Behavioral Finance

/Behavioral Finance
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What I’m Reading This Weekend

Catching up on my reading this week perusing personal finance articles, blogs, newsletters. Here’s what looks interesting:

  • Dan Kadlec in Right About Money uses the recent ransomware hack to make the point (confirmed by research) that the financially astute are often more prone to falling for financial scams.

Question: What Happened To Snapchat (The Investment)?

Investors loved the IPO (shares shot up from IPO price of $17 to $29 at one point on the first day of trading) but when it came time to announce their first quarterly results as a public company, well….I will let the chart from YahooFinance do the talking:

Ben Carlson, a blogger, titled a recent blog post on this disappointment: A Good Lesson For Millennial Investors. So, what did it teach them?

Article: How Online Shopping Makes Suckers of Us All

Rather long (about 15 minute read) but intriguing article from The Atlantic that provides great context for trends that I have blogged about the growth of online shopping (here and here). The article describes how in this era of “big data” retailers are harnessing consumer information to price discriminate and obliterate the concept of a fixed price.

Here are a few excerpts:

Audio Resource: How Does Our Spending Reflect Our Values?

Just done listening to this 28 minute Hidden Brain podcast “Money Talks” which asks such provocative questions such as:

  • Would you buy clothing from a department store if you knew the apparel was made in a sweatshop?
  • If you have a choice between a local coffee shop and a national chain, which would you choose?
  • Does how a company treats its employees (e.g, Uber) or customers (e.g., United) factor into your purchasing decision?

I also learned a new term listening to this podcast:”buycott”, which is the opposite of boycott. You will also hear about some interesting research findings about how ethics play into purchase decisions.

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Interactive: How Can I Retire Early?

As an educator, I often get this question from students. Yes, I know they have attention spans that are minute to minute (or text to text) but when the subject of retirement comes up, they usually fixate on “How can I get there as soon as possible?”

What I love about this post from Mr. Money Moustache (last seen on this blog in 2014), is the simplicity of his answer and how it all comes down to ONE factor: 

NGPF Podcast: Tim Talks To Co-Creator of “Spent” Game, Jenny Nicholson

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I first heard about the game Spent from podcast guest, Helaine Olen. She described it as one of the best simulations in how it immersed the player into what it feels like to live “paycheck to paycheck.” After playing the game in our offices, we agreed with her, wrapped an activity around it with discussion questions and added it to our Interactive Library. Teachers are glad we did since we are constantly getting feedback like this about the impact of the game on students:

Chart: Could You Come Up with $400 In Case of An Emergency?

From WSJ:

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In 2015, we posted research indicating that 47% of Americans couldn’t come up with $400 in case of an emergency. These charts and data tables provide some additional context around that statistic. Questions for your students:

NGPF Podcast: Tim Talks To Prof. Meir Statman About Behavioral Finance

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I enjoyed my recent conversation with Finance professor Meir Statman of Santa Clara University, which is just down the street from the NGPF offices. Meir conducted some of the earliest research in what we now know as behavioral finance. He discusses his book, Finance for Normal People, and shares his insights about how investing should be taught in school (spoiler alert: Keep It Simple!). He also describes his approach to playing the stock market game and why fees matter so much when comparing investment options. You will know more about investing after you listen to Prof. Statman. Enjoy!
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