I’m a huge advocate of the “no shame, no blame” rule when it comes to money. But I think there’s some confusion about how the rule works. It’s not that you won’t feel guilt. It’s also not about avoiding responsibility. Instead, it’s about recognizing the zero-sum game of relying on shame and blame to make better money decisions.
Brené Brown, perhaps best known for her TEDx Houston talk on “The Power of Vulnerability” (she also did a great one on shame), has spent more than a decade studying vulnerability, courage, shame and worthiness. Through her work, she has found that shame isn’t a very effective tool for changing behavior. For real change, we need to reframe the conversation by understanding the role of guilt and encouraging people to take responsibility.
During a recent conversation between Dr. Brown and Tim Ferriss, it became clear to me that the “no shame, no blame” rule may be one of the most important rules we need to follow when it comes to personal finance. The level of importance grows when it involves a spouse or partner.
Dr. Brown writes that, “Shame isn’t a motivator of positive change. Yes, it can be used in the short term to change a behavior, but it’s like hitting a plastic thumbtack with a 100-pound anvil — there are consequences to the crushing.” What a powerful image!
Not only does shame fail at changing behavior, it can also trigger the very mistakes we’re trying to avoid. I imagine more than a few of us think that shaming criminals will prevent them from reoffending. Think of the judges who make people hold up signs declaring their crime. It seems like a perfect punishment for bad behavior.
But in 2014, researchers from George Mason University found “that inmates who feel guilt about specific behaviors are more likely to stay out of jail later on, whereas those that are inclined to feel shame about the self might not.” The data also showed that when inmates were defensive and avoided responsibility, they “were more likely to slip back into crime.”
It helps if we understand the true definitions of shame and guilt. I love how Dr. Brown explains the differences. Shame is something we internalize, and we capture it with a statement like, “I’m a bad person.” With guilt, we focus on the action and say, “I made a mistake. That’s really dumb.” In other words, we make shame about us, but guilt is about the event.
Think about the last money conversation you may have had with a spouse or partner. Imagine there was a financial “event,” and with the benefit of hindsight, you label that event a mistake. What happens next has probably happened to all of us at least once. One or both of you may have shamed and blamed the other for the mistake. One couple I know experienced such an event, and I have watched them shame and blame each other for the last decade. What good did that do?
We have to assume that on some level this couple and others like them use shame and blame because of a misinformed self-interest. They must truly believe that shame and blame will make things better and may even improve their relationships. Most of us are trying to prevent future mistakes without realizing that shame and blame won’t fix what needs fixing.
So to help you stick to the rule, I want you grab a hat and a Sharpie. No, really. Grab an actual hat and a Sharpie. Maybe one of those trucker hats with an oversize crown. Then, across the front, write, “No shame. No blame.” Every time you talk about money, wear your hat.
Yes, wearing a trucker hat with “No shame. No blame” written across the front sounds silly. But it provides a tangible reminder of the real purpose of the rule: to get better, however you define that, at making smarter financial decisions.
This commentary originally appeared September 8 on NYTimes.com
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The opinions expressed by featured authors are their own and may not accurately reflect those of the BAM ALLIANCE. This article is for general information only and is not intended to serve as specific financial, accounting or tax advice.
© 2015, The BAM ALLIANCE
I love spending time in the mountains. So a few weeks ago, I jumped at the opportunity to join a friend, my son and seven of his friends on a trip into the Uinta Mountains. This range sits about an hour east of our home in Park City, Utah.
We planned the trip to last three days with hikes of 10 to 13 miles each day. All of us carried heavy packs. On the second day, we’d set a particularly big goal: 13 miles, three mountain passes, 6,000 vertical feet and a one-mile side trip to the summit of Kings Peak.
At 13,528 feet, Kings Peak is the tallest mountain in Utah, and the entire ridgeline trail sits above the tree line. We had a clear view of the whole path, and it was a daunting sight. We all felt a little overwhelmed.
My son Sam commented afterward that he managed the hike by focusing on what was right in front of him. Instead of focusing on the peak or the trail far ahead, he chatted with his friends and paid attention to what was happening around him.
His strategy worked so well that I think he was a little surprised at how good he felt when we finished the hike. Yes, it was hard. But what appeared impossible in the morning turned out to be very manageable.
I know it’s clichéd to say that the best way to accomplish a major goal is one step at a time. But the adage acknowledges something vital. We can control the next step, but we can’t always control what comes after the next step. So why get worked up about what’s way out on the horizon?
