712: Brad Klontz | Harnessing the Power of Financial Psychology

712: Brad Klontz | Harnessing the Power of Financial Psychology

[00:00:00] Jordan Harbinger: Coming up next on The Jordan Harbinger Show.

[00:00:02] Brad Klontz: If you're struggling with money, I always say, look into your family history, become an anthropologist. Study your family. Ask your family members for stories — what it was like for them growing up — because that's how we're going to end up playing it out in our own lives.

[00:00:17] Jordan Harbinger: Welcome to the show. I'm Jordan Harbinger. On The Jordan Harbinger Show, we decode the stories, secrets, and skills of the world's most fascinating people. We have in-depth conversations with scientists and entrepreneurs, spies and psychologists, even the occasional mafia enforcer, arms dealer, extreme athlete, or neuroscientist. And each episode turns our guest's wisdom into practical advice that you can use to build a deeper understanding of how the world works and become a better thinker.

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[00:01:10] Today on the show, you've all heard the statistics, three out of four people stress about money. Couples usually are fighting about money when they are fighting. 45 or 70 percent, depending on the stats you look at of Americans, anyway, have no savings and are one medical emergency away from being practically homeless. The truth is lots of us have bad financial habits, whether that's how we grew up, people that were or are now around us, fears and insecurities we've developed, because of circumstances or life events, et cetera. And most people who talk about the psychology of money are not qualified whatsoever to talk about the psychology part. They're often financial planners or budgeting experts or something along those lines. And they ignore all of the underlying reasons that we are bad with money in the first place or make bad decisions.

[00:01:55] That's one of the reasons that I chose Dr. Brad Klontz for this episode. He's actually the only person that I could find who has a PhD in psychology, as well as specializing, focusing on the psychological elements and aspects of money and finance. And today, we'll explore the effects that our tribes have on us and the invisible money scripts that get written into our minds because of how we grew up, how we related to money in the past, and how we relate to money in the present as well.

[00:02:23] Now, here we go with Dr. Brad Klontz.

[00:02:29] Yeah. I'm excited for this one because most people who talk about the psychology of money are not at all qualified, whatsoever to talk about psychology. And that's one of the reasons I chose you for this episode because there's a lot of people with books or blogs on these subjects, but nobody has a PhD in psychology. It's kind of like the psychology of money. And then they just do life hacks and they're like, that's what psychology is. And it's like, well, not really, though at all. I don't know. What's your take on that?

[00:02:58] Brad Klontz: I think here's a couple of reasons for that. Number one, I think psychologists have a hard time talking in a way that other people can understand.

[00:03:06] Jordan Harbinger: Yeah.

[00:03:06] Brad Klontz: And really feel like its relevance. So I feel like there's a huge market for people who can popularize many of the concepts and they do quite well. The other thing is that psychologists and therapists in general tend to be money avoidant. So they tend to have a negative association with money themselves. And so then of course they're not equipped to talk about it. And as a matter of fact, they will quite often have lower financial health than many other professions.

[00:03:30] Jordan Harbinger: That's interesting. So it's almost like you might not be great at talking about something that you're not actually good at yourself. It may be a little bit — what's the word? Like incongruity, right? Like it's hard to help somebody with a problem where you have that same problem and you still can do it because you might have best practices, but you don't really have broad or deep experience solving that problem if you have the same exact problem.

[00:03:53] Brad Klontz: Right. And the studies we've done on therapists have found that they tend to look at money as being somewhat negative or to become wealthy, you have to be corrupt or you have to take advantage of others or there's virtue in living with less money. So that is a common pattern in terms of beliefs around money that we have seen in the helping professions.

[00:04:12] Jordan Harbinger: I can see that. Our Feedback Friday inbox, where we take advice, questions, and things like that, will have things like, "I never got into this to make money as a teacher, but now I'm starting to feel the sting, but I just don't want to sell out." And I'm like, "Ah, okay. I'm sensing that you think being a teacher means you have to be struggling financially," which is not really a great way to live your life, even if you are helping people, right? Because you're still struggling. And then it's like this private struggle. And if you're sort of psychologically unwilling to trade one for the other, you might deliberately get stuck somewhere because that's how you help people if you can't afford to go on vacation or you high-quality food or whatever.

[00:04:51] Brad Klontz: Yeah, absolutely. And underneath it is this idea that you can't do both.

[00:04:54] Jordan Harbinger: Mm-hmm.

[00:04:55] Brad Klontz: So it's impossible to actually have money and be a good person, or to make a lot of money while helping people. You really need to meld those things together. I think to be a good human being, having a good existence on earth, quite frankly, but also to help people. Like if you are stressed around money yourself, if you're not in good financial shape — I mean, money is the biggest source of stress in the lives of Americans. And so if you're living in that stressful sort of place, I mean, you're going to be less effective in being able to help people anyway.

[00:05:21] Jordan Harbinger: Yeah. Three out of four people stress about money, that's from your book. And 45 percent have no savings whatsoever. That's terrifying. Like I've seen my parents, social security checks. They are really not going to do much for you. I mean, if you're living on that, you're probably in trouble.

[00:05:39] Brad Klontz: I think so. And it is one of the big ironies too, that we are the wealthiest country on earth and we're living at the most abundant time in human history. Yet our savings rates can be so abysmal. What is our psychology around money? Why are we approaching it this way in our country? Because other countries approach it very differently. For example, in Japan, the savings rates, historically, had been around 30 percent. What's so interesting too, is when times are great, in the United States, so when things are flush, everybody's optimistic. We save even less.

[00:06:09] So during COVID, our savings rates shot up into the like 20 percent range, which is some of the highest we've ever had in history. Meanwhile, before the Great Recession, when things were better than they had ever been in history, our savings rates were a negative half a percent. There's a mismatch there.

[00:06:26] Jordan Harbinger: Is that because people are overly optimistic whenever I get on younger people — this is how I know I'm an old man, whenever I get on younger people about saving, they're always like, oh man, they tell some version is, "I'm going to be rich later. So it doesn't matter what I do right now." And I'm like, "That's not how this works, man."

[00:06:41] Brad Klontz: Yes. I mean, we are all excessively optimistic and in many ways, there's a lot of studies done on this. The other one I get is this fatalist thing. And especially from this new generation, but I think every generation had their own fatalist approach to this, but it's, "I'm not going to be alive anyway, the world's going to end." You know, for Gen Xers, it was like, "Well, we'll probably all die in a nuclear Holocaust." And now it's global warming. Like the earth won't be here in 20 years. So I hear a lot of these excuses for, "Why would I bother saving when I'm not going to be around to enjoy it later?"

[00:07:09] Jordan Harbinger: They might want to redo the math on not being here in 20 years due to global warming. I mean, nuclear Holocaust, unfortunately, over the past couple of weeks has gotten a lot closer, but the global warming thing is still kind of unlikely to kill you before you need to dip into your savings if you're 42 right now, or even 20, frankly.

[00:07:27] Brad Klontz: I think it's like every generation is utterly narcissistic. And we think that all the great world events are going to happen while we're alive, including the end of the world. Like, I think this has been something that's been going on for centuries. We all think that it's going to happen. Of course, it's going to happen in my lifetime.

[00:07:41] Jordan Harbinger: Why wouldn't it? I can't miss this. The universe wouldn't do that to me. The universe wouldn't have me live a peaceful life and then, and die after living a long fulfilled life. No, no. We have to have an apocalyptic cataclysm before I go.

[00:07:53] You mentioned that many people were raised in interdependent financial circumstances. What is that? What does that mean?

[00:07:59] Brad Klontz: It's an Achilles heel for many of us who are climbing the socioeconomic ladder. And one of the things we want to be careful of is if you grew up not having much, you're going to have a natural tendency to want to give your children everything. It's a slippery slope. And a lot of people get into big trouble doing this because we forget to instill in our children, the mindset that creates wealth.

[00:08:21] And so they can become dependent on us financially. And then on the flip side of that, we can be financial enablers. And so financial enabling is basically financial help that hurts. So we're trying to give money to somebody, often our children, family members in a way that we're trying to be helpful, but it actually hurts them because it reinforces behavior.

[00:08:42] Money is a very powerful reinforcer. And so whatever behavior precedes it is going to increase when you give them money. So if you are giving money to somebody who is doing nothing, you are reinforcing the act of doing nothing. It's very simple psychology 101, but, and we have to be really cognizant of it when it comes to how we're interacting with others around money.

