Steve Maich February 13 2006


Steve Maich February 13 2006


'We'll blame the fact that we didn't spend enough time with our kids on money. And yes, money plays a huge role in that. But it isn't the root cause. LEE EISENBERG TALKS TO LINDA FRUM

Money is an anxious topic for most people. As a result, too many fail to ask themselves critically important questions about their future. How much money is needed to retire comfortably? What is the plan to achieve that number? At what cost comes personal satisfaction and meaning? These are some of the questions author Lee Eisenberg, the former editor of Esquire magazine, encourages us to think about in his new book, The Number. Readers are advised to seek out their “inner billfolds” while there is still time.

Q What is “The Number?”

In simplest terms, the number is the amount of money one thinks one needs to feel confident and secure over the second half of life. That said, there is an enormous qualitative and emotional part to it. It’s not just a mathematical equation.

You suggest that as a society we are so consumed with fears of aging and death we put off critical planning for our retirement. Our fear of aging sabotages our ability to plan for aging. Yes, but not just aging and death. In the book I call those the über-dreads. But they are hardly the only reason we procrastinate or go into denial. Surprisingly, for a large number of people, even well-educated people, financial literacy is simply not a core competency. A lot of people are very uneasy and lacking in confidence when it comes to money. You were no different yourself?

I was at the top of the list. We are living in what is indisputably the most materialistic and consumption-driven culture in the history of mankind. And right in the middle of that, there is this lack of confidence about how money works.

Money is the last taboo. People don’t like to talk about what they have, what they know about money, and especially, what they don’t know about money. But we can’t hope to understand money unless we get over our embarrassment and talk about it?

Yes. And that doesn’t mean I have to tell you how much money I have. What it means is that we have to talk to our spouses about it. And if we don’t understand what to do with money, we have to at least let another human being into the equation, an adviser, with whom we can talk openly about money, what our values are, and what we want to accomplish.

There are some astonishing statistics in your book. One is: 40 per cent of Americans are saving nothing for the future. Another is: the savings rate in 2004 was the lowest since 1959-

What underscores the seriousness of that second statistic is that not only are people saving less than they have for the last four decades, but this is exactly the time when 76 million baby boomers need to be saving. We’ve heard ad nauseam that the baby boomer generation turned 60 on Jan. 1. Yet the needle on the savings rate seems not to have moved at all.

You make the interesting point in your book that in this materialistic, consumerist world we live in, all the peer pressure is around how much people are spending—and none of it is around how much money they are saving.

That’s right. I refer to that as “debt-warp.” Which is the sense that so many people have been living on easy credit for so long that they confuse the trappings of affluence with being affluent. And that’s been helped along by a protracted period of low interest rates and the ubiquity of credit cards.

And these are people who might otherwise be very savvy, but who are blowing through their incomes—which might even be quite large— and failing to accumulate net worth?

A net it’s up Or worth, because a if lot they in of home have many they’ve a equity. good cases built But they don’t understand that it’s not fungible. I think a lot of people lull themselves into a false sense of security by saying, ‘Well, I’ve got all this home equity built up so all I need to do is eventually cash that in or downsize.’ But when it comes to reckoning with the reality of the downsize, suddenly they say, ‘Well, what happened to my lifestyle entitlement?!’ And it’s true that they can take some of the equity and use it to buy a reasonably good life, albeit more modest, but they’ll have to grapple with the fact that they are not going to be living in such a great neighbourhood. And their house won’t be 6,000 square feet. And they won’t have three SUVs parked in the driveway. Suddenly that becomes a shocker to them.

You were the editor ofEsquire—which is a magazine that celebrates consumption. Have you had

a personal change of heart about the importance of material things?

No, not at all. I have not written an antimoney book. I love wonderful, expensive things. I love to indulge as much as anybody else. The message is not that you have to do without in order to have a lot of money stashed away. I’m not making an argument for that. But you can’t have it both ways. If your nest egg is such that it’s not boundless, and you want to be prepared for a much longer life, then you need to reconcile your spending with your savings.

So you’re giving people a friendly scold?