Something else came into play on our trip: afternoon thunderstorms. Without fail, the clouds would roll in during the afternoon, and I found myself worrying about the rain and lightning. If it rained, we’d be miserable. Throw in some lightning, and we might need to retreat from the ridge to find shelter.
As I worked through all the possible scenarios in my head, I forgot something pretty important: It wasn’t raining! They were only clouds. With a little nudge from Mother Nature, I created a problem in my head that didn’t even exist. I reminded myself that we’d planned for the possibility of rain. We had raincoats. We wouldn’t melt. And we had a strategy if lightning started.
So I took a deep breath and tried to ignore the clouds. Despite all my worrying, it didn’t rain once even though clouds surrounded us every day.
I find it fascinating how we get distracted by things that might happen, often to the point that we overlook what’s right in front of us. We do this a lot with money. We focus on big financial goals, like buying a home, paying for college, or retiring — and they seem so big we convince ourselves they’re impossible to reach. Then, because we feel overwhelmed, we stop trying to reach them.
Look, it’s important to know where we want to go and to set goals to get there, but we can’t let that big thing way off in the future intimidate us. We could lie in bed every night worrying about how we’ll get there, or we could follow my son’s approach: Keep our heads down and focus on the next step and then the step after that one.
I think back to some of my earliest clients and where they started 15 years ago. If you’d told them then where they’d be today, they’d have said, “No way. That’s impossible.” But the impossible became reality because they put their heads down and committed to do the small, simple things, like automating their savings each month.
They didn’t get distracted or overwhelmed by the big goals. They also managed to avoid creating problems that existed only in their minds. They just focused on what they could control every day, every week and every month. Now, 15 years later, they’ve reached many of the audacious goals they set a long time ago.
We’re all capable of the same success. Over time, of course, we’ll need to peek at that big goal on the horizon and see if we need to make a course correction to avoid a real problem. Unexpected setbacks will occur, and we might need to adjust the timeline. But the rest of the time, we need to keep putting one foot in front of the other and stay focused on one question: What can I control today?
This commentary originally appeared August 24 on NYTimes.com
By clicking on any of the links above, you acknowledge that they are solely for your convenience, and do not necessarily imply any affiliations, sponsorships, endorsements or representations whatsoever by us regarding third-party Web sites. We are not responsible for the content, availability or privacy policies of these sites, and shall not be responsible or liable for any information, opinions, advice, products or services available on or through them.
The opinions expressed by featured authors are their own and may not accurately reflect those of the BAM ALLIANCE. This article is for general information only and is not intended to serve as specific financial, accounting or tax advice.
© 2015, The BAM ALLIANCE
Quick Take on Fixed Income
September, 2015
Q: How do equity and fixed income markets differ?
A: Most people are familiar with the equity markets and how they work. After all, anyone can turn on the television and see traders scurrying around the floor of the New York Stock Exchange, filling orders for their clients. Over the past few decades, equity markets have become models of efficiency. This is partly due to major advances in technology but mainly because of how these markets are structured. Equities trade on exchanges, meaning all market participants must go to the same place to transact business. No matter if you are Goldman Sachs or John Q. Public, you have to go to the Nasdaq exchange to buy or sell shares of stock. Because everyone must go to the same place to transact business and because equities trade every business day, market pricing becomes efficient and transparent. Pricing transparency and readily available information mean a lower bid/ask spread and better execution for both institutional and retail investors.
Many people have the misperception that bond markets work in the same manner. Unlike equity markets, bonds do not trade on a centralized exchange but on an over-the-counter market that is made up of a loose network of thousands of broker/dealers throughout the world. Another key difference between the equity and fixed income markets is their trading frequency. Stocks, with a few exceptions, trade every day on their respective exchanges while bonds can go months, or even years, between trades. The double whammy of not having a centralized exchange and infrequent trading makes price discovery in the fixed income markets very difficult for retail investors who don’t have access to expensive fixed income tools such as a Bloomberg terminal.
Because price discovery is difficult, retail investors are frequently taken advantage of in fixed income markets in the form of large markups. A Wall Street Journal article from 2014 cited a study showing that individual investors in the municipal bond market experienced markups of roughly 1.73 percent, or $1,730 per $100,000 of bonds traded. By contrast, BAM’s fixed income desk, with whom our firm works, receives an average institutional markup of 0.20 percent, or $200 per $100,000 of bonds.
Clearly, there are significant differences between the equity and fixed income markets. Unfortunately, these differences in the fixed income markets allow retail investors to often be exploited by Wall Street, making it imperative to work with a separate account manager when using individual bonds.
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