Never Forget Pascal’s Wager

Should you believe in God?  More importantly, what the heck does that have to do with a family finance blog?  As it turns out, a lot.  Blaise Pascal was a French philosopher, mathematician, physicist, and inventor – basically the classic Renaissance Man.  He came up with what I believe to be one of the better driving philosophies for life.  Pascal developed what is now known as Pascal’s Wager, the idea that you should believe in God if only because the upside is so much greater than the downside. 

Reputation Risk is Why You Need F-You Money

Most of us dream of working a fulfilling career until we have enough money so that we can choose our own path: we can stay if we wish, move on to a new and more fulfilling career, or head out the door with two middle fingers straight in the air never to work again.  But what do you do if something happens before then, and you are forced out of your career not by your own choosing, but because your employer fires you and you are unable to find another job?  Hopefully this is an unlikely scenario, but do something stupid which ruins your reputation, or heaven forbid, gets you caught in the social media mob storm, and you may be doomed to an early exit.

Returns Can Disappoint for a Long Time

Investing can disappoint for long periods of time.  There is no rule that says that over the next 10, 20, 30 years or more, stocks have to return 10%, bonds have to return 7.5% (while also being a strong diversifier for stock risk), and inflation has to come in at a tame 2-3%.  All of us, from the investment industry down to individuals, have a rosy picture of how fruitful investing can be.  The last 30-40 years really were a golden era for investment returns. 

Make Sure Your Default Life is the One You Want

Almost no one changes the default settings on their tablet or their computer. The majority of people use the default ringtone on their cellphones.  Many people don’t sign up for their 401k because they never get around to it.  Such is the power of default settings.  Much like anything else, our personalities have defaults; defaults that we are both born with and learn over time.  However, these defaults can also be changed to something better, if we choose to do so.  If not, defaults can be dangerous and lead to unproductive behavior.

Getting Young Kids Involved in Family Finances

Financial intelligence is one of the most important skills in today’s modern world.  With it, you’re able to set yourself up for a future full of promise.  Without it, you’re struggling day in and day out, with no hope of ever reaching the “American Dream”.  Unfortunately, there is little to no teaching of financial skills outside of the home.  Much of the information out there for you to find for yourself is misleading at best or just plain wrong at worst.  Young adults starting out without a good base of financial knowledge can get themselves into trouble that can last years or even decades.

Skill, Luck, & the Kelly Criterion

How do we know if we have skill or are just plain lucky?  Unfortunately for our self-esteem, many outcomes are more determined by luck than by skill.  How do you know when an activity is driven by luck versus skill?  Easy: if there’s a way to purposely lose, then skill plays a large role.  If there isn’t, then luck clearly plays a large role.  Understanding the difference is crucial, as skill-based activities allow you to assess potential outcomes and anticipate results.  Luck-based activities are much more difficult to assess – you are just as likely to be misled by the data and there’s no way to determine if your process is well-constructed or poorly-constructed.

The Family Investment Pot

Many of the historical “Great Families” became well-known because of their vast fortunes.  Some of these families fell into irrelevance, while many are still well-known today.  The Vandebilts, Du Ponts, and Cargills all hold a certain station in the United States that few other families have.  While many of these fortunes decrease through time- through fraud, bad investments, or just the act of dispersion with each generation being larger than the previous- the families and their descendants tend to stay wealthy decade after decade.  Some are quite far-reaching, such as the Du Pont family, with an estimated 3,500 family members and a total family wealth of $14.3 billion.  Others remain more concentrated, such as the Cargill/MacMillian family, which has 23 members and $49 billion in wealth.

What Teens Need to Learn for Long Term Financial Success

Building a Great Family means preparing the next generation to continue and improve upon the traditions and the legacy you’ve spent your life building.  Previously, we’ve discussed some of the basics to teach your children as they grow beyond the preschool age and begin to comprehend the world around them.  As they grow into teens, you can go beyond the basic building blocks and into more concrete skills that will give them a leg up over their peers in the future.