PODCAST EPISODE 222: What Elon Wants to Teach Kids Can Help You!

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Paul 0:00

Hello, and welcome to your business, your wealth. My name is Paul Adams. And I’m joined, as always by Corey Shepard. And today we have got a hot topic for you. In December, Elon Musk tweeted out this just a very simple short tweet that has a lot of fun behind it. And it’s this idea

Cory 0:20

of controlling interest in the mall store hot topic. And we were like, What is this the next Game Stop?

Paul 0:29

That may or may not be true. I have no idea. Corey just said that this usually reserved for my territory on the podcast. But Cory that may or may not be accurate, I would definitely check Snopes. But what he did post was 50 cognitive biases that should be taught to every kid in school. And as we’re looking through it, we just realized that a bunch of these biases affect even how we think about our money. So today, we are jumping right into this. But as you hit one of these biases that most resonates with you, if you’re watching on YouTube, put it in the comments makes a big difference has a chance to help the algorithm help other people find this content that may be valuable to them. Use simply posting a comment liking the video sharing on social media could well be the thing that helps someone you care about, get on the path to financial independence where they may not have otherwise or may have ended up just you know, hitching their wagon to big box financial retail and all of the things that come along with that. So to keep us on pace, and also Oh god,

Cory 1:31

there’s 50 there’s 50 Oh, yeah, I guess we’re saying the same thing. We can’t hit all of them in our time. So if there’s one that we skip, when you go back and look sent, put a note in the comments, or send us a note and tell us why this one was impacted your your life.

Paul 1:45

Yep. So Cory is command and control here, he is going to stop us when we need to stop and get right to the next topic. So that if he cuts me off mid sentence, it’s we’re just doing it to make sure we get to as many of these as possible. And one super concise episode with that, Corey, let’s take a look at the document. I’ve got it up so our audience can see it. Cool.

Cory 2:09

All right, fundamental attribution error. We judge others on their personality, or fundamental character, but we judge ourselves on the situation meaning you all are giving yourselves the best benefit of the doubt and every situation and everyone else.

Paul 2:24

Absolutely. And this is a fun one to watch. Because you could just see it daily in our lives where you know, your your CPA makes a mistake on a document, you’re more likely back our CPA don’t know how to run his business, all that. But you make a mistake on a document. And it’s like, oh, my kids interrupted me partway through typing that and I forgot to end that sentence and put a period on totally normal. But it’s really neat to just notice, why do I think that person missed a commitment and you will discover it all kinds of places?

Unknown Speaker 2:55

Yeah, self serving bias. Go, our

Paul 2:59

failures are situational. But our successes are our responsibility. It’s a little bit of fundamental attribution error, in that, but it only applies to us here is the reason that I was successful. Trading cryptocurrency somebody says, was because of my skill and the way I went in, and I use G, Dax, and debt to debt to debt, but when they lose a truckload of money on GameStop, that is because of while those hedge funds got some extra lending and but no way we could have known. So that one’s a really unique one for financial decisions.

Cory 3:34

All right, this next one is a is a double play. So we’re going to talk about groupthink and curse of knowledge together and how they play off of each other. So where do you want to start, Paul?

Paul 3:46

Let’s go Curse of Knowledge first. So once we know something, we assume everybody else knows it, too. And so you immediately do that. So let’s say you learn something new about money, you learned how to use whole life insurance as an integrated financial tool, you learned that it might make sense to convert from Ira to Roth, you learned maybe it’s a good idea to reduce your 401k contribution to buy your first rental property. You learn that from your advisor, or you learn that from us if you’re a client of ours. And then you go out and tell your friend like, Hey, I reduce my 401k I’m buying a rental property like oh my gosh, again, I never so it takes us right into groupthink. And then what can happen very quickly is then we will begin to erode trust in ourselves in that we made a good assessment by making that decision because groupthink can run off with us.

