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Why You're So Bad With Your Money

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

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

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

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

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

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

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

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

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

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

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

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

Knowledge doesn't equal skill 
As Willis wrote, "financial education appears to increase confidence without improving ability, leading to worse decisions."

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

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

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

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

Check back every Tuesday and Friday for Morgan Housel's columns on finance and economcs.

No Pitch

Read/Post Comments (32) | Recommend This Article (97)

Comments from our Foolish Readers

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  • Report this Comment On October 08, 2013, at 8:04 PM, Mathman6577 wrote:

    I'd like to know which stocks she held :)

  • Report this Comment On October 08, 2013, at 8:59 PM, kyleleeh wrote:

    The lines:

    " lived in a small cottage, bought used clothes, and never owned a car"


    "18,471-square-foot, 11-bathroom, two-pool, two-elevator, seven-car-garage New York mansion. This was after selling another home in Palm Beach "

    tells me more about these two then their financial education. The big difference between these two outcomes was cultural not educational.

  • Report this Comment On October 08, 2013, at 10:59 PM, TerryHogan wrote:

    Time in the market, not timing the market.

    1930-2010, 80 years is a good compounding period.

    Granted, for timing she did pretty well, getting in in the 30s.

  • Report this Comment On October 09, 2013, at 1:10 AM, HighVoltage627 wrote:


    Looked her up on wikipedia. Apparently it was Abbott Labratories, Which she also worked for for 43 years. I would point out that most investment advising would say that this is a bad idea. Having your investments wrapped up in the place you work represents a serious concentration of your wealth tied up in a single business. Ask anyone who worked at Enron and who had their whole 401k tied up in Enron stock. They were rendered unemployed and peniless in one fell swoop. In that vein, I would say that Groner was lucky rather than savy. If Abbott Labs had gone under, she would have been just another Enron type employee.

    I was more curious if she actually knew what she was worth when she died. I have heard several stories of people dying, realatively poor, not actually knowing that they were worth millions.

    The wiki page mentions that she travelled extensively, so I'm guessing she did know. Good for her.

  • Report this Comment On October 09, 2013, at 8:36 AM, Chilaw wrote:

    It's more than just patience. It's about consistently living below your means, whatever your means turn out to be. Do that, keep your money in the market, and over the long term you can't help but get rich, no matter your income.

    On the matter of education, Morgan has hit on a big point. Forget the math. Forget the interest. Forget the balance sheets and other b.s. Keep it simple. Teach people these two things: (1) how to consistently save, regardless of income and (2) how to consistently buy the market (and almost never sell).

  • Report this Comment On October 09, 2013, at 9:15 AM, daveandrae wrote:

    This story reminds me of something I recently read.

    "Money is either the rich man's slave, or the poor man's master." - Seneca.

  • Report this Comment On October 09, 2013, at 10:03 AM, ScoopHoop wrote:

    You say it's unclear what caused Fuscone's financial problems. I say it's pretty clear, he lived too large, he lived beyond his means, with not one, but two mansions, he had to sell one. He had no cash because he spent it all. I believe the most important value in money management is to live below your means. Fuscone was a big shot trying to live like a billionaire when he should have pulled in the spending associated with high living and lived frugally and carefully, never spending more than his annual income. I know several millionaires in Kansas and Nebraska who live in regular houses, drive used cars and don't try to keep up with The Jones. These people are rich because they lived well below their means for so long, they had to become rich. If you make $100,000 annually but only live on $40,000, you are going to get rich quick, even if you don't invest the savings in anything more than savings accounts. My wife and I lived on one salary and saved the other salary for 10 years. You save a lot of money when you do that.

  • Report this Comment On October 09, 2013, at 12:54 PM, AltReality11 wrote:

    Ms. Groner lived modestly and it's my understanding in a small cottage which she inherited. She regularly reinvested the dividends in her stock.

    Now, there is an element of luck to her story; for example, if born in the 1950's she could have worked at Enron and invested there. However, the main points are valid:

    1. Live below your means.

    2, Avoid debt,

    3. Save and invest a portion in stocks.

    i don't know why Ms. Groner purchased those shares of stock. However, I suspect that she did not do so with the expectation that she would get a 10-bagger.

