Brooke: Hello everyone, and welcome to the podcast of The Decision Lab, a socially-conscious applied research firm that uses behavioral science to improve outcomes for all of society. My name is Brooke Struck, Research Director at TDL, and I’ll be your host for the discussion. My guest today is Kelley Keehn, personal finance expert, keynote speaker, and author of Talk Money to Me. The updated COVID edition of her book hits shelves on February 23rd. In today’s episode, we’ll be talking about COVID and personal finances in a changing world. Kelley, thanks for joining us.
Kelley: Such a pleasure. Thanks for having me, Brooke.
Brooke: First off, before we jump too much into the meat of the discussion, I just wanted to give you a nice strong shout-out for the clarity and accessibility of the book, but also for your wider body of work. As a behavioral practitioner, I see the influence of research on your work, but you’ve packaged those insights in a very concrete and user-friendly way, and I think that it’s really, really effectively done. I just wanted to acknowledge that good work.
Kelley: Well, that is so very kind of you. Thank you. I’ve had the opportunity to also witness your work and I’m certainly a super fan of yours, so it’s quite the honor to be with you. Thanks, Brooke.
Brooke: Thanks, Kelly. Okay. Let’s get started. A lot of the long-standing messages that I heard from my parents and my grandparents growing up, come up in this book. Things like “burn your mortgage”, “pay off all your debt before anything else”. Tell us a bit about how these old chestnuts of financial wisdom rely on some underlying assumptions about the structure of the economy.
Kelley: Yeah, absolutely. There are so many issues when it comes to personal finance. I always parallel it to our health, that we can know what to do, and then just not do it. And then, we take a situation like COVID, where you don’t know if you have job stability. You know, I think about the last 16 years that I’ve been on this personal finance journey, and a lot of the positions that I envied, people that were senior executives that were in enviable positions. Their jobs have disappeared either because of COVID, because of the industry, or even pre-COVID,. I can’t tell you how many senior executives are now facing entrepreneurship, a rebranding of their life, what have you, because a new CEO came in and restructured because they were forced out in early retirement, and all of a sudden they’re faced with these financial issues that they never have been before.
So, that is why I always make the parallel with health. You can be sailing along, you’ve done everything right, and all of a sudden something major hits you at a point in your life, or you just didn’t do all of the things you should have done. I liked, how you were saying simple axioms that your parents had taught you like, “never go into credit card debt”, all of that type of stuff. That makes sense, and my parents taught me that, too. What my mom didn’t teach me was what would happen if you didn’t pay off your credit card. What would happen if you led the FOMO YOLO life, as I did in my twenties, and did everything wrong. So no finger-wagging in any of my messaging and my research is me-search. Why did I make all those mistakes and still have some propensities towards them. And then you take COVID, and it’s just thrown a stick of dynamite on anything that you’re dealing with. So, it’s a very, very challenging time.
Brooke: Yeah, so a lot of that old wisdom, for instance, is built up in a context where inflation and growth were much higher, where interest rates were much higher, even pre-COVID, you have the 2008 crash that comes along and all of a sudden you end up in a situation where interest rates are just perpetually low and that totally changes the underlying calculus of which debts to repay, and whether it makes sense to invest money in the market before you’ve paid off debts. There are some forms of debt that are really, really cheap now and other forms of debt that continue to be extremely expensive. The simple message of, debt is going to cost you a lot of money because people will always require more money from you than they will give you in exchange for borrowing yours. That just doesn’t hold anymore.
We’re working in a more complex ecosystem where some of the simple rules that were developed in a time that was more stable and quite different from what we have now, no longer hold. And now we end up in this COVID situation where it’s not just from one decade to the next things change quickly, but from one month to the next things change really, really quickly. So, some of the ground shifts that I wanted to bring up there are working from home and all of the implications that that has on personal life, and finances and consumption.
The changing role that we see in a lot of the choices that we make, I think a lot of people were feeling like they were kind of on this treadmill, and everything was driven by urgency, and importance was always in the back seat. And now, COVID comes along and all of a sudden importance seems to rise up to the top of the surface again, and stuff that felt so urgent all of a sudden we realize we can actually put it off, and if we don’t answer that email until tomorrow, the world’s still going to go on. How have those kinds of ground shifts affected those old chestnuts of wisdom? Which one of those do we need to ditch now because of COVID?