Cory 4:37

Right. All right. Next one is the spotlight effect. So and I’ve had a personal experience with with this one, so we overestimate how much people are paying attention to our behavior and appearance. I bought some new pants recently. I had my pants in like a year and a half because you don’t see anybody COVID We’re not really going anywhere like nice, hard to wear him out when you know gray or I wear him out. These are kind of expensive pants, pull them out of the suitcase at Thanksgiving. And they’ve I’ve worn them once, and they’ve got some stains on them that I hadn’t noticed. And they get even more stains on them over the course of Thanksgiving because cooking is messy. And I’m just like, what’s the point? These pants are ruined? And Danielle says, well, like, I don’t really notice them that way. You’re saying you noticed them? I don’t think they really visible like most people aren’t really seeing them. They’re not looking at your knees, Cory. Oh my gosh. So anything we do to spend money or look a certain way, but be spending a lot less time and money looking good for people and look exactly the same to them. Indeed, I think losing weight is a saint unless you’re a 40 pound shed of like this just this huge, dramatic thing. And no one can help. But notice, like people don’t notice as much the 510 15 pounds. They’re not monitoring everyone around them about how they how they look.

Paul 6:05

So I do think about that one often Corey, I intentionally just grew out my beard in a big way near the end of the year. So that simultaneously I gained weight people didn’t notice it in my face, right? Yeah, just went back to eating well, and I trimmed down the beard. Nobody, nobody knows I gained. Right.

Cory 6:22

All right. Number five, availability by availability heuristic.

Paul 6:27

Yep. Hang on, I’m just getting.

Cory 6:30

We rely on immediate examples that come to mind while making judgments. So you know, I think of even the media really hurts us on this one. Because the thing that was the biggest in the news recently about the market, whether it’s the markets going up, or the markets going down, we tend to think that’s what’s going to keep happening. And and so and now most of the things that media brings us are negative, so we tend to be more and more tilted towards negative expectations and and biases. Oh, next. Naive cynicism. Mm hmm. We believe that we observe objective reality and that other people have a higher egocentric bias than they actually do. And then intentions and actions like I think the other way could say this is like a profit complex. Like we all think we see the clear way into the future and everyone else is too scared.

Paul 7:31

Well, absolutely. This naive citizens also applies to Anytime somebody’s trying to give us help. The naive cynicism is the only reason you’re doing those because you have a a terrible interest. I think of it some I guess there’s certainly way that could apply societally. Right. Yeah. By the way, if you guys hear that Corys aunt and uncle’s house got demolished due to a not demolish, but I mean, had some damage to it due to some contractors messing up on the tarps. So he now has some extra dogs in his house, which you can hear just losing their minds in the background. I just don’t, I don’t want people to think that we run a dogfighting ring on the side. Sound Financial Group does not do that. Only, only Corey runs the dogfighting ring.

Cory 8:16

So this might be the naive cynicism. I don’t know why. That’s what people people would think we’re doing is running a dog. I don’t know why they think that either Cory, except that maybe it’s a maybe it’s a dog rescue, maybe just adopting all these dogs that would die out in the cold. If

Paul 8:34

it was me. barks if it was me with the barks. I would say that about you. But since it’s you at the barks, I assume the worst intentions given you examples. So but the the one thing that’s tough about this naive cynicism, and and I’ll give you guys a tip about how you can disarm it. And that is let’s say somebody is helping you and you have some concern in the back of your head of like, I’m not sure they’re helping me for the right reasons. Now, how that usually shows up is you treat somebody who might be a very good advisor or very good help or coach, and you treat them like a salesperson. That’s probably the worst thing you could do. The best thing you could do is say, Hey, I, I’m open to working with you on this. But what is a win for you, in us working together? And that’ll allow you to start to hear like instead of assuming people have some bad attention and helping you with this naive cynicism, just ask what their intention is in helping you and 99% of time people will tell you or the way they tell you well give away the thing you need to know.

Cory 9:35

Next, the Dunning Kruger effect. And this is one we’ve talked about before on the podcast, but it’s been a while. So the less you know, the more confident you are and the more you know, the less confident you are. Now, I have noticed this like when first when people first meet us, especially if they’ve done less investing and younger people especially are more likely to just like Well, why not just jump into the most risk? Like, what’s the harm? And I find I have to, I try to pull people back for a while, and then ease them back into the risk conversation around investments. Because the more we know, the more we know about what could go wrong. Yeah, we’re Mark

Paul 10:18

OSHAs. Yes. And I think that even applies to the person who just started investing or just started in one particular niche, crypto real estate, whatever it is. And if you talk to them, they will speak with a level of confidence about what they’re talking about. That the expert

Cory 10:36

wouldn’t, right. Yeah. Yeah, totally. Next is anchoring. We as one, we rely on the first piece of information introduced while making decisions. So, you know, the first thing that came to mind here for me was down compared to what