    So I would add a forth point:

    4. Invest with modest expectations.

    The problem with a financial education may be that it may be predicated on "making a bundle" so one can achieve a lifestyle that is sometimes described as "living large." In other words, a little education may be a dangerous thing.

    In modern financial educational theory there is an assumption built in that we will achieve increasing income over time, and our income and productivity will peak at 50 or so. In other words, human nature being what it is, we may assume from a financial educational course that personal behavior isn't something to consider; we will have a lot of time to achieve our goals. We may assume that we can sometimes make rash financial decisions and it will all turn out just fine. We may assume that we have a lot of time to make up for past and present financial mistakes and ultimately that we can "cheat financial ruin" and "make up" for financial problems when we get older, during our peak earning years of our 50's. Of course, there are so many things that can intervene that such an assumption is fraught with perils. Marital divorce, costs of advanced educational needs of children, financial failure of children later in life, and even health or macro economic issues can foil the "I'll figure it out later" solution.

    IMO, Consistency is so very important. Live below our means, save the remainder, avoid flashy stocks, and do all of this regularly and consistently for decades. It really isn't rocket science.

  • Report this Comment On October 09, 2013, at 2:47 PM, hbofbyu wrote:

    Knowledge ≠ Skill

    Also, knowledge does not keep one from being impulsive or making bad choices.

    In the real world, we know that the knowledge available to us is rarely perfect or complete, and that we can predict very little about our choices' consequences until we actually make them. Although these two factors alone are enough to explain a few bad decisions, perhaps the biggest reason for our poor choices lies in the fact that most human behavior is simply not rational.

  • Report this Comment On October 09, 2013, at 9:22 PM, anne1730 wrote:


    country & politicians can learn from this

    including our President. But fault also lies with us :: WE E L E C T those Guys; Let's take an oath ::GET RID OFF every one of them . NONE of them are good .

  • Report this Comment On October 09, 2013, at 9:56 PM, ayaghsizian wrote:

    Morgan, I could read your articles all day.

  • Report this Comment On October 10, 2013, at 4:29 AM, enginear wrote:

    sad truth is that although we can learn all about compound interest and long term vs. short term returns on various industries and the effects of debt on different types of operations (the list can get very long), we all basically come to adulthood with our demeanor fairly well locked in.

    We are either frugal or not depending on what our family taught us to be as children. Our level of patience is not something we can decide to change (at least not without extreme, long term effort). Some of this may be determined by genetics too.

    I suppose we can change our behavior somewhat, but its very hard to do... ask your wife/husband (if you still live with them).

  • Report this Comment On October 10, 2013, at 10:14 AM, ybckorea wrote:

    The truth also seems to be that many in the market are gamblers. The mindset of too many is, "I'm in it for the big win." So they place a bet and if it doesn't pay off, move to another.

  • Report this Comment On October 10, 2013, at 11:46 AM, alvanorichie wrote:

    A man in debt is so far a slave.Rather go to bed with out dinner than to rise in debt.

  • Report this Comment On October 10, 2013, at 1:27 PM, AMoors wrote:

    Thanks for the article Morgan! I am always amazed more people don't live below their means.

  • Report this Comment On October 10, 2013, at 1:31 PM, AMoors wrote:

    sounds like she was very literate financially....she set travelled extensively, donated regularly to those in need and set up a foundation to support the college she graduated from. This included letting students live in her cottage.

  • Report this Comment On October 10, 2013, at 2:27 PM, pondee619 wrote:

    So fellow fools, what did we learn from the above?

    Spend like there is no tomorrow and you will regret tomorrow.

    Live like a cloistered monk (used clothes, no car etc.) alone in a home you inherited, invest in ONE company for 80 years, hope that that ONE company survives and thrives as long as you do, have no children and you will get to die with millions.

    A well balanced, diversified portfoliio is meaningless as provided you have chosen well once.

    Mr. Housel, in which company should I place my child's future? My reading of the stories of Ms. Groner's life indicate that the millions were ALL ABT stock from one investment she made 80 years ago.