[00:09:02] Jordan Harbinger: Consuming, as fast as we acquire. So not saving the thing, we just sort of griped about. It's actually hardwired or at least in our DNA. And I would like to talk about that because I think a lot of people have guilt-based around that and that's not super helpful. It's almost like feeling guilty that you gain weight when you eat. Your body's designed to do this. It's been hundreds of thousands of years. You're not going to get around it through sheer will because it's not what you are supposed to be doing, physically. And I didn't realize that consumption was actually a part of this as well, but it totally makes sense.

[00:09:32] Brad Klontz: Yeah. It makes sense with your diet example also. What's fascinating is that when people are doing things right around money, it's actually going against all of their biological and social, and evolutionary conditioning. And I think it's a really important point. To your point, shame is a huge factor around money and it keeps us stuck. Like shame is no good for anybody. And what I like to tell people is, of course, you're screwed up around money for several reasons. And one of them is because your genetics have set you up to not save.

[00:10:00] Think about prehistoric human beings who are running around in tribes of a hundred to 150 interconnected people. You're a nomad. Like you literally cannot carry a bunch of stuff. Like you're not designed to do it. As a matter of fact, even having children gets delayed over the course of years until a child can actually walk and you can carry the other one. I mean, this is kind of how we're we're wired.

[00:10:21] We are not wired to save. We are wired to consume. We see this with our diets. We are wired to eat as much fatty, salty, sugary food as possible because that's how our ancestors survived. Saving goes against that ancestral way that we're wired. Another example of it is if you hoard things and are selfish within a tribe of a hundred to 150 people, you're not going to last very long. You are going to be looked down upon. We have to share in those environments. And so we are wired to share. We're wired. We get something we give it away. We share. And so to ask somebody to go ahead and keep a bunch of resources for their family, thinking of the future, which we're not wired to do, goes against our programming.

[00:11:02] Jordan Harbinger: There's a bunch of questions I want to ask about the sharing stuff as well, because you see that now and people just go, "Oh, what a knucklehead, look at him, giving away all his money or buying things for people that he barely knows." And it's like, well, that's sort of how we did things for a really, really, really, really long time. We're the weird ones, the ones that are like not talking about money and hiding it and having bank accounts that are stuffed here and there and not talking about finances anywhere. The shame around money, not productive, it does get us stuck and keeps us from asking for help. And I think a lot of people are raised with that, especially if their family is not good with money. It's like, well, we don't talk about that because it makes every single person in the family uncomfortable.

[00:11:40] Whereas I think I was raised, my dad was pretty good at investing, even though he was an auto worker, right? And like not making, not exactly printing money, but he would always tell me things like strategies and things to do with money and how money worked. And we had, we would be listening to Money Talk AM radio in the car, which is brutally painful when you're like 12 years old. But you still go, "You know, what's an index fund? Why is Vanguard better than Fidelity or vice versa or better than these other ones? Oh, the fees are lower. Well, who cares? It's just a small fee. Well, it adds up over time." You know you get these little things almost through osmosis.

[00:12:11] That I realized when I was an adult, other people have never heard of these things. I had a business partner and his family was terrible with money. And I was like, "Yeah, I just put my money in index funds." And he's like, "What are those?" And I'm like, "Dude, we're 34. You need to know this stuff, man. You're not investing." And he is like, "Not really." That sort of shook me up. Now, that I'm not afraid of talking about money with friends and family, I find that it's kind of — and I'm sure you've seen this, it's jarring how little people seem to know. Like, what do you mean you don't save anything? What do you mean you're relying on your job pension to pay for your retirement? That kind of thing.

[00:12:44] Brad Klontz: I feel like there's been a huge societal shift away from society and the tribe taking care of you.

[00:12:51] Jordan Harbinger: Yeah.

[00:12:51] Brad Klontz: As you get older to now, it's a hundred percent on the individual and this shift has happened in my lifetime. So my grandfather worked for GM, you know, from Detroit and he never had to worry about saving. He didn't have a dime saved because he had a pension and GM was going to take care of him and take care of my grandma and they were going to be fine. That is not the case anymore.

[00:13:11] So very subtly behind your back. What has happened? Corporations have offloaded the liability of taking care of workers as they get older with pensions. And it's now a defined contribution. It's not something that is being done for you. It is something you have to do yourself. And I feel like we've really made a big mistake because huge shift in how we're handling this. But we haven't really told people. Like, we're not training them in school. We're not teaching this the way we should be teaching this because it is offloaded from society. It's now on the individual and on that particular family. And that's why I think so many of us are in trouble.

[00:13:45] Jordan Harbinger: Yeah. We're both from Detroit. So you remember when Delphi went out of business, right? That auto supplier. And I was talking to my dad about this a couple of weeks ago when he came to visit and I'm just like, "So all these people just don't get their pensions?" And he is like, "Yeah, they just don't get it." And he's like, "Yeah, so and so," because he knows, you know, works in Detroit for his whole life. He's like, "Yeah. Three of these guys, like they just didn't get their pension." I'm like, "I hope they had money saved," and he's like, "Oh, I don't think so. I don't think they had enough or anything." And he's like, "They just got totally screwed. They worked there for 26 years." It would be like, you just found out one day that your 401k was worth nothing.

[00:14:19] Brad Klontz: And we're sending young people into the workforce and they have no idea what a 401k is. They don't know that their ability to survive and feed their family and take care of themselves as they're old, depends on them, checking the box when they first get a job to start contributing. And then, of course, they don't do it. And then lifestyle comes into play. And then it's really tough to dial back, you know, 20 percent or 30 percent of your spending when you realize you've made a mistake later on.

[00:14:46] Jordan Harbinger: And behavior change is tough, right? We talk about habit change a lot on this show, fighting behavior, like you said, that's in our DNA and hardwired is even harder, but in addition to not saving, we're actually wired to pay more attention to earning because of these sharing genes that were selected for. Can you talk about how genetically we've actually almost been selected to be the ones that buy things for other people that we barely know? We've actually evolved or I should say sexual selection has almost made us less able to take care of ourselves and to save.

[00:15:15] Brad Klontz: Right. And if you think about what it takes to survive and pass on your genes, let's just think about that because we are all the result of people who've been really successful at passing on their genes one way or another.

[00:15:27] And one of the ways that you do that is you project that you have status because that's how you would attract a mate. Now, I'm talking specifically like traditional males. You would attract a mate by projecting status and that female would be attracted to you because she wants her offspring to have the best chance of survival. She might not know this, but these are the ones that survived and thrived did that. And so we have a tendency to want to have outward displays of status. And this is something that's also hardwired in. And it's one of the things that make social media toxic in the sense of our relationship with money because we are just shown all these images of people with really expensive watches and cars and mansions, all of which are not how most wealthy people actually spend their money.

[00:16:08] So the other thing I've been obsessed with is researching — okay, so what do self-made billionaires actually do? I see what the society tells me they do on social media or Lifestyles of Rich and Famous or MTV Cribs, it's not true, but we have a tendency to want to show that status, which leads to overspending on a really large scale.

[00:16:25] Jordan Harbinger: There's a couple of Instagram accounts that I follow that spot people who are wearing like fake watches, especially influencers and people who claim to be doing really well. And it's like, this is a $20 fake watch, and it's not just to clown on these people for posing. It's actually almost like they bust scams and other things on these accounts. And I found it really interesting because some of the people that I know that earn, let's say they earn $150,000 a year. Of course, I'm speaking in broad terms here. A lot of these guys will buy watches. They'll get a really nice sports car, maybe even something that they can't quite afford. And I know plenty of people that make maybe five million a year and they don't have that. They drive like a Tesla Model 3, or they've got like a very understated Mercedes. That's just kind of a regular sedan. Maybe they have another car. That's fun, but not always. They don't own boats. They don't post photos of all this it's the status jockeying happens kind of at the upper tier of the lowest class, I would say. Does that match your research?

[00:17:25] Brad Klontz: It really does. So in our studies, we have found this, the strong desire to project your status as money, you know, "I'm showing you that I've made it, that I'm important," that people who do that tend to come from lower socioeconomic homes. So frankly, they grow up poor. And what they're trying to do is they're trying to show people that they've made it.