Kelley: Yeah, there’s a lot to unpack there, and you’re so right about that importance just vanishing into thin air. I know you, too, traveled before COVID. I was on the road 90% of the time. I know you were probably traveling a lot, too, as a lot of your listeners were, and you’re right. Things that were important aren’t. I don’t know if I’ll ever travel again, as I did before. I just did a national morning show yesterday and the Skype froze. I don’t know why I was hard-lined in. I had great internet service and that would have been colossally embarrassing. It was like, “oh, whatever”. Everyone’s just used to a new normal.
But I want to get back to your debt conversation, too, people do very weird things when it comes to their debt. So, they’ll be sitting on, let’s say $20,000 of 24% interest rate credit card debt, but they’ll have a 2% line of credit that has no balance on it, and when you ask them, “Why would you not pay that off and have that low-interest rate line of credit?” They say they don’t trust themselves to not rack those credit cards up again.
So, it’s this kind of insanity when it comes to looking at debt, or they’re just… I don’t know if they’ve got a scotoma, or they’ve got blinders on or what have you, but it’s just so painful to look at the debt. There’s so much shame and embarrassment that they don’t even call up their bank to say, “Is there a lower rate interest credit card that I could get into?” And yes, in fact, every bank does have that. So, it’s these weird things that we do when we’re just shrouded with shame and embarrassment. And then of course, if we were having this conversation in the 1980s, when as you said, interest rates were in the double digits, which you’re probably too young to even.. I’m sure it’s your grandparents telling you, that finger-wagging of their mortgages.
So, incentives drive the market. We know that is the number one rule in economics, and it’s been fantastic for politicians to tout the growing economy every year and all that type of stuff, because it’s been consumer-driven. But now that we enter this crisis and see Canadians sitting on this tremendous amount of debt, and I’ve been hearing it for over a decade, doing a lot of media interviews.Often, before a radio interview especially, the host will be like, “Well, what’s wrong with ticking off your bucket list? Really? Money’s free. It’s just about free.” And I’m like, “But you got to pay it back. It doesn’t matter if it’s free.” So, we’re taking on a lot of debt.
We’ve been incentivized to spend, and it’s now come to a standstill of dealing with it. I worry too, Brooke, about people working at home, never having had the conversation with their spouse perhaps. There’s a study in the U.S. that 43% of Americans do not know what their spouse makes. This was pre-COVID. I wonder if that’s changed. How do you get on the same page financially, if you don’t even know what your spouse makes? There’s a lot that a lot of Canadians are facing.
Brooke: You said a lot there. There’s a lot to unpack. Part of it is this emotional baggage of people’s shame towards debt. Part of that also has to do with, coming back to this idea that I raised earlier, these old chestnuts of wisdom, I think a lot of people feel that shame because they feel like they’re not achieving according to standards that were set up a long, long time ago. The picture of the good life that I think a lot of people have is circa 1960, and a lot happened in the middle of the 20th century that made the creation of the middle-class possible. And a lot of that had to do with massive rebuilding and social programs in western economies after the second world war. And then around the seventies and eighties, the underlying economic reality changed, and we needed to keep sustaining that sense of the same good life. It was still within reach. We just had to adopt a bit of a new strategy.
Robert Reich talks a lot about this. All of a sudden you start to see most households go from one income to two incomes. Women enter the labor force. Does the standard of living dramatically increase? Does it double because all of a sudden the household has two incomes? No, a lot of that is just keeping up with the fact that one income wasn’t doing what it used to do. Then you have this second bump where things are grinding down further and further. And then people say, “Oh, well I can work overtime and I can earn extra money and that’ll bridge the gap.”