    "In 1935,Grace Groner made a decision that would secure her financial future.She purchased three sixty dollar shares in Abbott Laboratories. Over the years, her shares split many times, and she reinvested the dividends each time. Long before she died, her initial outlay of $180 had become a fortune"

    "...that Grace,a secret millionaire, had left her fortune in Abbott shares and her cottage to her alma mater"

    I submit that Grace got lucky, lived frugally, but got lucky with ABT.

    Neither skill nor knowledge had anything to do with it.

  • Report this Comment On October 10, 2013, at 3:44 PM, MaxTheTerrible wrote:

    The more I read about successful investors the more I come to the conclusion that great returns come with nothing more than dumb luck in the majority of cases...

  • Report this Comment On October 10, 2013, at 3:51 PM, MaxTheTerrible wrote:

    ^ I probably should have said luck coupled with discipline ^

  • Report this Comment On October 10, 2013, at 4:01 PM, bamasaba wrote:

    Many fortunes are amassed by dumb luck. Just consider the case of Bonnie Brown, the first masseuse hired by Google. Or look at the Walton kids, who were born as heirs of billions. That's just not in the cards for most of us.

    However, I think the point of this article is simply that you will be better off financially if you live within your means.

  • Report this Comment On October 10, 2013, at 4:50 PM, daveandrae wrote:

    It takes a hell of lot more than luck to HOLD a single stock through all of its vicissitudes for eighty freaking years. Hell, truth be told, these days, most people don't hold a single stock longer than eight freaking months.

    This is yet another reason why most people aren't wealthy.

    They don't deserve to be.

    Thank God.

  • Report this Comment On October 10, 2013, at 10:59 PM, Tomohawk52 wrote:

    Most people don't have the discipline to save even a tiny fraction of their paycheque. This lady managed to hold off blowing what must have been mind-boggling (from her perspective) amounts of money during her lifetime. Sure she got lucky but probably not 1 person in 100 with her luck would have finished the race with millions.

  • Report this Comment On October 11, 2013, at 3:02 AM, wildeweasel wrote:

    If you ask most people how they made their fortune they will tell you about their great skill, but the truth of it is there is more luck than skill. Sometimes the luck is who your parents are, when or where you where born, whether you had money to spend when that opportunity came up. People tend credit luck as skill and bad decisions as bad luck because we are overconfident and think we are smarter than we are. This is why buy and hold works so well, it takes the stock out of our hands so we can't make poor decisions with it.

    No matter how much money you save and invest it is better than nothing.

    no matter how much money you make it means nothing unless you spend it.

  • Report this Comment On October 11, 2013, at 1:10 PM, daveandrae wrote:

    What does luck have to do with the more shinning attribute of patience?


    After all, this woman and this woman alone was the one that HELD onto the same stock through the great depression, World War II, Vietnam, the turbulent 60's, double digit inflation, a 22% one day crash of the Dow jones industrial average, 911, numerous recessions and countless "bear markets."

    Thus, it could easily be argued that she got exactly what she deserved.

    My girlfriend's Grandfather did the same thing. Holding onto his Exxon mobile, IBM and guess what, living in the same house for well over 80 years until the day he died. Leaving his three sons a nest egg of just over 4 million in the process.

    Thus, this is not "remarkable."

    It's common!

  • Report this Comment On October 11, 2013, at 3:06 PM, LeeG3 wrote:

    Not being "stupid" is easy to say but harder to do.

    How does this relate to the article? Since Ms. Groner worked for ABT, she had to have knowledge of the business. Holding a stock when you know the company is a lot safer than either "buying the market" or following a chart. And isn't that what Warren Buffet does by reading all of those reports (700+ pages) every day?

    More than education on finance knowledge, people need to know how to research a company before investing. When I started to invest, I didn't do my homework on a stock but I liked the chart pattern. It was the cheapest $100 loss that I ever had. It taught me to understand the business before I invest in anything.

    There is no such thing as a free lunch! If you don't do the homework, the chances of success are significantly less than if you do. Luck can work out but it will never be a long-term solution.