[00:17:43] And the scenario you painted is the one I see quite often, people are making six figures, and then before you know it, they've got a Rolex, they're leasing a Mercedes. They're trying to show the world they've made it. And what's fascinating is as a scientist — and I grew up lower income, so let me just be blunt with you — and so I was really curious about the psychology of wealth for some selfish reasons, too. Like, okay, how are these people thinking differently? How are they spending? And one study, we did, people had about 11 million in net worth and we compared them to a group of people that had about $500,000 in net worth.

[00:18:14] What we found is that those people with 11 million in net worth, they only spent twice as much on their watch, their house, their car, and their last vacation. They had about 18 times more money.

[00:18:25] Jordan Harbinger: Yeah.

[00:18:25] Brad Klontz: They only spent about twice as much. That gives you a clue into what it takes to climb the socioeconomic ladder. Here's the takeaway. It's actually not spending your money. It's actually holding onto some of it. That's how you become wealthy.

[00:18:42] Jordan Harbinger: You're listening to The Jordan Harbinger Show with our guest, Dr. Brad Klontz. We'll be right back.

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[00:21:44] Now back to Dr. Brad Klontz.

[00:21:49] I love the idea that you have in the book, which is to interview your parents around their beliefs around money. Can you take us through this? Because I think a lot of people need to do this. They've never talked with their parents about money or it's once every 10 years there's like a money conversation and it's usually uncomfortable. What do we ask our parents? How do we read or interpret the results? And then how do we actually take action on those results?

[00:22:12] Brad Klontz: So this is something that I — when I first got interested in the psychology of money and all that. Psychology had pretty much ignored the topic. So I sort of joked that within a matter of a couple of weeks, I became the world's leading expert because all of my peers didn't want to talk about money, but I was trying to figure out my own relationship with money. Because I started day trading out of grad school. I was trying to make a hundred thousand bucks to pay off my student loans. I lost all my money in the tech bubble and I was like, "Why would a reasonably intelligent person do something so stupid with his money?" That was the question I asked myself.

[00:22:39] As a psychologist, I immediately looked around to blame my mother and my father.

[00:22:44] Jordan Harbinger: It's all my parent's fault.

[00:22:45] Brad Klontz: Exactly. Of course, I did. So I went home and I interviewed my mother and I sat down with her and I'm like, "Mom, what was it—?"

[00:22:50] Jordan Harbinger: How dare you?

[00:22:51] Brad Klontz: Yes. Well, she'd been through this before. She'd been through this before and I'm like, "What was it like for you growing up around money?" And she started, "Talk to me about it," because I'm realizing, oh my gosh, this is me. Like I'm playing out whatever's happened in my family. And I've got stories that go back for generations. It's like, we are all clueless automatons playing out a script that may have been developed by your great grandparents.

[00:23:12] And here you are thinking that you're in the situation because of your own self. No, no, no. You're playing out a pattern in your family. And so I found out stories that went to my grandfather, for example, who lost his money in the Great Depression like went to the bank one day and all the money's gone.

[00:23:25] Jordan Harbinger: Wow.

[00:23:25] Brad Klontz: I didn't know that. I knew that he lived in a trailer. I knew he had no money. What I didn't know is he never put a dollar in the bank, the rest of his life. He died in his 90s. All of a sudden, my mother's trepidation around investing and not trusting, risky — it all started to make sense to me. I'm like, of course, you know, my grandfather was so afraid that he wouldn't even put it in the bank. No wonder my mom's so anxious about not having enough. No wonder my family has been poor for generations. We're acting like poor people. We're doing what poor people do.

[00:23:54] And so it really sheds a light. If you can do that with your parents and your grandparents. Find out those stories. How did they feel about their socioeconomic status growing up? What events happened? Was there financial trauma? Was there a big money loss? You know, you might find out that you had an uncle or a great uncle that started a business one day and he lost it. And that's why your parents have been telling you, you have to be a teacher, get a government job.

[00:24:16] If you really want to understand why you're doing what you're doing and if you want to transform your financial life, look into your past.

[00:24:21] Jordan Harbinger: Coming from the position that I was in. And you might have the same experience. Growing up in Detroit, I didn't know anybody who owned a business that wasn't a Coney Island restaurant or a dry cleaner, or something like that, or a Chinese restaurant. And I didn't want to be in the restaurant business. And the dry cleaning stuff didn't really appeal to me, and it was also like foreign people running those usually.

[00:24:40] So I just thought, "Well, you can't just start a business. Those are huge. And there's corporations stuff. You don't just get an idea and then turn it into a business. That's not a thing that people do unless it's one of these two things." And so I never thought about it. And then as I got older, I was like, "I guess I'm running a business." And my parents were like, "Yeah, it sounds like it." And it was literally charging for services that I had sort of created it. It was ridiculous that I didn't think of it as a business, but I'd been wired to not do that.

[00:25:07] And it took a lot to sort of climb out of that mental jar and be like, no, I'm running a business. I'm an entrepreneur. I guess I'm running something that I started. It's a real business. It's not a pretend thing. It's not a side hustle. This isn't what I'm going to do while looking for another job. This is the thing that I'm doing. And it takes a lot to wrap your mind around that when you don't have that as a background.

[00:25:29] Meanwhile, my friends whose parents ran a business, they never thought about getting a job. It never occurred to them to work for somebody else.

[00:25:36] Brad Klontz: Yes. You know, your metaphor of a jar is perfect. It's almost like a separate tribe, right? And so this is one of the things that I recommend. If you want to move to a different socioeconomic tribe and thrive there — by the way, it doesn't matter going up or down, most people want to go up. It really pays. I mean, it's a different culture. It's a different language. It's a different set of beliefs. It's a different set of behavior. Just core assumptions. Like the one you said, like, of course, you should run a business versus another tribe that would say, "Oh my gosh, don't run a business." I mean, it's unbelievable how these seep into your subconscious and they decide for you and they tell you what's possible and what is impossible.

[00:26:15] And so one of the best hacks I've used in my life that I encourage people to use. If you want to climb the socioeconomic ladder, you need to look at it as almost like another country you want to go visit and you're going to go live there. So you're going to have to learn the language. You're going to have to figure out how they look at things. How do they approach things? How do they handle money?

[00:26:31] One of the things I noticed from my upbringing is I had do-it-yourself-itis.

[00:26:35] Jordan Harbinger: Oh, yeah.

[00:26:35] Brad Klontz: Which is something that happens in like lower income, middle class where it's like, "Oh no, I'm going to do my own taxes. Of course, I am. I'm going to get my aunt to do them. You know, because my aunt would do everyone's taxes." And your car breaks down, oh, well you got to fix it yourself, right? Now, that can be great. Like do-it-yourself stuff. But what we have found in our studies is ultra-wealthy people. They don't do that. The only people who are quite frankly managing their own money and trading their own stocks. They're not the ultra-wealthy. Most of the ultra-wealthy people have financial advisors, and just as another example, or doing your taxes. And so this being willing to ask for help, but the barrier is that you don't know these people if you grow up—

[00:27:11] Jordan Harbinger: Right.

[00:27:11] Brad Klontz: —poor, and you don't trust them, right? Because they're part of a system or a tribe you don't belong in. And so you're paranoid about it. And that's something you have to overcome if you want to thrive in a higher socioeconomic status.

[00:27:21] Jordan Harbinger: This still sort of comes out even as open-minded as my parents are. I'll say, "Yeah, I'm running an ad campaign," and they're like, "So you're just paying someone else to do advertising for you." I'm like, "Well, yeah. That's how that works." "Well, how much are you spending." "This." "Well, how do you know they're doing it?" "Well, I can look and check here." "Well, how do you know that it's working?" "Well, I can look in this dashboard," and they're just like so suspicious that me giving a large amount of money to somebody else for something is a good idea. And at first, I was like, "Come on, give me a little credit." And then I realized it wasn't me. It was just that they would never have the risk tolerance to spend, let's say a million dollars on growing a business because they've never had to do that before. So to them, it's like, "Why would you give away the money you have for your retirement," in theory, where that's, where they think it should be, "on scaling your business, you're already making money, just save the rest of it." And I have to sort of overcome that programming and not so much programming, but also the voice that's literally in my ear telling me not to do that.

[00:28:16] Brad Klontz: Yes, absolutely. It's not just your subconscious, it's literally sitting next to you.

[00:28:20] Jordan Harbinger: Right.

