Author and radio host Stephen Dubner doesn’t look like a freak. But when he starts to talk, the ‘freaky’ ideas start flowing.
In a recent conversation with Betterment CEO Jon Stein, the Freakonomics Radio host shared some counter-intuitive notions collected from behavioral economics research: don’t have a credit card (you’ll only accrue casual debt); your brain is conspiring against you to your detriment (so use devices to help set habits); and educational messages don’t work (booooring).
Dubner visited Betterment in early July for a special event to talk about his newest book, Think Like a Freak. A number of Betterment customers attended the event at our offices in New York City, and many watched via a streaming webcast.
He also shared insights on what makes for a good investor from a behavioral view. Much of what Dubner said underscores Betterment’s investment philosophy: to make it simple for individuals to invest well while using an optimized investment portfolio under the hood.
Dubner’s investing tips:
1) Admit you don’t know everything: “Don’t assume a level of knowledge that you don’t have,” Dubner advised. In fact there is word for this, he said—ultracrepidarian—or a person who gives advice outside the area of his or her expertise. Investing and finance can be complex topics with a lot at stake (your savings)—and if you know that you don’t know everything, you’re a step ahead.
2) Don’t undervalue the opportunity cost of your time: “Every minute you spend on investing, it’s one hour less you’re not doing what you love,” Dubner said. Unless, of course, you dream in basis points. But if you enjoy golf or hiking more than spreadsheets and modeling markets, then assign your time the proper value.
3) Delegate: “Spend your brain power on what you love, and get smart people to do [the investing] for you,” he said. In other words, doing it yourself is a value-losing proposition—if you value the time you spend doing the thing you care about more than the time you spend on money chores. Jon Stein echoed on Dubner’s takeaway, “That’s exactly why I created Betterment,” Stein said. “We manage your investments so you don’t have to.”
Hi- are you all planning to post a recording of the live webcast? thanks.
Hi Grant — Yes, we’re editing some takeaways now. We’ll post when it’s ready! Best, Catherine
Would love to see a replay of the webcast………
Not having a credit card is a nice idea… unless you want to rent an apartment, get a car, buy a house, or basically exist as an adult in the US.
I wanted to participate in the webcast, but next time don’t schedule your events during a World Cup semi-final game! :)
Thanks for your comment, Lorraine. Fortunately World Cup only happens every four years, so our next webcast is hopefully in the clear! Best, Catherine
You are right – it’s impossible to live in USA without credit card.
I struggle with the credit card advice as a blanket statement. Not everyone has difficulty with impulse control. A cash rewards card used properly can generate thousands of extra dollars a year in rebates against you normal, but required purchases. I have done this for years and never carry a balance and enjoy “free money” as a result, so I think this advice is a disservice to those who can control their spending.
Hi Bob, It’s true that works for Stephen Dubner doesn’t work for everyone. It’s certainly up to every individual to understand his or her impulse control when it comes to spending! Thanks for your comment on the Betterment blog.
I would challenge the blanket statement that it is impossible to live in the US without a credit card. I do not have a credit card and haven’t for the last six years. I use debit cards and cash for purchases and save up to buy bigger ticket items with cash. That is not to say that having a credit card is wrong or bad as it does depend on the persons spending discipline. One major benefit of not using a credit card and paying with cash is that you will spend less money when you actually “feel” the purchase price. Paying with a CC or DC is too easy and thus the discomfort of spending is lessened. Just food for thought!
Dave Ramsey also says the same thing about a credit card. Personally if I’m going out to eat, and there is $ in that budget category, and I want to have the salmon, I’m getting the salmon regardless of if I pay via CC, DC, or Cash. In my financial household, credit cards are used to pay for budgeted items. If it isn’t in the budget, no go. I pay off my cards every couple weeks, or every time I reconcile my transactions. I’ve been like that for years. On the other hand, budgeting is a new concept I’m trying. Basically I’m trying to beat my numbers every month, while still enjoying life :)