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April 9, 2014

Jonathan Tobin: Why Did Kerry Lie About Israeli Blame?

Samuel G. Freedman: A resolution 70 years later for a father's unsettling legacy of ashes from Dachau

Jessica Ivins: A resolution 70 years later for a father's unsettling legacy of ashes from Dachau

Kim Giles: Asking for help is not weakness

Kathy Kristof and Barbara Hoch Marcus: 7 Great Growth Israeli Stocks

Matthew Mientka: How Beans, Peas, And Chickpeas Cleanse Bad Cholesterol and Lowers Risk of Heart Disease

Sabrina Bachai: 5 At-Home Treatments For Headaches

The Kosher Gourmet by Daniel Neman Have yourself a matzo ball: The secrets bubby never told you and recipes she could have never imagined

April 8, 2014

Lori Nawyn: At Your Wit's End and Back: Finding Peace

Susan B. Garland and Rachel L. Sheedy: Strategies Married Couples Can Use to Boost Benefits

David Muhlbaum: Smart Tax Deductions Non-Itemizers Can Claim

Jill Weisenberger, M.S., R.D.N., C.D.E : Before You Lose Your Mental Edge

Dana Dovey: Coffee Drinkers Rejoice! Your Cup Of Joe Can Prevent Death From Liver Disease

Chris Weller: Electric 'Thinking Cap' Puts Your Brain Power Into High Gear

The Kosher Gourmet by Marlene Parrish A gift of hazelnuts keeps giving --- for a variety of nutty recipes: Entree, side, soup, dessert

April 4, 2014

Rabbi David Gutterman: The Word for Nothing Means Everything

Charles Krauthammer: Kerry's folly, Chapter 3

Amy Peterson: A life of love: How to build lasting relationships with your children

John Ericson: Older Women: Save Your Heart, Prevent Stroke Don't Drink Diet

John Ericson: Why 50 million Americans will still have spring allergies after taking meds

Cameron Huddleston: Best and Worst Buys of April 2014

Stacy Rapacon: Great Mutual Funds for Young Investors

Sarah Boesveld: Teacher keeps promise to mail thousands of former students letters written by their past selves

The Kosher Gourmet by Sharon Thompson Anyone can make a salad, you say. But can they make a great salad? (SECRETS, TESTED TECHNIQUES + 4 RECIPES, INCLUDING DRESSINGS)

April 2, 2014

Paul Greenberg: Death and joy in the spring

Dan Barry: Should South Carolina Jews be forced to maintain this chimney built by Germans serving the Nazis?

Mayra Bitsko: Save me! An alien took over my child's personality

Frank Clayton: Get happy: 20 scientifically proven happiness activities

Susan Scutti: It's Genetic! Obesity and the 'Carb Breakdown' Gene

Lecia Bushak: Why Hand Sanitizer May Actually Harm Your Health

Stacy Rapacon: Great Funds You Can Own for $500 or Less

Cameron Huddleston: 7 Ways to Save on Home Decor

The Kosher Gourmet by Steve Petusevsky Exploring ingredients as edible-stuffed containers (TWO RECIPES + TIPS & TECHINQUES)

Jewish World Review

Why you're so bad with your money

By Morgan Housel






JewishWorldReview.com | Grace Groner was born in 1909 in rural Illinois. Orphaned at age 12 and never married, she began her career during the Great Depression. She became a secretary, lived in a small cottage, bought used clothes and never owned a car.

When Groner died in 2010, those close to her were shocked to learn she was worth at least $7 million. Even more amazing, she made it all on her own. The country secretary bought $180 worth of stocks in the 1930s, never sold and let it compound into a fortune. She left it all to charity.

Now meet Richard Fuscone. He attended Dartmouth and earned an MBA from the University of Chicago. Rising through the ranks of high finance, Fuscone became Executive Chairman of the Americas at Merrill Lynch. Crain's once included Fuscone in a "40 under 40" list of successful businesspeople. He retired in 2000 to "pursue personal, charitable interests." Former Merrill CEO David Komansky praised Fuscone's "business savvy, leadership skills, sound judgment and personal integrity."

But Fuscone filed for bankruptcy in 2010 -- the same year Groner's fortune was revealed -- fighting to prevent foreclosure of his 18,471-square-foot, 11-bathroom, two-pool, two-elevator, seven-car-garage New York mansion. This was after selling another home in Palm Beach, Fla., following a separate foreclosure. "My background is in the financial-services industry and I have been personally devastated by the financial crisis," Fuscone's bankruptcy filing allegedly stated. "I currently have no income."

These stories fascinate me. There is no plausible scenario in which a 100-year-old country secretary could beat Tiger Woods at golf or be better at brain surgery than a brain surgeon. But -- fairly often -- that same country secretary can out-finance a Wall Street titan. Money is strange like that.