[00:28:20] Brad Klontz: And I think that's where studying and finding somebody a step or two ahead of you. That's what I always suggest. Find someone a step or two ahead of you that is doing what you want to do or is closer to what you want to do. I use the example of writing a book because I'm an author. If you go to somebody who's never written a book and ask for their advice, they're going to tell you how hard it is. If you talk to an author, they're already assuming that, of course, you can write a book. And so what they're going to be talking to you about is just in a totally different frame. Of course, you can write a book and this is the strategy and this is what you would do. And just that level of assumption is so incredibly powerful and it takes a really strong individual to sort of push past some of those messages to try something new.

[00:28:59] Jordan Harbinger: Financial enmeshment, tell me about this, because I haven't experienced this, but I know plenty of other people that — I should say I suspect some people that I know are victims of this growing up anyway.

[00:29:10] Brad Klontz: So we've talked about how parents don't share money—

[00:29:13] Jordan Harbinger: Right.

[00:29:14] Brad Klontz: —stories and information about money. Financial enmeshment is when they share like way too much. It's way too much financial information that they're sharing with kids. And part of what's being shared quite often is a bunch of anxiety around money. And so, for example, if you grew up in a family didn't have much money or was facing a big financial catastrophe. You're eight and your parents are crying because they lost their job and they're telling you, they're not sure where they're going to live. They're passing down some kind of inappropriate information for you. A lot of it's emotional. Like it's important to tell kids what's going on, but if you're using them as a therapist, that's when you know that you might be going about it in a bad way, but it's sharing too much financial information where kids aren't equipped to deal with it.

[00:29:53] So it's really important to teach kids about money and to model it. Use allowance strategically, but to pass down your fears, your anxieties — I've worked with a lot of adults who have tremendous fear and anxiety around money, and they can trace it back to some of those early experiences where their parents are involving them in the details of a divorce, fights over money, creditors coming after them, that sort of thing.

[00:30:14] And so it's important to share information, but make sure it's developmentally appropriate.

[00:30:18] Jordan Harbinger: What do we do instead of telling our kids, we can't afford something? Obviously, that's a basic reality for everyone. There's always going to be something that you can't afford, whether it's the new Nintendo, like thing at Christmas, that's just too expensive or your kid wants a nicer car than you had planned on helping them get, right? "You had in mind used Toyota Corolla." And they're like, "Look at the new Mustang. Isn't it great? I want an orange one." What's appropriate and what's not?

[00:30:43] Brad Klontz: I think that parents will get stressed about money and when their kids come and say, "Hey, can I have this thing?" And you can't afford it. You get triggered and you get emotionally flooded and you feel like a failure. And so then you're upset and you try to shut your kids down or you yell at them if you're having a bad day or you tell them you can't afford it. And I don't like that, "I can't afford it," thing because I'm just going to argue back and say, "I bet you can. What if you sold your house? What if you sold all your possessions? You could probably then afford it, right?" And I think that's probably a good frame to get in because what you really want to do is you want to talk to your kids about why you're not going to be spending your money that way.

[00:31:18] So you might say something, I mean, like, "We could. We could go spend our money doing that. In order to do that, I'd probably have to not save as much for retirement. Let me tell you why that's important and why we wouldn't want to do that. And let me tell you, if we do want to go on vacation to Disney World, this is how we'll approach doing it. We'll start saving," and involve your kids in that process. Use it as a teaching moment. Don't let your own shame or feeling bad about not being able to give your kids something you wish that you could give them. Don't let that stop you and set you up to give them some bad messages.

[00:31:46] Jordan Harbinger: There was a kid growing up, and of course, this is anecdotal, but there was a kid growing up and it was like a single mom situation, two boys, and they had freaking everything, man. They had every new video game, every new toy, they all went to Disneyland every year, a bunch, they would get new clothing, they had designer stuff. And I just remember thinking, "What does your mom do?" And she was like a nurse at a hospital, you know, a normal job, but it has occurred to me as an adult that that woman probably died up to her absolute eyeballs in debt or had just nothing saved at all. And these kids were in for kind of a rude awakening. I know them still. And one of them works retail at a shopping mall. And I thought, wait a minute, there's no way you can afford the life you grew up with unless you are also in deep debt. So when I read your book, I was like, these money patterns for this family are just horrendous. Like they were set up to fail from the jump.

[00:32:37] Brad Klontz: Absolutely. And modeling is the primary way in which we learn. If you're struggling with money, I always say, look into your family history, become an anthropologist. Study your family. Ask your family members for stories — what it was like for them growing up — because that's how we're going to end up playing it out in our own lives.

[00:32:53] Jordan Harbinger: As a psychologist, what do you think about the affluenza defense? You know, that case where the kid was drunk and he killed like four people and then I think he got probation or something like that. And they said, "Well, he grew up so wealthy and never hearing the word no, that the consequences of his actions were not available to him psychologically. Like he couldn't realize that his actions had consequences. Therefore, he can't be punished as harshly," which didn't go over well with the entire general public. And I'm not sure how that case ended up, but you know what I'm talking about, right? Have you heard about this?

[00:33:21] Brad Klontz: Yeah, absolutely. I thought that was a clever, desperate defense move, but of course, it's bollocks, right?

[00:33:28] Jordan Harbinger: Right.

[00:33:28] Brad Klontz: I mean, we're responsible for what we do. I mean, there's a lot of people who would have the poor defense too. It's like, what's fascinating about it is it's true that if you're on the upper rings of the socioeconomic status, it's really hard to relate to the experiences of everyone else in the world. Now, as you're hearing, that before you get too upset at these ultra-rich people, I'm talking to you, Americans—

[00:33:49] Jordan Harbinger: Mm-hmm.

[00:33:49] Brad Klontz: Okay. You are not having the experience that many people are in countries of poverty and war. You have no clue what it's like for them. So before you get too high and mighty, this is something that happens for all of us. And the further we are away from somebody socioeconomically, the harder it is to relate to them.

[00:34:06] Jordan Harbinger: That is an uncomfortable truth for a lot of folks. You're right. No matter where you're listening to this, you're probably using a device that somebody on the other side of the world has no hope of ever affording their entire life. Maybe your phone is worth more than somebody makes in a year. You think that you don't have resources and that you're poor, but it's all relative. And we'll get to what that sort of means in a bit.

[00:34:27] You mentioned before getting paid to not work is very dangerous, this financial dependence. What do you think of concepts like universal basic income in that case? Because you're kind of getting paid regardless if we have UBI.

[00:34:40] Brad Klontz: Yeah. So I haven't studied the policy very closely, but I know there's going to be some downsides to it, absolutely. So it would have to be structured by a like psychologist or a kindergarten teacher. They're actually really good at psychology and how to motivate people.

[00:34:56] So we'd have to structure it because ideally what you want money to do is reinforce a behavior that's desirable, not only desirable, but is in that person's best interest because we want them to thrive and not just survive, but thrive and get what they want out of life. And much of that is purpose, much of that is purpose and motivation.

[00:35:12] And what we have found in our studies with children of ultra-rich families, like one of the downsides is that if you are getting money, that is not based on anything you're doing, so no effort on your part, it leads to this financial dependence mindset, which is really, really dangerous. It leads to a lack of motivation, a lack of purpose and pleasure and drive, and it really sort of robs you of something that's really important in terms of having a joyful life. And that is having a purpose and something you're passionate about. So we want to make sure that we don't take away people's sense of purpose and passion by giving them money for doing nothing.

[00:35:49] Jordan Harbinger: You know what you said makes sense. Because I think never having to figure out your work life probably leads to a lack of purpose and drive. It's hard to find passions when your career success is completely irrelevant, right? Like, "Oh, I'm the best at this." "Well, who cares? Your trust fund made 10 times that this year, even though you're the best, whatever." And it's like, well then what's the point of even getting to that level? Yes, there's personal fulfillment, but do you ever even really get a taste of that if you're always going to just be completely loaded?

[00:36:20] Brad Klontz: Right. And this is where some of the studies on money and happiness and wealth and happiness. The results are controversial, but there definitely is a downside to not having to like struggle and work for something. You know, there's a sense of pride in achievement when you've put in effort. And when you're working, in psychology, we call it flow. So there's a bunch of research on flow, and this is where you're immersed in an activity that is challenging, that you're passionate about. And sometimes for many of us, that's work. And one of the reasons we're working is because we need money or we want to better ourselves financially, or we feel passionate about making a better life for our kids. There's something built into the struggle that is psychologically rewarding. And when people don't have that, sometimes they're floundering looking for a sense of purpose.