And then the third thing that comes to bridge the gap is borrowing, and I think for me, the most emblematic illustration of this is the home equity line of credit. The entire wealth of the middle class was essentially built up around home ownership. That was the difference between being in the middle class in the middle of the 20th century and being in the working class at the beginning of the 20th century, or the end of the 19th century. It was like, you owned stuff roughly equal to the value of your home.Now we can live in a home, and we actually don’t own the equity at all. It’s all propped up by this debt that’s keeping the thing afloat, and what these strategies have allowed us to do is to not face that hard conversation of, first of all, why is it that that aspiration that we’ve been chasing for so many decades is now harder to get than it was in the sixties, and what are we going to do about that? But also on the flip side, how do our expectations need to evolve? Not just our economy and the decisions we make about our society, but our priorities for ourselves. Revisiting those discussions.
This I think, comes back to your point of shame. Revisiting those discussions are really hard. It’s a very brutal and honest look in the mirror that you need to take, to ask yourself, what actually is important to me if I need to prioritize it? Not because my grandparents told me that owning your own home is the most important thing, and never take out debts, and all these kinds of things. Not because other people have told me my whole life that this is what I should want, but because this is what I actually want.
Kelley: Yeah, and I don’t think that we really sit down to solemnly consider that, and I think COVID has definitely helped people to go, “Is this what I want?” or “The life I was leading, was that what I want?” I’ve been calling it the slow-vid because we’ve all had to slow down, but we are affected by what we see, and I love everything that you brought up. And the one thing that I think is important to add to that is social media. Because the number one question I got when I was in the financial industry and I continue to get, but whispered, is “how is everyone else making it? How is my neighbor or my coworker, when I know they’re not making that much more than me, how are they affording the second luxury vehicle?” Obviously, all pre-COVID, going on vacations, buying rental properties, they’ve got a cottage in Muskoka, all this stuff, how are they making it? And I’m like, “They’re not.” You cannot look at anyone,unless they’re getting an inheritance or something of that sort, or going into debt, as you said.
Even the Financial Consumer Agency of Canada has urged, since 2014, Canadians to stop using their home and HELOC as an ATM – these were their exact words, and I bring it back to the lottery effect. There was a researcher at the University of Alberta and another one, I believe, from Israel that wanted to quantify the ‘eeping up with the Jones’s effect’, and what they found is, for every thousand dollars that your neighbor wins in a lottery, your chance of going bankrupt increases by 2.4%. It’s shocking! I have reached out to them. They haven’t got back to me because I was like, “Why? Why?!”
And what I think, and this is just my musings, I think it has to do with the mirror neuron in our brain. Dr. Rizzolatti hooked up these monkeys back in the 1960s and a researcher was licking an ice cream cone and they realized that as the monkeys were hooked up, this part of their brain lit up, as if they were also licking that ice cream cone. And it’s like, how can that be? You don’t have the ice cream in your hand. You’re not tasting it. Why are the pleasure centers of your brain lighting up? And I think in my humble opinion, that when we see someone with the new shoes, the new car, the new motorcycle, whatever it is, that part of our pleasure center lights up, or some part of our brain lights up, but then we want it too. And I think that goes to the popularity of these unboxing videos, which I don’t get, that are super successful on YouTube. Someone just wants to watch someone else opening up a $2,000 iPhone or what have you. So obviously, there’s something that happens to us when we see other people with the things that we want.
And then, Brooke, just to end on that note, before social media, we could only envy those in our own social circles. So if you went to church or if you had friends and family. You didn’t get to envy celebrities. You didn’t get to see celebrities’ lives. You didn’t get to envy billionaires. You never said, “Wow, I want a yacht and I want to sail around St. Bart’s.” You didn’t even know where that was. You didn’t know what a yacht looked like, unless you watched a documentary. Now, it’s in your face constantly, this new level of desire that I think is just too much for our primitive brains to handle, and I think that, added to what you said of shame and all of the economic factors that go into our debt load, that just explodes it at a different level.
Brooke: Yeah, it makes me think of some of the discussions I had recently on the podcast with Erez Yoeli. He talks about social norm interventions, and there are three components that make those interventions effective, according to his research. The first is that the norm needs to be really clearly stated. The second is that compliance with the norm needs to be very visible. And the third, is that you need to close off any exit strategies that people might have to talk themselves out of feeling that the norm applies to them. So the research that he’s doing using those kinds of norms to affect change, if we think about social media as also an intervention that is affecting change, what does it do? It makes a social norm extremely visible, and not just any social norm, it makes very specific social norms very visible because everyone’s putting this highly airbrushed version of their lives onto social media. So, you’re not keeping up with your neighbor. You’re keeping up with your neighbor’s airbrushed life.
