Author Topic: Saving money is a pathology  (Read 4510 times)

regulator

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Saving money is a pathology
« on: July 01, 2015, 12:23:58 PM »
http://www.bloomberg.com/news/articles/2015-07-01/oversavers-anonymous-where-prudent-savings-meets-pathology

"When a positive behavior, such as saving, is taken to an extreme, it can turn into a negative, says Anthony Canale, certified financial planner and author of a paper about financial hoarding in the Journal of Financial Therapy. While people like the ones on the television show Hoarding: Buried Alive have an emotional attachment to physical objects, financial hoarders “develop a similar emotional attachment to cash,” he says, “and eventually feel a real, deep anxiety about letting it go.”"

EricP

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Re: Saving money is a pathology
« Reply #1 on: July 01, 2015, 12:29:51 PM »
He's not talking about people in the FIRE community.  This is what he is talking about

Quote
The classic example of financial hoarding: keeping more cash than necessary, even if you’d be better served by paying off debt or investing. Carlos Dias Jr., founder of Excel Tax and Wealth Group, worked with a client who had about $25,000 in her checking account but who nonetheless used a home equity line of credit to make purchases. “She accrued almost $13,000 in debt,” he says. “She had the money [she needed] but kept coining it as a ‘rainy day fund.’ Instead, she created this additional stream of debt.”

And the article is right.  If someone was FI and absolutely hated their job, but continued to work it because they couldn't imagine spending their money, or if someone had $1 Million sitting in a savings account because they couldn't risk putting it in the stock market, that would be something to worry about.

LalsConstant

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Re: Saving money is a pathology
« Reply #2 on: July 01, 2015, 12:30:24 PM »
Actually I can't disagree with the idea that cash for its own sake is insane if a person has already met their personal goals.    I for one don't save just to save.   If I weren't trying to purchase productive assets and I had extra money somehow I would "spend" it on remodeling a lecture room in a university or paying scientists to research cancer cells or relieving people harmed by natural disasters.  At some point enough is enough.

forummm

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Re: Saving money is a pathology
« Reply #3 on: July 01, 2015, 12:31:26 PM »
The "examples" don't make sense together. Holding money in cash vs other investments isn't the same as saving 75 cents on sandwiches. And saving 75 cents on sandwiches is still wasteful compared to bringing your own lunch. And the trader who probably one time in his life made $130k in a day, probably has had days where he lost 6-figures too. So saving could still make a lot of sense.

EricP

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Re: Saving money is a pathology
« Reply #4 on: July 01, 2015, 12:41:06 PM »
The "examples" don't make sense together. Holding money in cash vs other investments isn't the same as saving 75 cents on sandwiches. And saving 75 cents on sandwiches is still wasteful compared to bringing your own lunch. And the trader who probably one time in his life made $130k in a day, probably has had days where he lost 6-figures too. So saving could still make a lot of sense.

Because that's what news articles do.  They take some quotes from an expert, slap on some misunderstandings and stick it on a website and end up bastardizing the whole thing.  The actual quotes from the expert make a lot more sense.  They say having cash savings of more than 1 year is cause for concern, but if you're self-employed in a volatile area than 1 year cash is reasonable. 

ash7962

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Re: Saving money is a pathology
« Reply #5 on: July 01, 2015, 01:10:36 PM »
Wow my Dad is totally a money hoarder.  I found out in the past few months that he was holding the majority of my parent's sizeable nest egg in cash, and options trading with a comparatively small amount of it.  He then lost a bunch of money options trading and basically went (or is) through a whole crisis of self.  After that I got involved in my parent's finances and started to right the boat a bit, but continue to face resistance on the spending their 401k money front.  They have enough to retire with the amount they spend especially since Dad will be eligible for social security in a few years, but I'm told that they absolutely need to have 1 million dollars no matter what their spending is.  If not the 1 million then I'm told that they definitely can't touch the money until he is 65 (don't ask me why).  If I ask him what he plans on spending the extra money on he says "travel", but he doesn't really like to travel and has no idea what kind of travel budget he wants.  I've been encouraging them to invest their substantial cash hoard so that it will last them for the rest of their lives, and they have started to, but even at a 50/50 stock/bond allocation I now frequently hear worry about the next stock market crash being around the corner.  I've had a lot of conversations with him and pointed him to many blogs/articles, but his decisions/opinions are consistently based in emotion.

Chris22

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Re: Saving money is a pathology
« Reply #6 on: July 01, 2015, 03:17:16 PM »
My paternal grandparents are/were like this.  My grandfather passed and my grandmother was in the hospital for a week or two for a procedure.  My dad flew down to help and to help settle the estate.  He went to their house to get clothes for my grandmother, and all of it was worn, holes in the underwear, etc.  He didn't think they had much money (He went out and bought stuff for my Grandma, who then was upset about the expense [that he covered]), but then he sits down to execute the will, etc, and finds over $400k of cash sitting in their savings account.  Surely enough to go buy some new underwear. 