[00:37:06] Jordan Harbinger: What about allowance? Do you give kids an allowance or do you do that and say you have to do your chores in order to get this? Because it seems like allowance is a good way for kids to learn about money, but if they never have to do anything for it, maybe it teaches them the wrong lesson.

[00:37:20] Brad Klontz: Yeah. So, you know, when it comes to allowance, it all comes down to the kid. I think it's really important to teach children around money and allowance is a perfect way to do it. I do think that kids should do chores, also. I don't like to tie the two because I've worked with enough adolescence who around age 14 and be like, "You know what? Keep your money. I'm not going to clean my room." So, I think it's like, no, no, no, you, you definitely have to do things around the house and you get an allowance.

[00:37:42] And the way that I think allowances can be really beneficial is to structure it. I've heard a lot of parents complain, you know, "I gave my kid 200 bucks for Christmas and now it's all gone." It's like, "Well, what's the structure do you put around money?" "Well, what do you mean?" "Well, what do you want to teach kids? Because if it's just, here's the money, spend it. Think about that." So they spend their entire childhood, they get money and then they go spend it. Don't be surprised if that's what happens in adulthood, right?

[00:38:04] So one way to structure it is to have children spend part, save part, give part away, and maybe invest part. Each one of those buckets give you the opportunity to teach them how to manage money effectively as an adult.

[00:38:17] Jordan Harbinger: If we don't teach our kids about money and values, it seems like social media, YouTube, television is going to do it. And that's really terrifying. That's what we were talking about before with the lifestyle porn vacation videos, and, you know, people fronting with watches and things like that. And it's like, well, if we don't show them, what's important, then we end up leaving a vacuum that the Internet, that consumerism is going to fill.

[00:38:41] Brad Klontz: I really believe in inoculating your children against sort of the bad parts of social media. And there's been a lot of studies on social media and especially has a negative impact on self-image of girls. You definitely want to be talking to your girls around what images they're seeing and how might maybe they were adapted or changed or photoshopped, how this isn't real life.

[00:39:00] I think the same thing needs to be done around money when you're with your kids, pay attention to what they're doing. Talk about how people will show off and try to show off. Many people, quite frankly, on social media who are leaning against cars and showing watches, they're selling something. I mean, they're doing this for a purpose, right? They're trying to show you that this is how I made it. And it's usually some sort of get-rich-quick scheme and just educating your kids around that by saying, "Hey, look, that's not how people get wealthy and that's not how wealthy people usually spend their money."

[00:39:28] Jordan Harbinger: This is The Jordan Harbinger Show with our guest Brad Klontz. We'll be right back.

[00:39:33] This episode is sponsored in part by Shopify. Hear that little earworm, that's the satisfying sound of another sale on Shopify. The all-in-one commerce platform to start, run, and grow your business. Shopify is a platform designed for anyone to sell anywhere. Giving mere mortals like mere you, the resources once reserved for big business. With a great-looking online store and tools to manage the day to day and drive sales. You don't need to know how to code, design, or anything like that to get started on Shopify. There's 24/7 support if you need help. Shopify is so popular that every 28 seconds a small business owner makes their first sale on Shopify. That's pretty impressive. I love how Shopify makes it easy for anyone to successfully run their own business. Like our friend who just started selling pottery. Shopify powers millions of entrepreneurs, just like you from first sale to full scale.

[00:40:19] Jen Harbinger: Go to shopify.com/jordan, all lowercase, for a free 14-day trial and get full access to Shopify's entire suite of features. Start selling on Shopify today. Go to shopify.com/jordan right now, shopify.com/jordan.

[00:40:35] Jordan Harbinger: This episode is sponsored in part by My First Million podcast. If you're the type of person who's always thinking about new business ideas or wondering what's the next side hustle, I should spin up, check out the podcast My First Million. The hosts, Sam Parr and Shaan Puri have each built eight-figure businesses and sold them to HubSpot and Amazon. Not bad, these guys are pretty sharp each week. They brainstorm business ideas you can start tomorrow. They could be side hustles that make you a few grand a month, or they could be big billion-dollar ideas. A lot of interesting stuff in this podcast, how to start an Airbnb business, what it takes to make money on YouTube. I've talked in the past about a lot of these different topics that have been on the show, because I've been promoting them for a while and vice versa. They also chat with founders, celebrities, and billionaires, and get them to open up about business ideas that they have also never shared before. So search for My First Million, that's My First Million on Apple Podcasts, Spotify, or wherever you listen to podcasts.

[00:41:26] Thank you so much for listening to the show. I love the fact that I get to have these conversations with you. I know there's a lot of codes and some of them are slash Jordan and some of them are weird URLs. We put them all in one place. jordanharbinger.com/deals is where you can find it. You can also go to jordanharbinger.com and search the website, the search box there. You can search that for any sponsor and it should pop the code right up right there. Please consider supporting those who support this show.

[00:41:51] Now for the rest of my conversation with Dr. Brad Klontz.

[00:41:56] If this is genetic, then are there genetic differences between people? Like, what if I marry somebody who has different money, genes, so to speak? And I know it's not quite that cut and dry, but what if they have a different mindset entirely around money? And we've seen relationships fall apart because of this, but it seems like big differences while they can put a strain on a relationship, they don't have to destroy their relationship.

[00:42:17] Brad Klontz: Right. So if you get along with your partner and spouse around money, you're the weird one. Okay.

[00:42:22] Jordan Harbinger: Okay.

[00:42:23] Brad Klontz: So if you're struggling with your partner around certain aspects of money, that's the normal way of approaching money. You know, money is the number one cause of divorce. In the first three years of marriage, it is a hot topic for couples, and people who fight about it the most are most likely to get divorced. I mean, it's a dangerous topic. So quite often we are attracted to people who do things differently around money, partially because we're looking to fill a part of ourselves that may not be fully evolved if you will.

[00:42:47] So for example, I was attracted to my wife. She had more of a free, loving spirit. She was probably more attracted to me because I was more frugal. She could tell I had a good head on my shoulders around money. And so there's all sorts of conflicts we've had in our relationship. And we will continue to have. Like one day, she said, "We should get a couch." And I'm like, "You know what? The lawn chairs are comfortable." Like when we were dating, I literally had lawn chairs in my living room.

[00:43:08] Jordan Harbinger: I was going to say, as long as they're not in the living room and here they were in the living room.

[00:43:12] Brad Klontz: Well, next to the ping pong table.

[00:43:13] Jordan Harbinger: Good Lord.

[00:43:14] Brad Klontz: I was like saving and investing like 50 percent of everything I made. I was like—

[00:43:17] Jordan Harbinger: Yeah.

[00:43:17] Brad Klontz: I'm going to become wealthy. I got nervous when I saw her wanting a couch, right? Because it's like, "Oh man, I don't want to spend money." But also, if you can stick with it, I'll just be honest, Jordan.

[00:43:27] Jordan Harbinger: Like, I just imagine you telling—

[00:43:28] Brad Klontz: Couches are comfortable.

[00:43:28] Jordan Harbinger: There's people at Papua New Guinea and they sit on the floor, right?

[00:43:32] Brad Klontz: Exactly, for free. Why do you need a couch when the floor is free? And so there's an opportunity to have your partner balance you out. So if you're not very frugal, perhaps you can learn something from your partner and vice versa. So there's a huge opportunity. And it's one of the reasons why all the studies that we've done too, people who are married have better beliefs around money, better behaviors around money. They have higher net worth, I mean the whole thing.

[00:43:56] So part of it is it changes your psychology around money too because you're forced to confront somebody else and they hold up a mirror to your crazy ways of thinking about money and the stuff you're doing. And so there's a huge opportunity, but it's a dangerous topic too. And so what I encourage couples to do is to have a conversation around money. This is something they don't do, whether it's the fifth date, the seventh date. You know, when you're talking, do you want to have kids someday? You should be asking the question. Like, what was it like for you growing up around money? Where do you want to see yourself financially? What are your biggest financial goals? Like what sort of strategies do you think we should employ? Or are you employing to get there? This is a conversation we need to have early in the relationship.

[00:44:32] Jordan Harbinger: Yeah, that's interesting. What if we're already married? How do we manage this conversation if we're already in a relationship or, yeah, or married?

