Tuesday, February 16, 2016

Self-Destructive Mantras

The mother of all normative cues are the slogans and mantras we repeat to ourselves or tell to each other, and digest without thinking of what they really mean or their consequences.

In my previous posting, I discussed how that often in finances, we use "Rules of Thumb" to reduce complex calculations to simple terms.  For example, in Real Estate, in a normal market, you can expect it to take up to five years before the transaction costs of buying and selling a house are cancelled out by the appreciation in the home.  If you buy a house and sell it three years later, you may have been better off renting.

Such "Rules of Thumb" can keep you out of trouble.  And most of these "Rules" are derived mathematically and based on hard experience.  As a result, they make financial sense.

However, there are other slogans and mantras out there that are promulgated, often by people trying to sell you bad bargains, that appear to be rules of thumb, but are in reality are justifications for bad behavior.

And most of these mantras are utter nonsense.   They are just comforting slogans to say to yourself while your financial life is going down the shitter.

Examples include:
"I'll always have a mortgage"

"You'll always have a car payment"

"I'll never pay off this credit card!"

"Student Loans - its like a mortgage on life!"

"Everybody borrows money - that's how you do it!"

"Hey, you're gonna die anyway, might as well have fun!"

"You should buy as much house as you can afford!"

"By leasing, you only pay for the part of the car you are using!" 
"Housing prices will always go up in Fairfax County!"
"Buy now or be priced out of the market forever!"
"Buy Land, they're not making any more of it!"
Most of these have  been said to me at one time or another, usually by someone wanting to sell me something or by my boss trying to make sure I was in debt up to my eyeballs.  When I have followed such "advice" I ended up getting burned in every single instance.

What is scary is that many people can't distinguish between a "Rule of Thumb" and a mantra.  On financial sites, you see mantras repeated all the time.  Or people just spout nonsense.

Before I disabled comments on this blog, I used to get these sort of comments (which is why I disabled comments on this blog).

For example, in response to a discussion on leasing, a fellow opined, "Yo, ya gotta keep your cash a-flowin!  Leasing helps with your cash-flow, Bro!"

I mean, how do you even address that?  It is a nonsensical non-sequitur.  It means absolutely nothing whatsoever and thus cannot be dissected.  It is just a lot of wishful thinking wrapped in sloganism and dusted with a little street-talk slang.  It may sound hip and cool, but it is nonsense and moreover horrific advice.

But for a lot of folks today, this is what passes for "thinking" - believe in whatever convenient thing you want to believe in, and disregard reality entirely.

Hey, I want a new Camaro.  Might was well "enjoy my money" (another mantra) otherwise, "why bother making it?" (another mantra).   And the debt?  Well, "That's how you buy things" (as one boss explained) and why not lease to "free up my cash flow" (mantra) so I can "invest the cash" I didn't have laying around anyway.  Better yet, get grandma to co-sign a loan!

Mantras are not thinking, they are anti-thinking.

The next time you are on a financial site, take a look at the nonsense people are promulgating, particularly in the comments sections.   Most of it is mantras, disguised as rules of thumb.   The difference between the two is easy to detect.  A Rule of Thumb can be dissected and analyzed mathematically.   Logic and reasoning are behind it.

Mantras, on the other hand, are just pure emotional thinking that cannot be dissected, argued, supported, or undermined.   They are just conclusory statements making the conclusions that people are predisposed to hear.