For Success in Finance, Discipline Beats Brains Every Time
Not long ago, I wrote a piece on “life’s little money mysteries” which included this well known rhetorical question: If you’re so smart, why aren’t you rich?
Mr. ToughMoneyLove thinks the number one reason why smart people – most people actually – fail at money and personal finance is a lack of discipline.
Also today I read about Alicia Munnell, a professor and director of the Center for Retirement Research at Boston College. Ms. Munnell is a Harvard trained economist, a former Assistant U.S. Treasury Secretary, a former member of the President’s Council of Economic Advisors, and a leading expert in 401(k) plans. So what did the eminently brilliant Ms. Munnell recently do? She confessed to a reporter for Money Magazine that she had taken money out of her 401(k) plan to help pay for her son’s wedding! Of course, she had to pay taxes on the withdrawal along with a 10% early withdrawal penalty.
That was really dumb. I don’t care how much she loves her son or that she knew exactly what she was doing – it was a dumb thing to do. There are a couple of legitimate reasons to take an early distribution from a 401(k) plan. Paying for a wedding is not one of them. I don’t think it’s even debatable.
This is not a case where she could justify a bad decision by saying that she could afford it. If she could afford it, she wouldn’t have needed to invade her retirement funds. This is not an instance where you can even ask “what was she thinking?” Lack of intelligence or ignorance are not even close to being factors here. This was pure undisciplined behavior. Ms. Munnell could teach a class called “Learn from my Stupid Retirement Planning Decisions.” In my mind, this action made Ms. Munnell a poster-child for the adage: “Those who can, do. Those who can’t, teach.”
Yes, I am judging Ms. Munnell’s money behavior. (And there is nothing wrong with that.) I am doing it to make the point that Ms. Munnell is like so many others (and that includes me). We let our lack of financial discipline trump our intelligence. Undersaving, overspending, failing to plan – they all signify undisciplined behavior. Our intelligence never has the chance to do the right thing.
One of the risks in publicizing bad money behavior by people who should know better is that it tends to make the rest of us feel better about our own poor decisions. When we feel better about bad decisions, we have a tendency to repeat them. I prefer to think that some people are placed on this earth to serve as a warning to others. In the case of really smart people like Alicia Munnell, I say “thanks” for the warning and for teaching us that being financially smart won’t by itself make you rich.