[00:44:39] Brad Klontz: I think it's the conversation that you should have had on the seventh date.

[00:44:43] Jordan Harbinger: Sure.

[00:44:43] Brad Klontz: And I've worked with many couples who are in conflict around money, all sorts of conflicts. And what I do is I have them go back and have that conversation. So like quite literally, ask each other, what did your mom teach you about money? What did your dad teach you about money? What was it like for you growing up? What are the earliest memories you have around money? The most painful, the most joyful? What are your biggest financial fears? What are your financial goals? And just have that conversation because you are going to give your partner the opportunity to dive into their psychology around money, which nobody ever does. You're also going to get the opportunity to learn about their psychology. And quite often it really softens the argument because what we have found in psychology is that by the time couples get into therapy, on average, they've been fighting about an issue for seven years.

[00:45:23] Jordan Harbinger: Oh my god.

[00:45:24] Brad Klontz: And what happens is you become further and further entrenched. So the more anxious I am around my wife's spending, the more likely I am to take an extreme position around saving because I'm scared and I'm trying to balance her out. And before you know, it, you both are arguing ridiculous things that you actually never believe to begin with. And so if you're struggling around money, it's normal, you're not alone. And if you can't resolve it, I strongly recommend you talk to a therapist and a counselor just so you can listen and get on the same page.

[00:45:52] Jordan Harbinger: Yeah. This makes sense, right? Because you're, you're rinsing off the toilet paper and hanging it up to dry because you're trying to compensate for somebody else who's buying more and more things just to kind of poke you a little bit, because you're fighting over this thing every single day. And the issue grows to the point where, yeah, somebody buys an extra tube of toothpaste and like gets stabbed.

[00:46:09] Brad Klontz: Right. Absolutely. And you know, it's ridiculous.

[00:46:12] Jordan Harbinger: Yeah.

[00:46:12] Brad Klontz: But you can't help yourself because you're trying to balance out your crazy partner.

[00:46:15] Jordan Harbinger: Right. Yeah. Unbelievable. I love the idea of doing that with a therapist. It seems like if money is such a big issue in your relationship, it probably correlates to how well you handle other issues in your relationship. For example, if other big issues are not dealt with, or if money's not being dealt with, there's probably a whole bunch of other things that are kind of maybe not money adjacent, but at least swirling around the same sort of toilet in your relationship.

[00:46:42] Ramit Sethi, who you know, him and I talked a long time ago, and I remember we were talking at lunch. There was a couple that was with us and they were talking about like their sex life. And we were kind of like, "Okay, you know, open conversation." I go to Ramit, "What do you think they're more open about their sex life or their financial life? And he's like, "By far, for sure, their sex life is going to be something that they're talking about right now, almost unsolicited." But money? When have your friends ever sat down at a dinner, no matter how much whiskey is involved and talked about their finances? That never happens. This is not a 4:00 a.m. in Vegas conversation, but everything else is.

[00:47:16] Brad Klontz: It never happens.

[00:47:16] Jordan Harbinger: Yeah.

[00:47:17] Brad Klontz: And one of the reasons is back to that tribal brain, right? Where we are so worried that we are not going to belong to the tribe. This is another thing we inherited from our ancestors. It's one of the reasons why people who come into money, blow it and go back to where they were because we are so acutely aware of where other people see us and how they see us. And so for me to talk about my finances — and it happens as a financial advisor too. So I'm a financial advisor and people get afraid to tell me, and it's because they're worried that, "Am I saving enough, am I not saving enough? Are you going to judge me for this? Judge me for that?" There's so much shame associated with it, which adds to the secrecy, which adds to the struggles we all have around money because we're not being taught.

[00:47:58] Jordan Harbinger: Money memories is something you brought up a few minutes ago. I would love for you to take us through this in brief, because, yeah, asking our partner about money memories and the way they were raised is good but I think a lot of us never go through this. And as I read the book, I thought, "Hmm, sort of what experiences do I have around money?" And one of them was what I mentioned to you where I'm in the car, listening to freaking AM radio and learning about Vanguard index funds for hours on end, you know, on a fuzzy radio, on a long drive. But that was actually pretty good for me. I grew up among a bunch of wealthy kids and I would say, "How come I can't have any of this stuff?" And my parents are like, "We can buy it, but we don't buy it because now we have all this other money if something goes wrong and we can retire early and we can enjoy those years more." And I was like, "That's a pretty good answer." And I felt less crappy about Christy Richards having a new BMW at that point. Because I was like, "Oh, okay. I kind of get it." So these memories really did serve as kind of like tentpoles that I could form my own beliefs around that still exist.

[00:48:58] Brad Klontz: Right. And so, in our models and studies on psychology of money, we talk about financial flashpoints. Like you're describing those directly lead to your money scripts, your beliefs around money, and those predict your outcomes, your income, your net worth, your financial behaviors. And so understanding what are your financial flashpoint experiences. You just named a couple, some can be really dramatic, some can be really traumatic and some can be really trite.

[00:49:22] I'll give you an example. I met with somebody who everyone in his family went to Kansas State and I'm like, "Oh, what year did you grad?" And he's like, "I didn't go to Kansas State." And I'm like, "Why not?" And he goes, "Well, I wanted to be an entrepreneur," and I'm a psychologist, so I'm like, "No, no, no, no. Wait. Where did you get the idea you weren't going to Kansas State?" Because again, everyone in his family went, he traced it to the Game of Life. Do you remember that little Game of Life where you're going around the board?

[00:49:42] Jordan Harbinger: Yeah. Yeah. With the little spinner that's on the board.

[00:49:44] Brad Klontz: Right. Nine years old, he's playing the Game of Life. He's like, "Oh, if I go this way and avoid college, I can start making money faster." He set his entire life based on that game and had no memory of it until we talked about it. That's very, you know, innocuous sort of thing that has a profound impact.

[00:50:00] So if your parents are fighting around money, if you grow up poor, you're going to have beliefs around that. There'll never be enough money, for example, if you grow up poor is a common belief, of course, because you grew up with, there's never not enough money. The problem is that can lead you to becoming a workaholic who's like, you know, your kids won't talk to you and you die of a heart attack at 50 because there's never enough money. You're an Ebony Scrooge or it can lead you to just not bother trying, right? Rack up the credit card debt. It doesn't matter. Things are hopeless. So these experiences have a profound impact on us.

[00:50:30] Now, what's so fascinating too? Ask your parents and grandparents about their experiences around money. For workaholism, for example, I struggle with workaholism. You know, it's like, I feel anxious about not working and I think I'm better than my dad. My dad worked a hundred hours a week when I was growing up and do the math on that. Like I never saw the guy and I found out that he was doing that because his grandfather, so my great grandfather was a lazy good for nothing. And so my grandfather, my father and me were all trying to make up for this relative I never even met. And I'm carrying around this anxiety, understanding your stories and your family stories is really going to help you feel less crazy around money because what you're doing makes perfect sense based on that history.

[00:51:10] Jordan Harbinger: Right. So this sort of shines a spotlight in there and you can look and examine the moving parts and go, "Oh, okay, maybe I do this for this reason. So it's also safe for me to turn it off," because if you realize that you're making up for your great grandfather, who you've never met and died a long time ago before you were born, they have no effect on your life unless you're letting that pattern have an effect on your life, right? Because they're not around. So if you'd realize that you're a workaholic because of somebody that's been dead for 20 years, 30 years, 50 years, that sort of habit has less power over you, in theory.

[00:51:43] Brad Klontz: You know, the thing that just came to mind, it's like, you're a fish swimming around in a pond and you don't know what's real. This is just the water you're swimming in. This is how money's done. This is your relationship with work. Of course, if you can look into your history, it's almost like that little fish jumps in the air and looks around and you're like, "Whoa, there's a bunch of other ponds. Maybe I want to go in one of those, let me go check one of those out." You need to have that awareness. You need to be able to look at your experiences almost as a therapist or an anthropologist. That allows you to make different choices and have different experiences.

[00:52:12] Jordan Harbinger: A lot of flashpoints that you mentioned could be family members, things like that. It seems like lately there are flashpoints that maybe everyone kind of has. Maybe we interpret them differently. But what about the 2008 crash where tons of people lost their money or their house, COVID-19, they lose their business or some other major change? Like a lot of us are going through these flashpoints together. Maybe people take different things away from the same flashpoint.