A Yes, is should to an my I guess ultimate book first I it am. message of is that all If there have you a plan. And if you are lucky enough that your plan calls for you spending a lot of money—God bless you. There is nothing wrong with that. But the other message is that your plan has to be built around something bigger than just the size of your nest egg. And that is: what will really make you happy and fulfilled? I talk at great length about this emerging movement called Life Planning. It’s a growing group of smart financial planners who understand the notion that until you know what will be meaningful and fulfilling over your last decade, it’s hard to do a truly customizable and effective financial plan. I was skeptical about Life Planning at first—it felt very touchy-feely and conveyed the impression that some financial planners are trying to play shrink. But the fact of the matter is that most of us don’t ask ourselves the question: what do we want to be before we die? And is there a way to do a financial plan that can light the way to that? So the idea that “life planning” is financial planning done right makes a lot of sense to me.

The good news, as you point out in your book, is that people generally tend to become less materialistic as they age, and that the things in life which are most fulfilling are not the most expensive.

Yes, the phrase that a lot of people seem to latch on to is: “The examined life may not be worth living, but invariably, it’s less expensive than a life you don’t examine.”

How about the phrase “money doesn’t buy happiness. ” What’s your take on that one?

My take was that it presented me with the greatest creative challenge of the entire project, because in the end, that’s a very important message that the book tries to deliver. Obviously, just saying those words, which we all say and have said to ourselves for our entire lives, doesn’t seem to really register. Money doesn’t buy happiness—of course not. But my challenge for this book was to work through that idea. Ever since Freud, we’ve attributed the major emotional forces in our lives to some kind of sexual basis. But why isn’t it money and not sex? Money is a whole lot more pervasive even than sex. And yet there is no deeper school of thought out there that urges us to go back and unravel how some of our money knots got tied.

That’s probably because it’s dark and dangerous to measure ourselves by our relationship with money. Don’t you think it is a mistake when we mingle our self-worth and net worth?

But for many people they are the same thing.

And that’s obviously wrong...

That’s right. But money plays out in different ways. We blame money for our failures in many cases. We’ll blame the fact that we didn’t spend enough time with our kids on money. Or the fact that we were on the treadmill for so many years. And yes, of course, money plays a huge role in all of that. But it isn’t the root cause. Sometimes money is used as an excuse to cover up something deeper that needs fixing. Maybe a psychiatrist can help us think about those things but I don’t think psychiatrists have done a whole lot of thinking about the role of money in our lives. Money doesn’t play much of a part in the Freudian school.

Q But for those in their 50s

and 60s who are just now waking up to the idea that they are behind on their financial planning—a psychological analysis of their situation may be slightly beside the point?

Not necessarily. If there are things you want to do to feel fulfilled—if you want to write the Great Canadian Novel, or give something back to the community, and that’s where your payoff is, it’s possible to do that with a much smaller number than perhaps you thought you needed. Now obviously, you don’t have a lot of time to go off and save. But it may be that you need less than you always assumed. This book is not saying that if you haven’t started saving by the time you’re 50, you’re out of luck. In fact, almost every financial services executive I spoke to told me people really don’t start thinking about these things until they’re 50. Oddly enough it’s not sickness or death that triggers their concern about planning. It’s the daydream of an early retirement. People tend not to have a plan before they are 50.

What words of wisdom do you have for people—especially the ones who are otherwise very smart—who feel like dummies when they talk about money?

Well, the first thing to do is to admit to yourself, and to those who might be able to help you, that you are a dummy. Including to your spouse, by the way—to whom many people don’t speak about money either. Then figure out who out there can help you. And then work to understand what that relationship is all about. There is massive confusion out there about how the people who might be able to help you with money get paid. What’s the arrangement? Is it by fee? Is it by fee plus commission? Is it commission only? There’s tremendous obfuscation in the financial services industry about who’s qualified to do what. Who has a fiduciary obligation to do what and then how does that person get paid? People need to get a basic understanding of how that works. And then you need to find a person who you intuitively feel has some empathy for who you are, and can help engage you in what you want to accomplish.

Because if you are a dummy, intuition is your best tool? Your intellect won’t save you?

But it’s all just common sense. If you walk into a bookstore and look at the dozens of

'When it comes to reckoning with the reality of the downsize, that becomes a shocker'

books that purport to tell you how to plan financially, they all pretty much say exactly the same thing—my book, by the way, is not an advice book, it’s a book about why people don’t take advice! But the advice books say: don’t put all your eggs in one basket. Make sure you have a balanced portfolio. Make sure you pay yourself first—before you pay the massage therapist or whatever else. It all boils down to common sense and it’s not rocket science. Because each book has its own gimmick, it all ends up sounding rather mystifying. But the fact of the matter is: there are a half-dozen basic, common sense rules that people should follow. If you just ask yourself, does this intuitively make sense to me, and is that all there is? The answer is: yes. M