Paul 10:53

we did, right, right before you hit that, just to give people one background, they’ll see this every day is like you see an item that was regularly $900, it’s discounted at 600. And your brain believes even though you never saw that product before, you haven’t done a comparative analysis of anything else, you just see the $1,000 with the red mark through it and 600 below and a big sign this is on sale that triggers you with this anchoring. So now hit right one,

Cory 11:21

one if and if you if you didn’t want it at 900 at all. Why do you want it at 600? All of a sudden? Like, that’s a good question, too. So, you know, in our accounts, someone might say, you know, well, the markets here right now. And then it just went down. And they’re like, oh, I don’t want to sell out of my account. Or I feel like I can’t do anything with this money. I’m losing money. Yeah, except we started three years ago and your accounts. double what it was back then. Yep. Oh, so you’re but you’re anchored to this piece of information? Because Because again, recency bias plays in with with this as like, resetting that anchor. Yes. All right, slowly. reactance. Yep,

Paul 12:10

I got it up on screen,

Cory 12:12

we do the opposite of what we’re told, especially when we perceive threats to personal freedoms. So in this is when I was when you’re a kid, and it’s like, don’t tell him what to do. Yeah, that reactance I think budgeting is an area where we can we can feel this, it can feel like some restriction of our freedom in spending. And so we don’t do we don’t come up with any plan for how we’re going to spend or, or allocate our resources.

Paul 12:39

Yep. And I would say one thing that can help you with reactance is what freedoms will I gain with this? This? Really what you have is obligations and commitments. Yeah. So it’s like, what freedom do I gain by waking up at 430 in the morning, like, well, I set the alarm. So I don’t like that. Because I’m losing some freedom, just sleep as long as I want. But I get a lot of freedom because nobody’s awake in my house for hours. And I got a time to think and read and all that. It’s, you know, a budgeting feel like I’m giving up freedom to not buy this thing now. And I might want to wait six months to buy whatever the thing is, except I’ll be financially independent the rest of my life and not dependent on my children. Because if you think it’s bad, feeling like you, I mean, there’s like, I mean, it is funny, but I want to like land this or the degree, gravity, gosh, that would, if you think it’s feels restrictive, that you can’t get the better luxury car and you have to get a different car. Or that you would not eat out as often or be a little more astute when you go on your vacations in terms of spending, if that feels restrictive, then living with your children in your old age, and needing to navigate around somebody else’s house rules that will be far more restrictive. And almost always the reactance is against the small restriction. And you’re opting for a real big one.

Cory 14:10

This is this is a concept called the hard easy that we got from our friend Steve denuncia. Right? If you do it first, the thing that seems hard, the rest of your life will be easy. If you do it first, the thing that seems easy, the rest of your life will be hard. And that word seems is the really, really important factor in that. All right. Belief bias. We judge an argument strength, not by how strongly it supports the conclusion. But how plausible The conclusion is, in our own minds.

Paul 14:46

If you let me take this one. So or the argument. Somebody making an argument about something and we’ll just say some financial tool, Roth versus IRA and you’re not reading it big based upon how well the author supported his conclusion, we blow those people up on this channel all the time. But it’s just you already, like if it’s talking about the positive of Roth and you already like Roth, you read the article already agreeing with it, and you’re not even digging in to be appropriately make the author accountable enough to like, do it. Did you actually support your argument here? Or did you just say the thing that agreed with me? And then what you wanted? Was everybody to click on the article that agreed with you?

Cory 15:31

Right? I think I think we were talking about this Ponzi schemes thrive. Yes. Belief bias.

Paul 15:38

Oh, yeah. Well, and here’s a one way they do is like, you know, that Wall Street, Wall Street’s just ripping people off left and right, and it doesn’t work. And these, these oligarchs run off with it, and and but but, hey, I can get you in on something that’s gonna help you circumvent some of that.