[00:52:36] Brad Klontz: Many of these experiences happen to us as individuals. Some happen to us as a family, some as a culture, an ethnic group, a gender, there's all sorts of ways that we slice these experiences as well as the entire culture. The Great Depression, for example, led to an entire generation of hoarders who are anxious about not having enough. And if you know anyone from that generation, that's kind of how they are. They're penny pinchers. They've got a bunch of partially used bars of soap—

[00:53:00] Jordan Harbinger: Yeah.

[00:53:01] Brad Klontz: —under the sink. You go, "What are you doing?

[00:53:02] Jordan Harbinger: Napkins in the purse, baby.

[00:53:03] Brad Klontz: Absolutely. They lived through the experience of not having enough. We saw the same thing after the Great Recession, 2008. There are significant number of millennials who stopped investing, didn't want to invest, are still not investing because they were traumatized by seeing their parents lose their house, have to delay retirement. These things happen to us as a culture too. And what is so fascinating about these sorts of mass trauma events, people have different outcomes though.

[00:53:29] The studies have shown that there's something called post-traumatic growth. So there's always an opportunity in the midst of this trauma for you to be better off than if that had never existed. And one of the ways to get there is through rumination and thinking about what happened and processing the emotion. And quite often, again, this goes back to getting a therapist or a coach. This can really help you to talk through some of this stuff and think through it because our minds are designed to keep us from having that experience again. This is how our biology works against us.

[00:53:58] So, you know, you're trained that if you stick your hand in a hole and you get bitten by a snake, you are never going to stick your hand in a hole again, right? This is how we're wired. So if you invest money in the stock market and you lose it, you are going to be wired to never want to do that again. And the only way to overcome that is to process it, think about it, talk about it, and get more information about what other people are doing.

[00:54:18] Jordan Harbinger: Tell me about relative deprivation. We sort of touched on this earlier, which is all sort of boils down to Keeping Up with the Joneses. But tell me about why this happens, because this is actually quite fascinating. And you know, this is almost like the secret to happiness in some way.

[00:54:32] Brad Klontz: It really is. So relative deprivation tells us, and it's a whole body of science in psychology, that your status is not based on an objective evaluation of how much money you have in the bank, for example. It is entirely subjective. Now, this is fascinating, right? It's not a certain, a dollar amount. It's how much money do you have compared to the people around you. This determines whether or not you're okay. It goes back to that tribal brain, right? You're looking around. Am I kind of in the group here? Am I in the middle of the herd? Am I too far out? Because I'm going to get picked off by a predator or an enemy.

[00:55:05] And so relative deprivation, if we are being inundated with pictures and images of people who have more than we do or are doing things that we wish we could do or having better experiences, then we get to start to feel deprived and then we start to get angry. So that's the other interesting thing. And it's one of the things that has been linked to some socioeconomic violence, right? If you're around people who have more than you, you start to feel deprived and then you start to feel like they don't deserve it and they shouldn't have it. And then you want to get aggressive towards them.

[00:55:33] So a great hack is to compare yourself to people who have less than you if you want to feel better about where you're at.

[00:55:40] Jordan Harbinger: Now, it seems like that would lower your drive a little if you're constantly like, "Well, at least I have more than that guy." You know, I can see that being a temporary thing, but it seems like you would want to balance this. It is nice to look at people that have more and go, "You know, if that guy can do it, I can probably do it too." You probably just don't want to live in there. The problem is there's always somebody that has more than you, right? So it's easy to go, "Well, I can get to that level." And then you get to that level and you go, "But what about them over there?" And then you're just constantly making that negative comparison. So yeah, it's really hard to have an accurate perception of where you are because there's almost no such thing.

[00:56:15] Brad Klontz: Right. And we have this hedonic treadmill—

[00:56:17] Jordan Harbinger: Yeah.

[00:56:17] Brad Klontz: —in psychology where we know that we're never satisfied. We're never satisfied. Like we always want more. We always want better. We want a different experience. And just understanding, this is how we're nationally wired too. I mean, I really enjoy indoor plumbing and I'm really glad that some of our ancestors back then were like, "You know, this is uncomfortable. I'm having to use facilities in the woods, so let's drive to make our lives better." And so this has been the story of humanity and just understanding that you need to temper that, to make sure that you're not neglecting other things that actually do make you happier, such as connection with family, spiritual connection, exercise. That is the danger, the danger for that hedonic treadmill.

[00:56:54] And, by the way, I think it's kind of fun, as long as you're not hurting anyone, right? Try to better your business, try to publish another book, that kind of thing. To me, I get a lot of purpose and meaning out of that, but just keep in perspective and understanding, that's just a game you're playing. That's not really what matters the most. What matters the most is your connection to other people.

[00:57:11] Jordan Harbinger: What advice do you have for people raising kids in an environment that is much more affluent than the one they themselves grew up in? Let's say we grew up where our parents made the equivalent of 80,000 per year for the whole household combined, right? So now, we're raising the kids in a totally different, more affluent environment. What can we do to make sure our kids aren't completely detached from reality? And I get not buying everything they point out when you go to Target, but what else is effective from a psychological standpoint? Because, you know, I grew up around, like I said, I grew up around wealthy kids. If they're around other people who are affluent, especially other kids, the relative deprivation, then is going to be off the charts, right? How do we mitigate that for the good of the kids?

[00:57:51] Brad Klontz: Understand that your blind spot is going to be giving them stuff in a way that might not be good for them because sometimes we're doing this because we want to give the kids, our kids, the stuff that we never had, you know, and we're projecting, right? You might not even be paying attention to what they want. It's just like, you couldn't have karate lessons when you were a kid, so you're going to make sure they get them and just making sure you're you don't have that energy towards your kids, because that's going to be your blind spot is giving them more than they need or teaching them the wrong things around money.

[00:58:19] So always be thinking that your job is to teach your children and to bring them up with the values you want them to have. And so what are your values? Chances are your values aren't the newest, shiny toy, even though you might want to give that to your kid. And if it's hustle, hard work, delaying gratification, make sure that you give them that experience also because they're getting more than you ever had.

[00:58:38] Jordan Harbinger: One thing you mentioned in the book was charity and charity and making it fun and getting a tour of the charity and finding out how the money is used. There was something I did years ago before I had kids, actually that I plan on doing with my own son and I call it ice cream truck ballers. It's kind of stupid, but basically, there's an area that always has an ice cream truck and it's near a park with a beach and it's in a place where I used to live. And one day, I saw all these like young kids with old grandmas taking care of them. And somebody had mentioned that like the parents are at work and this is like not a really nice area. And the ice cream truck, I noticed the pricing was like, you know, ice cream trucks are expensive, man. Everything's like jacked up. It's like three bucks for one of those baseball mitt ice creams with the gumball, that's rock hard in the middle. It's like two years — and I'm like, that's such BS.

[00:59:24] So I asked the guy what the price was of everything in the freezer. And he told me it was worth about it, you know, just under a thousand bucks. And I said, "Can I get half off if I buy everything?" And he goes, "Why would you want all the ice cream?" And I said, "Well, what if we just tell the kids down there that the, all the ice cream is free until it's gone? Word will travel pretty fast, it'll be gone in like half an hour." And he's like, "Yeah, sure." So I ran my card for them and then some kids came up and they wanted to see how much like snacks were. And I said, "Tell everyone down there that everything's free until it's gone." And like the place got mobbed, right?

[00:59:55] It was such an interesting feeling because my friend said, "You know, why did you do that?" And I said, "It's not about feeling like, 'Oh, I'm such a badass. Look how wealthy I am.' I'm not showing off. And I didn't even tell anybody that I paid for it." It was just kind of a fun way to say, like, "This is what money is really good for," right? You can make other people feel good. You can make other people happy. Buying people ice cream is not making a real difference in someone's life. I've since found other ways to like, do more impactful things, but doing something like this on occasion is a really sort of very tangible way to show somebody right in front of their eyes, the good that money can do if it's valued for what it's for, which is for helping other people, as opposed to just buying my kid, every bit of ice cream that they want at the ice cream truck.

[01:00:35] It's like, what if we just let other people have a share in the enjoyment and that's kind of something that I've been toying with, but again, it's not so much look what we did. It's, isn't it so much fun making other people happy? And it seems like you can use money for helping people, not just for status jockeying and it can still feel good.

[01:00:54] Brad Klontz: Yeah, I agree. And I feel like money is best used in terms of happiness around experiences too.

