Thursday, November 13, 2014

The Two Faces of Fear

There are two sides to fear:  We fear what others can do to us, but have no fear when it comes to our own malfeasance.

Fear, as I have noted before, is used to sell you things.  And fear affects how you spend your money, how you invest, or whether you even invest.   But it struck me recently that fear has two faces.  Let me explain.

We've all heard the old saw about how much more dangerous it is for us to drive to the airport than it is to fly on the airplane.  And indeed, our highways are regular charnal houses - with tens of thousands of people dying every year on these bloody concrete corridors of death (sounds more dangerous that way, doesn't it?).   Plane crashes, while spectacular, are very infrequent.  Only hundreds die a year in plane crashes on commercial airlines.   In some years, none die - at least in the US.

Why do we fear flying (and we all do, to some extent) but are comfortable with much more dangerous driving?  We can control our driving (or so we think).  However, we give up control the moment we set foot on an airplane. We are also more familiar with driving, so we fear it less. It is a known thing.  Flying is more infrequent, so it seems scarier.

So, we fear what we cannot control, but are not afraid of what we do control.  We fear small losses but ignore huge potential liabilities.  We are comfortable with the familiar, but fearful of the unknown.  How does this affect our finances?

Well, it is a road map for marketers to sell us things - like credit protector, identity theft protector, loan life insurance, life insurance, vacation insurance, extended warranties, and other things that attempt to provide "peace of mind" and protect us from things beyond our immediate control.

This two-sided nature of fear is what sells collision and comprehensive car insurance - to insure the fenders of your car from denting - while at the same time few people bother to get more than the minimum liability coverage.  They fear some small dent in their car caused by "others" but don't fear being sued for a million dollars when they kill a pedestrian.   We can control the latter (we think) but not the former.

But a funny thing, when it comes to fear, we cower at the thought of someone stealing our credit card data (which has happened to me twice so far, and it is not a big deal - just a hassle).   But things that are in our control?  We have no fear.

I have heard from so many people that they "Cannot afford to save for retirement" so they'll "just work until they are 70!" They have no fear of what will predictably be a horrific outcome for them - being old and broke.   They just shrug it off.   It was their responsibility and they blew it off.  Big deal.   But, they have "credit protector" on their credit report, in case one of those evildoers tries to steal their identity!

And it is paying too much to insure against these trivial fears that often leaves us with no money to save for ourselves.  In other words, the marketers know they can sell us on small fears, and take away the money we should be spending on larger fears.

We are afraid of long-shot outcomes but are blase about predictable events in our lives.   And the odd thing is, you would think it would be the other way around - and that people would act accordingly.  But they don't - which is why they underfund their retirement and worry about an extended warranty.  We put our priorities ass-backwards.

As I noted in other postings, fear is the least useful emotion, and I think this two-sided nature of it is why.  We are not afraid of the things we should be deathly afraid of.  Yet we are terrified of inconsequential (in the greater scheme of things) losses.

Put fears in perspective.  Are you "blowing off" major things you should really be afraid of?  And are you overly-obsessed with trivial fears?

Just a thought.  There are two sides to fear.