Cory 15:57

Here’s this thing, where we’re gonna send you a Word document every month with a line that goes up. And this is going to be better for you. Yes. That’s all it is. All right. Next is Declan ism. We tend to romanticize the past and be the future negatively believing that, you know, society’s institutions are by and large in decline. And it’s like, those were the good old days. You know, kids had it. Kids were more respectful back then. When we got Lee, I think you said it really good. We’re warming up Paul. Like, I’m glad I didn’t live 150 years ago,

Paul 16:37

there’s there’s almost nobody on the planet. Regardless of how much wealth you had, I’ll go 200 years ago, you could be the wealthiest person in the world 200 years ago, and it would be hard to beat a lifestyle you can make on a dual income family today, very safely the United States. Yeah, it is safely. I mean, like the medication, the housing, the access to, you know, everything from heating, air conditioning, like it is amazing now versus how it used to be. Also a quick confession. I have to make Cory I mean, I made a mistake in your favor here. Our entire audience was just looking at your pretty face on my screen because I had to correct something and switched on and off and switch back to just your camera. So fro by watching the podcast. You’re welcome. For more beautiful you realize

Cory 17:19

screen. You were like Paul Shaffer off screen for for most?

Paul 17:24

Yeah. Yeah. Like, like, very good. Very good, Cory, great job. Or that said big man. Sorry. I don’t have a Paul Shaffer voice. All right, we have good Arabic man voice, frankly,

Cory 17:33

we have time for about two more. And I know we know what the I know what I want the last one to be. So status quo or gamblers fallacy, Paul, what do you want to? What do you want to hit it?

Paul 17:48

Both really quickly. And here’s my argument for why just do it. Yeah, this quo is we tend to prefer things to stay the same changes from the baseline are considered to be a loss. Meaning like, sometimes people back I don’t feel like I’ve got a problem with my finances. And it could upset it if I dug in and actually tried to see if we’re doing well or doing not. And then the second one that also almost blends with status quo is the gamblers fallacy is like I have done, this thing worked out well for me in the past, you will even configure stories as to why it worked. Well, my favorite example of this was when I was at a big conference. And they had all these super successful executives. And we were all playing paper, rock scissors, and there was a cash prize like $1,000, to the winner of this huge tournament, and some prizes for second and third. And everybody’s getting so invigorated in the host of the conference is going around interviewing people putting a mic in their face and saying, so what was your technique? What do you and people came up with all these reasons why they were doing what they’re doing. And then he gets to the end. And he just, you know, after congratulate everybody wins the money all day says, You know what the statistical likelihood was of you winning each time, exactly the same. There was no trick, there was no way any of you could get ahead in this game. It’s a coin flip. I was going to use coins, but I wanted you guys to think you had a hand in it. And what was funny was about 2006, near the end of 2006, or beginning of 2007, the market was super high in real estate, all that. And the guy who had this conversation, you guys may have all kinds of reasons why you’ve had a lot of success over the last three years. But the reflection you need to be in is did you just throw the right thing against your opponent enough times and what’s lifting you up? And you should see this guy. He had a mortgage company with like 800 employees that was in the room. And I watched this man go white, because he realized and he began, why did he still he still lost everything. He still couldn’t wind down that company as fast as he wanted. It was amazing. So all right now for our final story.

Cory 19:54

The IKEA effect, we placed higher value on things we partially created. ourselves. Mm hmm. So I’m going to turn this one around, we want to use this bias to our advantage. This is why couples need to plan their future and their finances together. Because then you both will enjoy whatever that result is more and have more stake in it. If just one person is creating it, then that other one is kind of along for the ride, and they won’t enjoy the journey as much. And

Paul 20:26

they won’t take ownership in it. They may not. And I mean, they’re seriously like, if you’re not part of what creates your financial independence for 2030 years of old age. If one spouse opts out of that, and the other spouse handles it, well, what’s it feel like? The unknowing of how you got there, like it can’t be possibly as enjoyable as it would be to have had a hand. Right. So for this guy’s this high res version we found which is not easy to find online. We have it available where you can link to it in our episode page for this episode. So just go in the show notes. Click on this episode page, and you’re going to get things you could tweet out on social media, you could get just the audio version, you get links to the podcast or the YouTube and you’re going to be able to get this document and download it. We’re super glad all of you made it here today. And I did not say this near the end of last year but I just want you guys know I personally love guy. I think I speak for Corey as well. We love that we get to do this with all of you. We love that we have an audience that tunes in and we love the things we hear back from you guys when we say comment, when we say like we say send us show ideas. We love it many of the articles we’ve shared have come from clients. So contribute be a part of this community. Let we’ll just call it the sound financial family from now on and resending that stuff and participate in this I want you to make this podcast your IKEA effect. Take some ownership we can do this together as the I don’t know maybe I will stick with that the sound financial family as a part of your business, your wealth to help you get to that future that you want so that you have a chance to design and build a good life cool

 

 

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