’ve been too disappointed too many times by the big-name brands. Everything feels like a random hodge-podge of quality from one product and service to the next. Which isn’t to say that I don’t research the things I buy. It’s just that I spend much of that time scouring the online ratings and review from consumers about the individual item in question, rather than relying on a brand name.


The Fine, Fine Print of Buying a Home

Whether it’s their first home or their fifth, a lot of home buyers are excited about searching for their new home. It’s a momentous occasion. It’s also one that tends to be split into all the various financial considerations and the personal passion for a place you can truly call your own. You need to work to optimize your credit rating, minimize your interest rate, find mortgage terms that make sense for our household, and, of course, do all your due diligence on the property itself. It’s like buying a car, starting a retirement fund, trying to do your own taxes, and getting an X-ray of your spending and saving habits all in one.


You’ll probably also be subjected to any number of blogging experts, friends and family, and banking reps telling you to do your research and carefully plan. You need to remember, you’ll be told, that your home is going to be your biggest financial asset—often by a large margin.


And the lion’s share of this advice is true, more or less. But here’s the thing: For most home buyers, it’s not that we don’t understand the weight of the decision or the importance of gathering as much information as we can before making a home-buying decision. Rather, the central problem is that it’s logistically implausible to do all the necessary background research. Not only is the home buying contract several pages of dense legalese in which, for example, realtors in training routinely sit through four hours of instruction on the first page, but if you’re working with a home lender, you’re likely to have a crush of reporting requirements for financial information and form-based documentation. Simply keeping up with the bare minimum of this paperwork as well as the bare minimum of, you know, life—well, it doesn’t leave a lot of time for reading up on the fine, fine print. Deep research about contract ambiguities and the role of third-party vendors, especially property mortgage insurance, is not in the cards for the vast majority of home-buyers.


Realtors and Home Loan Officers

It’s easy to think that these problems are solved by working with a knowledgeable real estate agent and a home loan officer you can trust. But it’s actually much more difficult to find these types of professionals than you might think. Word-of-mouth and online reviews can be manipulated and obfuscated, but even the standard services offered frequently leave much to be desired. If the realtor is put to sleep by the hours of lecturing on the first page of the home sale contract, how much are they going to know about the rest of the document? Whether it’s clearly communicating the risks of adjusted rate mortgages or updated rules about mortgage insurance, home loan officers don’t always seem to have your best interests at heart or else are ill-informed by those who actually write and enforce the rules.


Real Estate Market Realities

I’m not saying that home lending institutions are infallible—lolz, tears, lolz. Even apart from their role in the Great Recession, it’s not difficult to find stories in which real estate investors and other actors find ways to exploit the legal code to their own benefit and at the expense of the lending institution. But it goes without saying that this isn’t the experience of the typical home buyer.


Or, at least, I wish it went without saying. I’ve had more than a few friends and family members go through the home buying experience and, almost without exception, their responses were cynical in attitude and/or bitter in mood:


  • “We made $40k on our home and thought we got out at the top of the market at the time. Little did we know. Still, we feel really fortunate with the place we have now. It’s a rental at a great price, and now we’re not letting our housing dollars go to a big bank.”


  • “We got a favorable appraisal and the market continued to surge. Our realtor, our home loan officer, and every online source at the time talked about getting the property mortgage insurance removed when the loan-to-value ratio hit 78 percent. So when our market analysis hit that point we made the request. We got a letter in the mail saying that the PMI was ineligible for removal during the first two years and required a 75 percent loan-to-value ratio during the first five years. Which okay. Whatever. But at least tell me so I know what’s what. We went through everything else with the purchase of our home, why wouldn’t we also talk about the terms of the property mortgage insurance?”


  • “I made an appointment and cleared my schedule to meet with the home loan guy from the bank. I went to the appointment with a tape recorder so I would be able to go back and reference everything that we talked about. We went over a bunch of stuff, so much so that it was impossible to keep track of it all. It seems like, at some point, you just have to take it on faith.”


And therein lies both the problem and the answer for the typical home buyer. One of the most important financial decisions of your life hinges upon doing the best you can to make a well-informed decision, but even then, it’s all too easy to overlook something that threatens to harm years of planning and sacrifice. It’s also another lesson in why homeownership is best when the focus is on the experience and long-term financial potential, rather than any short-term accounting gain.