Taran Wanderer

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Re: Saving money is a pathology
« Reply #7 on: July 01, 2015, 10:50:35 PM »
My FIL and MIL are retired, no debt, with a six figure retirement income.  My FIL bought a brand new, nice, full-size pick-up last year for cash, yet he frets about spending money because he "can't save as much".  Hello, you have seven figure stash (and then some), you don't need to "save".  You need to do things you enjoy, spend time with people you enjoy, and spend the investment income off that stash without worrying about "saving" half of what you "earn" in a month.

One thing I admire about MMM is that he focuses on saving as a means to live.  Unfortunately for him, my FIL is going to die a very rich man but only after living a life of mental poverty.

MrMoogle

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Re: Saving money is a pathology
« Reply #8 on: July 02, 2015, 06:48:16 AM »
I've been encouraging them to invest their substantial cash hoard so that it will last them for the rest of their lives, and they have started to, but even at a 50/50 stock/bond allocation I now frequently hear worry about the next stock market crash being around the corner.  I've had a lot of conversations with him and pointed him to many blogs/articles, but his decisions/opinions are consistently based in emotion.

Honestly your parents don't sound like they should be investing.  Yes it's the correct move financially, but not for them emotionally IMO.  When a crash occurs...even if they end up with more money, they will be bemoaning the crash.  It will put stress on your relationship.  Unless you see them running out of money, I would let them hoard their cash.

onehair

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Re: Saving money is a pathology
« Reply #9 on: July 02, 2015, 07:57:55 AM »
My dad is a money hoarder himself.  He always cries broke asks for help yet I know he has plenty in the bank.

ash7962

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Re: Saving money is a pathology
« Reply #10 on: July 02, 2015, 08:17:57 AM »
I've been encouraging them to invest their substantial cash hoard so that it will last them for the rest of their lives, and they have started to, but even at a 50/50 stock/bond allocation I now frequently hear worry about the next stock market crash being around the corner.  I've had a lot of conversations with him and pointed him to many blogs/articles, but his decisions/opinions are consistently based in emotion.

Honestly your parents don't sound like they should be investing.  Yes it's the correct move financially, but not for them emotionally IMO.  When a crash occurs...even if they end up with more money, they will be bemoaning the crash.  It will put stress on your relationship.  Unless you see them running out of money, I would let them hoard their cash.

haha yeah I hear you and I've thought about it too.  I've done the math and I think this is the best course of action that they are willing to accept. I just typed out like 3 different long explanations about why its the best choice, but there's a lot of background necessary and this isn't the place.  You'll just have to trust me when I say this is the best scenario I was able to negotiate.  He does not think the cash pile was enough and was miserable because it was so "low" (its not), so had previously done some risky investing that ended up losing a pile of money.  After the loss they got me involved.  The bottom line is that he continues to make emotional decisions with money which I don't really have control over.  Best I can hope for is he will stay the course, and worst case is he loses a lot of money and they come live with me at least until SS kicks in.

Edit:  I guess its like he's a hoarder, but also wants more to hoard lol.
« Last Edit: July 02, 2015, 08:19:36 AM by ash7962 »

Fuzzy Buttons

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Re: Saving money is a pathology
« Reply #11 on: July 02, 2015, 09:10:38 AM »
I wonder if I'll have this issue when I retire.  Watching the stash go up is fun.  Watching it go down is not.  Once I'm at the point where it's supposed to be going down because I'm living off of it I should feel good about that.  But emotions don't always follow logic, and I can see how it would be easy to let habit and fear lead you into a pathology of the unhappy miser.

This assumes that not spending money is actually harming their lives, though.  If they are happy taking the bus and eating Ramen every night while they have millions in the bank, then who am I to judge.  The real problem would be people who are miserable all the time, stressed and guilty over every little purchase.  Like all mental disorders, that is something that needs treatment and help to overcome.

This reminds me of that janitor who died and left $8 million to charity.  Never spent any of that money on himself, but from all accounts as a happy and well adjusted guy.  Some people commented at the time of that being a "wasted" life, and how sad it was that he never got to enjoy the fruits of his labor.  Seems to me like he was quite happy with his life, and there's nothing "wasted" about that.  :)

onehair

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Re: Saving money is a pathology
« Reply #12 on: July 02, 2015, 11:44:20 AM »
I thought the janitor guy was cool myself.  He had a goal and met it.  There was a laundress lady in the South who did something similar.  As for my dad I have grown used to his money hoarding it's when he tries to ask me for money I have to remember he has it.  Once he did and I almost gave it to him until I remembered he has a safety deposit box stuffed full to bursting.  I know part of the reason he hoards is my late grandfather.  My late grandfather was very irresponsible with money.