[01:01:01] Jordan Harbinger: Yes.

[01:01:01] Brad Klontz: And that's why I think, you know, charitable giving, if you can involve yourself in the experience, it's going to be much more rewarding. And by the way, I'm actually okay with people taking a sense of pride and personal pride in their charitable giving. I actually think it's a really good thing. I actually think it's somewhat disingenuous for people to be like, "Oh, I just give, and I don't get anything from it." Of course, you do. You feel good about yourself. You know, it's doing something for you and it's really cool that that's a value. It's really cool that that's important. That I want to give back. I want to help people. I love it. I think that you know we should have more people's names on bricks and buildings who are demonstrating the giving nature. And I know when I run across the building, sometimes I'm like, who is that person? And I'm more interested in the story around that. And it inspires me to be more of a giver too.

[01:01:42] Jordan Harbinger: Tribal entitlement is something I wanted to put a bond. We almost started the show with it. Hunter-gatherer societies, everybody shared, we're actually wired to do this. But when I look at people, like, let's say like an NBA player or another pro athlete, any pro athlete, frankly, they go through this a lot and they end up broke. And I think of like MC Hammer, you know, you're old enough to remember him, right? He had all those dancers behind him. And I remember watching a documentary about how they were all people from like his old neighborhood and he bankrolled all of them. And then when he lost his money, they had vanished and he's like, "Man, you really find out who your friends are." And he was really disappointed that those people kind of ghosted them because he had made their life a dream for a couple of years. How do we resist this tribal entitlement? The idea that we have to share, and that if we don't, we're a bad person, because you see people that have hundreds of millions of dollars going broke because they share so much, there's nothing left.

[01:02:38] Brad Klontz: It is a really interesting challenge because this sharing mentality, it happens in different cultures, different socioeconomic groups. Like if you grew up poor, you're going to have the sharing mindset. This is how poor people survive. This is how we've survived throughout history. And so you're asking yourself to reprogram yourself in a really, really powerful way.

[01:02:57] The further you get from your tribe, socioeconomically, the more anxiety pops up for you. And this is something that a lot of people don't understand. Like you can look at a lottery winner who blows all their money and just be like, "Ah, what an idiot? I would never do that." And I'm going to suggest to you that odds are you are going to do that.

[01:03:14] And the reason why is this is what happens, an existential anxiety pops up. It's your animal self further you get from the herd. The more likely you are to die and people find ways of getting rid of their money or sabotaging themselves to get right back where they are. It's a real, real challenge. And much of that stress and pressure comes either from you worrying about your friends and family or them putting pressure on you, tremendous amounts of pressure to share.

[01:03:39] And I have found in my experience that is a cultural value for people that it's not real easy to just get rid of. And so you have to find a way to help without hurting yourself. So you need to be able to keep some of this so that you can grow your net worth. You can live the life you want to live and then carve out a section to help other people, but understand this. They might still resent you.

[01:03:58] Jordan Harbinger: This is great practical info. There's tons more in the book. What I liked is almost like the last third of the book was a lot of practical drills and exercises in getting things in order. I didn't go over a lot of that here on the show, because it doesn't necessarily make for great radio, so to speak, but it's really useful stuff.

[01:04:14] And, you know, I've avoided having a lot of finance people on the show simply because they didn't come at things from a psychology perspective where they say they do, but it's like I said, it's all life hacks and not actual psychology. So thank you so much for your time and your expertise. I think this is really useful and I think spotting these patterns in ourselves, even if we just were like, we're good with money, we're doing fine. If you spot one or two little patterns that you yourself have, or that maybe you're accidentally passing along to your kid and you don't want that, now's a great time to nip that in the bud. Because I assume you're never too old to sort of reframe the way that you look at finances and money.

[01:04:47] Brad Klontz: Thanks, Jordan, for having me. It was a pleasure.

[01:04:51] Jordan Harbinger: Now, I've got some thoughts on this episode, but before we get into that, here's what you should check out next on The Jordan Harbinger Show.

[01:04:58] Austin Meyer: I was working at a trade show in Oshkosh, Wisconsin, where I was sitting there in a sweltering, hot aircraft hangar showing X-Plane, my flight simulator to a steady parade of sweaty pilots, wandering through the hangar to look at my various wares and all of a sudden the phone rings.

[01:05:14] "Hello. I notice you've been sued for patent infringement. I'd be happy to represent you for a price." And I said, "No, I'm not going to settle with somebody I've never even heard of before for infringing on a supposed patent I've never heard of before." And he said, "Okay, just remember your defense cost is going to run around three million dollars."

[01:05:31] Jordan Harbinger: Wow.

[01:05:33] Austin Meyer: The patent claims to own the idea of one computer checking another computer to see if a computer program is allowed to run. The patent we're sued on had, as I recall, 113 claims and every claim was almost the same. In other words, one claim would say, "A computer accessing another computer to unlock software." And the next thing would be, "Software unlocked by one computer accessing another computer." Notice just the same thing over and over 113 times phrased a little bit differently each time because since it took us four years and two million to overturn one of those sentences, they had the same thing written down 112 more times. So they could put us through this for the rest of our lives.

[01:06:15] Jordan Harbinger: For more with Austin Meyer, including the details of his investigation into patent trolls and why none of us are safe, check out episode 326 of The Jordan Harbinger Show.

[01:06:27] Enjoy these kinds of practical conversations. There are lots of practical exercises in the book. A couple that stood out for me were, let's say you're dating somebody who's got a really disparate income from you. So one person's loaded, the other person, not so much, depending on life circumstances, depending on who knows inheritance, it doesn't really matter why. But what you can do is contribute to expenses as a percentage of income.

[01:06:50] So one person has horses and their hobby is equestrian, the other person is maybe a tradesman or something like that. You can contribute as a percentage of income. That way it's not like, oh, one person is on the hook for all the finances or the other person has to match, and it's a huge burden. You can actually contribute as a percentage and you will find that it evens out the feeling in the relationship that you are both contributing an equal burden if you will.

[01:07:16] And different cultures might be further apart on this. You know, maybe someone's wife has to take care of the elders of the family, but you don't feel that same pressure or one person was born with a full stable of horses and a yacht. And the other person maybe had to pay their way through school. This can alleviate a lot of the pressure that comes with disparate incomes or disparate levels of wealth, I should say.

[01:07:38] Also automation, automatic deposits into another account before you even see the money. So this works for me. This is something I did for years. I took, I think, I don't know, 500 bucks out of every paycheck every other week or whatever it was. And I put it into my retirement account. If you have to manually write the check — things come up, you need the money. You'd rather spend it on something else. You move it aside this time. If you have to manually claw the money out of your IRA. Yeah, you're probably not buying that freaking new iPhone or flat-screen TV with it. I've done this for years. It's been a massive boon to my investing habits. You don't miss the money if you don't see the money and most banks will give you another checking account just to have automatic transfers done. Automatic transfer is a function of most online banking accounts. They know this and they will do this for you. And it won't cost you any money. And like I said, it's been huge for me. I started saving at a very young age because I just never saw the money. So I learned to live unless, and it was a godsend. I tell you.

[01:08:33] Lots more like that in the book if you're interested, and this was helpful. Links to all things Dr. Brad Klontz will be on our website in the show notes at jordanharbinger.com. Books are always at jordanharbinger.com/books. And please do use our website links if you buy books from any guest on the show, it helps support us. Transcripts are in the show notes. Videos are up on YouTube. Advertisers deals, discount codes, all the stuff you hear me shilling on the show, mattresses to biodegradable iPhone cases, all of those are at jordanharbinger.com/deals. Please consider supporting those who support this show. I'm at @JordanHarbinger on both Twitter and Instagram or connect with me right there on LinkedIn. I love talking with you.

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[01:09:46] This show is created in association with PodcastOne. My team is Jen Harbinger, Jase Sanderson, Robert Fogarty, Millie Ocampo, Ian Baird, Josh Ballard, and Gabriel Mizrahi. Remember, we rise by lifting others. The fee for this show is that you share with friends when you find something useful or interesting. If you know somebody who's interested in the psychology of money or maybe needs to brush up on their psychology of money, definitely share this episode with them. I really hope you do and I appreciate it when you do. The greatest compliment you can give us is to share the show with those you care about. In the meantime, do your best to apply what you hear on the show, so you can live what you listen, and we'll see you next time.