LESS BANG FOR YOUR BUCK
One of the most common calls after the 2008 financial crisis was for America to double down on financial literacy. "We must strive to ensure all Americans have the skills to manage their fiscal resources effectively and avoid deceptive or predatory practices," President Obama wrote in 2011, calling for a new "financial literacy month."

But there's a funny thing about financial literacy: There are quite a few Grace Groners and Richard Fuscones out there. They are extreme examples, but the link between financial education and financial outcomes is surprisingly elusive.

A paper released last week by a trio of economists looked at 168 separate studies analyzing the effectiveness of financial literacy programs. To sum up their findings: It doesn't work. The authors found "interventions to improve financial literacy explain only 0.1 percent of the variance in financial behaviors studied, with weaker effects in low-income samples." And what little benefit education offered vanished quickly. "Even large interventions with many hours of instruction have negligible effects on behavior 20 months or more from the time of intervention," they wrote.



This is nothing new. Lauren Willis at Loyola Law School has shown that financial literacy programs can actually be harmful to people's financial well-being. High school students who took part in a financial literacy course went on have more problems with their finances than students who skipped the course. Low-income consumers who took a class on money management "were less likely to plan and set future financial goals at follow-up than they were at baselines" one year later. As Jason Zweig of The Wall Street Journal wrote, soldiers who took a financial literacy class "ended up significantly less likely to have systematic control over their household budgets."

As Zweig bluntly put it, "there's remarkably little evidence that financial-literacy education ... works."

Part of the problem here is that defining "financial literacy" and "outcomes" is more art than science. There's a tremendous amount of financial advice out there. A lot of it is bogus. And some people would rather, say, go on a nice vacation than save for retirement. That's not necessarily a bad decision. To each his or her own.

But several studies offer a more convincing answer: Financial education programs don't improve outcomes because they tend to teach fundamental financial concepts, which aren't that important, rather than behavioral issues, which are.

KNOWLEDGE DOESN'T EQUAL SKILL
As Willis wrote, "financial education appears to increase confidence without improving ability, leading to worse decisions."

Learning the definition of compound interest isn't going to do you much good unless you understand the devastation you'll bring to your wealth by panicking when the market drops. Knowing what a Roth IRA is won't do you much good if overconfidence entices you to take out lots of debt.

These basic behavioral differences are what separate the Grace Groners from the Richard Fuscones. Groner clearly understood patience. She understood frugality. She understood the value of a long-term view and how to not panic -- if only subconsciously. Fuscone, it seems, didn't. (To be fair, it's unclear exactly where his financial troubles came from.)


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The traits most important to mastering your finances aren't typically taught in finance courses. You're more likely to see them in a psychology class. They include things like patience, an even temper, being skeptical of salesmen and avoiding over-optimism. A lot of people miss this because it's not intuitive. But I think it explains, better than anything else, why so many people are bad with their money. And it extends beyond novices. The majority of highly educated, well-trained investment professionals perform abysmally. This has little to do with their understanding of finance and lots to do with the inability to control their emotions and behaviors.

Financial literacy is important. We should continue to push it. But it has to be coupled with a better understanding of the behavioral flaws that actually cause people to make bad decisions with their money. Until this is accepted, we will have more Richard Fuscones and fewer Grace Groners.

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Morgan Housel, a columnist at The Motley Fool, is a two-time winner, Best in Business award, Society of American Business Editors and Writers and Best in Business 2012, Columbia Journalism Review.


Previously:


8 questions you might have about the debt ceiling

An open letter to everyone under age 30

15 biases that make you do dumb things with your money

If this scares you, you shouldn't be investing

What I plan to do when the market crashes

The three most important words in investing

Monkeys and investing

Two types of risk, two types of bubbles

The secret to financial success: Use ignorance to your advantage

How to effectively fight investors' greatest enemy

Four mistakes that make everyone a bad investor

Learning from the past, and the Next Big Tren

What newspapers were saying when you should have been buying

Why you never learn from your investment mistakes

The curse of success, and why most mutual funds fail miserably

If you know only five things about investing, make it these

Why spotting bubbles is so much harder than you think

When smart investors do stupid things

The deep downside of home ownership

The biggest retirement myth ever told

He's rich, smart and old: Listen to him

Admit it: No one has any idea what's going on

Gold collapse: The start of something big?

BAD NEWS: EVERYONE IS RIGHT!

Twitter: The carnival barker of investing

Warning: Don't waste your capital being fooled by profit prophets

25 important things to remember as an investor

New paradigm for both drivers and car companies

Biases that make you a bad investor

Nine financial rules you should never forget

Gaining from financial destruction

How to read financial news

Housing: Partying like it's 1925

A rebuttal to student loan horror stories

CONGRATULATIONS: We just saved half a trillion dollars

End this crazy tax: It will boost the economy

Medicare: A dangerously good deal

Economic future looks bright

The Biggest Threat to Your Portfolio (It's Not What You Think)

Bond Market Bull Run dead at 30



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