It’s interesting. If you think about models. Once upon a time, people used to look at a model in a magazine and say, “Wow, I could never be that handsome. I could never be that beautiful.” Now with Photoshop, even models themselves are not as beautiful as the picture of themselves that they look at in the magazine. They could never approach or approximate that beautiful representation of themselves. The same thing happens on social media. We have this extremely skewed representation that’s reflected back to us as a social norm. It’s very, very observable because, especially in these big-ticket items like luxury vehicles and vacations, when you’re taking photos ad nauseum with your phone and all this kind of thing, the visibility is clearly there. And then that third element, explainability. Is there a way for you to duck out of feeling that the social norm applies to you? Maybe that’s a way for us to understand the shame, that actually the only way that people are managing to explain to themselves why they’re not meeting that social norm, is that they feel that they’re inadequate, which is a totally unfair judgment of themselves.
Kelley: A hundred percent, and you’re so right about the airbrush thing. I remember a story years ago where Cindy Crawford said, this was before she got married and this guy came to… It was a blind date, and he knew who she was and she answered the door and he’s like, “Where’s Cindy Crawford?” And she’s like, “It’s me.” And he’s like, “You’re not Cindy Crawford,” and he went stomping off because she didn’t have the hair and the makeup and everything else, but you’re right. If we could really peel back the curtains, open the curtains as to how people are living and we saw their mortgage statements. You hear these NBA players that were making millions of dollars and then there’s a little blip in their income and their houses are being foreclosed upon, it’s just such a taboo. We can talk about money. We can talk about RSPs versus TFSAs, and tax shelters and things of that sort, but as soon as we talk about debt or where we should be….
You talked about the nuclear family, like the 1960s and 50s, and how things should be. This is the time where you get to be, and do, anything you want. If you were a lawyer, and then at 50, you decide you want to open up a bakery, you can do that. You can have children, not have children, sell hotdogs on a beach, but that means that there is no comparative model anymore of, at 30 you should be here, at 40 you should be there, and while there’s ultimate freedom in that, I think it creates a shaky foundation for people because that’s something a lot of people reach out as well, is they want these heuristics. Where should I be at 40? What should I be doing? Those answers no longer apply. It’s like, what do you mean, what should you be doing at 40 or 50? I don’t know about you, Brooke, but I hope to live to 130 and I never want to retire. So, why would I ask a question of where should I be financially at 30 or 40, but then that brings up the embarrassment, the shame, all of that.
I don’t know what your next question is, but I really also look to the financial industry to do a better job of helping Canadians. And I’ve heard you speak. You’ve done such incredible work in working with the financial industry and the community, because especially since COVID. I don’t see the financial industry reaching out with nudges, such as, you stopped your RSP and your TFSA because you were worried about cash flow. Get it in your calendar right now to remind you, your digital calendar. “Hey, do you have extra money?”, “Can you restart that?” “Can you fund your emergency account?”
We also don’t have open banking in Canada, so we don’t have smart apps that you can use without nullifying your fraud protection right now to help you get back on track. And then of course, the whole choice architecture, where Amazon’s done such a beautiful job of you don’t even have to get up to get your credit card, “just click this right here”. So, nudging us to unclick that, to set it up so it’s not so easy to spend, could be very helpful. And I know that’s a lot of the great work that people like yourself with the behavioral side work on, how to help us with that irrationality at times.
Brooke: Yeah, and there is a place for that, for sure. I hope that the fact that I’m here doing what I’m doing, I think is an indication of the fact that I have some hope for this, but it’s also not the complete solution. We talked about the challenges that people face in setting a norm for themselves and feeling good about themselves. There are these cognitive challenges as well around taking those intentions. If you set healthy intentions, even just following through on those is hard, and there’s a lot that nudging can do to help people do that, but if we come back to that earlier discussion of, well, what’s happened in the underlying economy in the last 70 years?
