Get Out of Your Financial Shame Spiral

On this episode of The Long View, Anne Lester, author and former head of retirement solutions for J.P. Morgan, discusses the financial challenges facing young adults, investing advice, and her new book, Your Best Financial Life: Save Smart Now for the Future You Want.

Here are a few excerpts from Lester’s conversation with Morningstar’s Christine Benz and Amy Arnott.

Getting Out of a Financial Shame Spiral

Amy Arnott: One recurrent theme we noticed in the book is the idea of getting out of the shame spiral, not berating yourself because you didn’t start saving earlier or made some financial mistakes along the way. Was that something that came out of the focus groups, that young people may be getting in their own way because they feel bad about previous mistakes?

Anne Lester: Not really. I think maybe I gather that more in one-on-one conversations, and maybe that’s just telling you a little bit about myself. I certainly felt that way, and I think all the research that we read about losing weight or trying to overcome habits, the script that starts playing in your head about “I can’t, I can’t, I can’t,” I think that came much more from there. But I have seen and felt and heard when I’m having one-on-one conversations with people of any age, when I mentioned that, you can just see their posture change. Somebody had tears well up in their eyes. This one young woman asked me if she was doing OK, and I said, “Yeah, you’re doing fine.” And she actually had tears in her eyes and said, “Oh, thank you. I never know if I’m good enough or doing it well enough.” To some extent maybe this goes back to social media as well and maybe to some trends I’m seeing with younger people—feeling like the stakes are very high for them all the time. I don’t think I felt like that when I was their age, that I have to get into the right school, I have to get the right job, I have to do this right otherwise something terrible will happen. I’m not sure what the terrible thing is. But this constant fear of failure and stress just seems to be dimensionally different than I recall it being.

Do Young People Feel More Comfortable Talking About Money?

Christine Benz: Do you sense that people in this age cohort feel a little more comfortable talking about money than previous generations did? And if so, do you think that’s a healthy development? You talked about how your parents didn’t talk much about money at all really at home and how that influenced your thinking a little bit as you were starting out.

Lester: I think so. I think things like salary transparency—a woman, whose name I’m blanking on, on TikTok just asked people what they’re making—and people are saying that this is “loud budgeting.” I think it’s something I’m hearing in the financial-services community. Financial advisors are getting more comfortable asking their clients about their money stories. I think all of this is healthy. I think, again, because so many people feel like they should know—I hate the word should—they should know more about personal finances; they should be doing better; they should be whatever. And I think many families either feel reluctant to talk about their money because they’re worried that people will think they have a lot and they don’t want their kids talking about, “Look, how much money we have” and bragging, or, and I think much more commonly, feel ashamed because they are struggling with money, and they don’t want their kids to know that there are hard conversations happening. I can’t remember if I put this in the book or not, and I can’t remember the stat, but something like 70% of parents would rather talk about sex education with their kids than money. A high percentage would rather talk about the thing we all think is really uncomfortable than talk about money. So, there’s clearly a lot of shame associated with it, otherwise we would be happy to talk about it.

Tips and Tricks to Get on Track

Arnott: In the book you share a lot of helpful hacks and tips and tricks for young people who are looking to get their savings programs on track. Can you share some of those ideas?

Lester: The biggest one, and this is straight out of the 401(k) playbook, is just to automate everything. Automate the money going into the savings account, automate the investing, automate the escalation if you can—some 401(k) plans will let you do that, some won’t. It’s the single most powerful thing you can do. I think making sure it’s not really easy to see and get is also really important. If you’re saving into an IRA or 401(k), it’s kind of hard to get back out; you have to do a request, and it’s a thing, but also you pay these tax penalties, which is uncomfortable. So, that’s a safe place for your money longer term, and in a true, true, true, true emergency—and I talk a little bit about that in the book—you can get it back, but it makes it very hard. I think having money sitting in a savings account that’s on the same home screen as your regular bank account is asking for trouble. So, getting it out of sight I think is a very powerful thing.

I think the other really important hack that I talk about is again right out of the 401(k) playbook, which is to save more tomorrow. Make sure that you continue increasing the amount you save as your lifestyle gets better as you earn more money. Because if you don’t do that, you will not be saving enough. But it’s so painful to increase your savings rate today because you have to stop spending money. The younger you are, the more likely you are to see meaningful income increases as you get more experience and become more valuable as an employee, and so at least for the first 10 or 20 years of your working life you can probably count on seeing some pretty consistent increases in your salary, and that’s the great way to get your savings rate up.

How To Help Limit Spending

Benz: One mental trick that you shared in the book to help limit spending is to add a zero to whatever purchase you’re contemplating, and I thought that was such a useful way of framing it. Can you talk about that mental trick?

Lester: It’s something that came about because my husband and I are serial rehabbers, and we overbuy houses that need a lot of work and then spend decades rehabbing them. So, we’re living in an old house that we spent 13 years fixing up, and for a while, we were looking at replacing a bunch of windows, which is really not very cheap. And I was changing the unit of money—every time I thought about spending some money, I’d say, “Well, that’s a window, better not do it.” Having a handy thing that keeps your eye on what you’re trying to achieve is so powerful. So, we were thinking about buying—this is back in the early 2000s—a big-screen TV, and I was like, “Well, that’s going to be two windows. No, we can’t, we don’t need a new TV. I want those windows.” How does that translate into retirement? I want to be able to live another six months without running out of savings. That doesn’t work. I want to be able to buy a boat. No, that doesn’t work either. And then it was like, well, it’s just how much more money is it? Because let’s assume you earn a 7% return, that money doubles every 10 years. In 30 or 40 years, it is 10 times—10 times the amount—and that’s fast math you can do.