  • Report this Comment On October 12, 2013, at 2:13 PM, oldengineer wrote:

    "Why You're So Bad With Your Money"

    And the answer is?

  • Report this Comment On October 13, 2013, at 12:49 AM, Robj2 wrote:

    Note that she held onto her stock and lived on her salary, despite knowing the worth of the stock.

    How many fools would have done so?

    Yes, she was lucky in working for and thus owning Abbott. More incredible to me was her ability to hold onto that stock without selling--apparently any of it.

    And much more admirable to me than her keeping her stock without selling is her giving back to the school (or, to be accurate, its students) that, apparently, she attributed credit for her good fortune.

  • Report this Comment On October 13, 2013, at 7:28 PM, KayakerRW wrote:


    I enjoy your articles and the perspectives you offer. In fact, as an English teacher I encourage my students to read your work (both for the financial knowledge and the writing techniques).

    Overall, I agree with this article, but have one quibble. Your snapshot portrait of Grace Groner: “She . . . lived in a small cottage, bought used clothes, and never owned a car” suggests that she never enjoyed the fruits of her monetary fortune; however, a fuller portrait of her life shows that she travelled extensively, enjoyed socializing with friends, and giving (anonymously) to the less fortunate while she was still alive and could see the results of her generosity. Her discipline enabled her to be even more generous after she passed away.

    Research into money and happiness shows that money can contribute greatly to our happiness when it is used to pay for valuable experiences (especially those with people we care about) and when we use it to help others. Also, special treats versus constant overspending and abundance give us more satisfaction. Groner’s life illustrates those principles.

    My students read D.H. Lawrence’s short story “The Rocking Horse Winner” which shows how a mother’s constant desire for more money in an effort to maintain a lifestyle she cannot afford eventually destroys her son. It’s clear that the overspending is an attempt to compensate for a lack of love. As you and others have discussed, poor money habits result from causes more complex than financial illiteracy (or an inability to do math). Lawrence’s story illustrates this well, and I have my students relate it to actual examples to discuss both good and bad money habits. This article (and Groner’s story) will be an excellent supplement to Lawrence’s short story.

    There are others like Groner. In my area, there was a millionaire barber, Earl Doran. A WWII veteran who landed at Omaha Beach on D-Day, he lived frugally and invested in stocks such as Exxon and utilities (figuring people needed oil and electricity). After listening carefully to conversations of some of the businessmen whose hair he cut, he also bought Apple stock.

    Doran did marry; his wife began their investing history with bank stocks from her workplace. The couple had no children. Like Groner, Doran enjoyed traveling with friends and gave to those in need. He left a $1.8 million endowment to continue helping others.

    There are many others with similar priorities as Groner and Doran; however, they tend not to get the publicity of those who overspend and live beyond their means and use money to compensate for whatever is missing in their lives. It’s important to publicize the value of frugality and a live well lived over a life devoted to the misuse of money.

  • Report this Comment On October 13, 2013, at 11:25 PM, wbrown3 wrote:

    Thanks Morgan for an article with many special points to ponder. Knowing it is within the power of each person to achieve and education ruins so many of them makes it difficult to feel sorry for many people putting forth no effort to save. They will refuse to save a dollar or two a week, yet they run to the coke machine and put $1.50 to $3.00 in it for a drink(s).

  • Report this Comment On October 14, 2013, at 8:04 AM, cmfhousel wrote:

    <<I enjoy your articles and the perspectives you offer. In fact, as an English teacher I encourage my students to read your work (both for the financial knowledge and the writing techniques).>>

    Beware -- I got a B- in my college writing course.

    Your comments on the article are all valid. Thanks!

  • Report this Comment On October 14, 2013, at 11:44 AM, aaroncirilo wrote:

    Did this article impart to me knowledge or skill?

  • Report this Comment On October 15, 2013, at 10:58 AM, djpeteski wrote:

    One of the reason I think Dave Ramsey is the guy who should be considered the premiere financial literacy guy.

    First he gives people a clearly defined process to follow and standards to achieve.

    Secondly a central theme in his education is the modification of behavior and beliefs.

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