It is also just materially harder, and COVID especially has revealed the fact that it’s materially harder specifically for some people.We talk about this K shaped recovery. You and I are extremely lucky. I know which side of that K I’m on, and I’m extremely thankful that I am, and I look at that and I say, Okay, well, there’s a certain amount that I can do to contribute to the people who are really struggling with this to try to give them a helping hand, but there’s just more firepower needed than just a good nudge. There are real underlying economic challenges that need to be addressed. It’s not just a little nip and tuck around the corners. It’s really serious. You don’t end up in a situation where people have a dollar and three quarters borrowed for every dollar that they earn. That doesn’t happen with just a few nips and tucks going the wrong way. These are serious problems in the underlying fundamentals.
Kelly: Yeah, absolutely. And then, products like payday loans and the whole issue of financial literacy, those people know that they’re having to take these loans at 400%or 500%. It’s not a literacy issue, like you were saying, this segment of the population needs real help, and it’s like you said, we’re so incredibly lucky because I don’t know about you, but I’ve spent a lot of time grieving over COVID. All of my friends that had restaurants and incredibly innovative companies and ideas and solutions and workplace shares, and just boom! It vanished. And then how does one come back from that. We’re talking about the shame and all of that surrounding finance. I think that’s going to be a huge issue for years, if not decades, as we recover out of COVID
Brooke: Yeah. So, one of the things that we’re learning from this is that maybe we need to be a little bit more proactive in updating our wisdom as the underlying situation changes. Our conversation up until now has been quite heavy. Do you have a little bit of levity to bring about how it is that we’re going to keep rolling with the punches and learning to just do a little better one day to the next?
Kelley: Yeah, and that’s the thing. I’ve had so many great conversations with people that have dug out of it. I always go back to two of Einstein’s quotes, which are simple and elegant and in their simplicity. Everyone knows probably both of them.“The definition of insanity isdoing the same thing, expecting a different result.” But I love his other quote that challenges that one in the sense that, “you can’t solve a problem from the same level of thinking that created it”. And I wish that more Canadians reached out for help because a lot of times there are solutions. There are things that you can do. There’ are blinders. There’s that scotoma, like you can’t see the salt even though the salt is right in front of your face. And if you don’t know that you can call your credit card company up, that you can defer payments, that there are things that you can do.
: I think the most important thing is that, you suffer a self-esteem blow when your finances are hit and it doesn’t have to be that way. You’re a whole wonderful human being regardless of that, and just remember that in the 1950s and 60s, people used to whisper the word cancer and today we run for the cure. It is not your fault when something happens. Yes, there are things that you can do, of course, to help with your health, but it’s not your fault if something happens. It’s not your fault that COVID happened, but you are the one that has to pick up the pieces, and as hard as it is (and I went through a lot of financial challenges early on in my career, it’s hard)but it is exciting when you get on the other side, and it’s knowing that every single day, those small things that you do, if it’s Roundup even. You’ve got the Roundup app and it seems like nothing, it’s $1 here and there. All of a sudden, maybe a year down the line, you’ve got 500 bucks in your account and that’s pretty exciting. And that might not sound like much to someone, but to someone else who is struggling, that could be a huge win. And just knowing it’s never too late, you’re never too far, you’re never too deep, reach out for help. Don’t suffer in silence. Don’t have sleepless nights. There’s always someone that has a solution that you just haven’t thought of.
Brooke: I really like that and I like your analogy to running for the cure as well, because I think that’s also an important part, is not just the emotional support that goes with it, but the solidarity and people calling for change, and everybody’s saying, “It’s just not okay for so many people in society to be struggling as hard as they are.” On a case-by-case basis, we try as much as we can to help people to get out, but there’s just a problem if so many people are in that circumstance to begin with.
Kelley: Absolutely. Yeah, we owe it to everyone in Canada to be able to sleep at night and to have enough money and enough resources that they can really step into their power and not be afraid. I think that should be a right of every Canadian.
Brooke: Well, Kelley, thank you very much for our discussion today. I really appreciate you taking some time.
Kelley: Oh, thank you, Brooke. Such insightful questions. I loved the conversation. I wish that we had more time to do it and appreciate the work that you do for all Canadians.
Brooke: Thanks very much, and I hope that we can chat again soon.
Kelley: I hope so, too. Thanks.
Brooke: Take care.