When Good Financial Advice Is Bad

Run Your Own Race!

Money advice that’s financially sound may not be psychologically sound. – Catey Hill

In his book Smarter, Faster, Better author Charles Duhigg recounts an interesting experiment done at Duke University several years ago. The subjects were varsity athletes. They were taken to a running track, placed 200 meters from a finish line, and told to get as close to the finish line as they could in 10 seconds.

These athletes undoubtedly had a sense of how far they could run in 10 seconds and it wasn’t anywhere close to 200 meters. Some of them probably knew that Usain Bolt’s world record in the 100 meters was just under 10 seconds, so even the world’s fastest man would only get a little over half way to the finish line.

Being asked to do the impossible was not motivating. Knowing they could not come even close to succeeding the athletes gave less than their best effort and covered only an average of 59.6 meters in the 10 seconds.

Several days later the same athletes were taken to the same track and once again assigned the task of covering as much ground as they could in ten seconds. The only difference was that this time the finish line was placed only 100 meters from the start.

The athletes probably sensed, again, that they could not reach the finish line in 10 seconds. However they felt they could get close enough to make the effort worthwhile. This time the average distance covered was 63.1 meters, a large improvement by track and field standards. The lesson? If you give someone what they perceive to be an impossible task you are not likely to get their best effort.

In January of 2018 Market Watch published an article advising that 35-year-olds should have twice their annual income saved for retirement. The reaction from 35-year-olds, who were struggling to pay off student loans and afford a house, was widespread mockery. You might as well have asked them to run 200 meters in 10 seconds.

The advice, while sound financially, was not helpful psychologically. To a generation still struggling to overcome the effects of the great recession the well-meaning advice was taken as a joke. Instead of being motivating the most common reaction seemed to be, “If that is what is expected, than why even try?”

The cure is to avoid comparisons to other people and arbitrary benchmarks and run your own race. You want to push yourself, but keep it real.

No one else’s situation is exactly like yours. You are where you are, and that is the only place you can start your financial race. You can’t change where you start, but you can move the finish line up. Give yourself a goal you can meet with a little effort and start running. The key is to start moving in the right direction and then constantly improve.  

Saving is a habit and an action, not an amount. Start saving as much as you can right now, even if it is only 1% of your income, which I believe anyone can do. Then increase your savings rate over time.

While it is true that hope leads to action, action can also lead to hope. Take the first step and it will motivate you to take the next one. Once you start moving hope and action become a virtuous cycle that will propel you forward. When you reach one finish line, establish a new one and keep running.

I teach a personal finance course to young adults. I don’t tell them how much they need to save for retirement. That would be like asking them to run a marathon without any training. Instead I teach them to start early, save as much as they can, and increase their savings rate over time with a goal of saving at least 10-15%

Don’t worry if you are not where you would like to be financially, or where “experts” think you should be. Start where you are, pick a realistic finish line, and take the first step. When you cross that finish line, pick a new one and keep moving. Direction is more important than speed and steady effort coupled with continuous improvement will get you where you need to be. Run your own race.