Are people just too dumb to get it, or why is it that the obesity problem continues to soar? Interestingly enough, I’ve observed the SAME phenomenon in the world of investing and finance, and I refer to this as “Fast Food Finance“. Just as the fast food companies have played a key role in getting people addicted to high fat, low quality meals, the financial industry has played a similar role for personal finance. And here’s the core reason why it works — the human race is terrible at thinking “long term”. Most people can only think short-term, and will make decisions that are good for today, but terrible for the long run. Taking into account this powerful fact, the fast food world relies on a few core tools in order to get people on the train and coming back for more. First, of course, is convenience. It’s much easier to drive by a window and grab a burger and fries after a busy day, than it is to go to the store, buy a bunch of groceries, come home and prepare a meal. We make the short term decision that, hey, one burger and some fries isn’t going to kill me. It’s just for today. I just don’t have any time. What’s the big deal? And so the story begins. As another example, fast food contains excessive amounts of salt and sugar, both of which are addictive substances that trigger specific chemical reactions in the body — and neither of which are good for you, particularly in large amounts. And of course, most fast food (at least the best selling stuff) is usually high in fat, such as french fries, low quality burger patties, and deep fried snacks and desserts. And, on top of this, most fast food utilizes fillers that have little nutritional value, but allow the companies to increase their profits by reducing the amount of “real” food that is put into their meals. And, driving all of this of course, is slick marketing and sales hype to get people hooked and coming back for more. So, what does all of this have to do with the financial industry? EVERYTHING. In fact, the 2 industries work in very similar ways — generating their financial results primarily from feeding people things that on the surface seem convenient and low-hassle .. but end up creating serious problems that often take years to manifest. Perhaps the most obvious example of Fast Food Finance is the whole concept of a credit card. While they’re sold as a convenient way to pay your expenses, they’re actually one of the single biggest reasons that most people will never achieve financial freedom. They are LITERALLY the modern-day version of slavery. Just like most people don’t understand the addictive nature of combining sugar, salt and fat, even fewer people understand the hidden charges, fees and costs of using consumer credit. Slick marketing and sales hype cause people to DESIRE something they can’t afford today, and then the magic tool of a credit card is presented as a solution to that challenge. Get it NOW and don’t worry about the money! As another example, look at the most popular investment vehicle in the financial world — the mutual fund. Sold as a simple, easy way to build your financial freedom, mutual funds are actually one of the greatest scams being played by the financial industry — right under the nose of most investors! When I do seminars and training programs to a public audience, I often speak about this and ask everyone to close their eyes, and put their hand up if they don’t know what an M.E.R. is. Sadly, about 75-80% of the room consistently raises their hand – confirming that the financial industry’s efforts to minimize the awareness that consumers have about their financial products is working very well. (by the way if you don’t know what an M.E.R. is, don’t feel bad — you’re just a product of the Fast Food Finance industry. To learn about M.E.R.s and see the damage they do to most investors, see a previous blog entry I wrote about them here .. ) The financial industry has strategically and systematically developed itself so that it spoonfeeds only what it wants the consumer to think and know about personal finance and investing. That it’s a good idea to have a “financial advisor”, without telling you that most of those advisors are paid based on the products they sell you, NOT on the quality of the advice they give you. In other words, they’re a salesperson, not an advisor. I should note that this isn’t always true — if you deal with a fee-based planner or advisor, they only charge you for the time to help you develop a plan and don’t collect commissions on what you buy. They’re called ‘fee based’ because they charge a fee to develop the plan for you, but they don’t generate commissions. That is the best way to get financial advice .. when the person giving you the advice doesn’t get compensated on the decisions you make, or the products you buy! And yet another example of Fast Food Finance is the teaser rate — whether it be on a credit card, line of credit or a mortgage. The idea being you get a very low advertised rate for a specific period of time — for example, a credit card with a 0% or 1.9% interest rate for 12 months .. and then the interest rate balloons into the double digits at some point in the future. The financial industry knows that most people are terrible at long-term thinking, as I outlined above. Most people convince themselves they’ll find a way to pay off the balance by the time the interest rate triggers. The entire sub-prime mortgage industry was built on this premise — that homeowners thought they’d be able to find a solution before the adjustable-rate mortgage reset and the interest rate went up — but we know how that worked out. The bottom line — people are looking for convenient solutions to their investment questions and challenges .. and the financial industry has made it convenient for the investor — and profitable for the industry. And sadly, when you fall for the marketing and tricks played by the financial industry, you’re taking another step towards financial obesity. So the next time you’re thinking about a financial decision to make, ask yourself .. are you truly making the decision based on the long-term benefits, or are you making that decision out of convenience?]]>
3 Responses
Thank you for your insight and comparison to the fast food industry. These problems are clearly most evident in the United States. We can choose to take control of our decisions or succumb to the instant gratification short attention span culture.
Greg I enjoy and appreciate your blog post immensely. Today I have to disagree with you. I eat fast food once or twice a week and your points while valid are erroneous by indicating these foods are addictive. Sorry but we all have choices and make those choices just like smokers who are ‘addicted’ they make a choice every time they lite up. Eating fast food is like throwing a peice of wet wood on a fire, if it is slow and small it will stifle the burn, the bigger and hotter the fire the quicker the wet wood dries out and burns. If I eat hi fat, hi calorie food its because I desperately need the calories, something most sedentary people do not need.
And as far as MERs and mutual funds yes they are deceptive but the knowledge and awareness is available to everyone and everyone has a choice.
Greg. Very nicely done. As a health coach AND avid equities & options trader I have thrown this idea around and I couldn’t agree more!
Why are over 60% of North Americans obese? Because we have been conditioned by billions (trillions?) of dollars of marketing to love unhealthy food and sedentary lifestyle more than we love our bodies and our own good health. If we all took a page from Stephen Covey Sr. and understood that, “nothing tastes as good as thin feels,” (note I am not advocating eating disorders) then we would think twice about junk food habits and generate a major, life saving paradigm shift for millions.
But influential marketing and clever product design can be powerful forces in our lives if we allow them.
As our wise, Rich Dad, Keith Cunningham points out the power of effective marketing is immense: “McDonald’s food is terrible. If you eat enough IT WILL KILL YOU!” However fast food is brilliantly engineered to appeal to our deep seated desire (once a matter of survival) for salt and simple carbs and it is cleverly marketed to the younger generations to groom a lifelong taste for fast food.
Even health coaches occasionally give in to their children’s pleas for a toy and a burger along with the promise of a sweet, rich, chocolate milk shake for themselves. 🙂
Likewise, we have been conditioned for decades to believe in the, “Buy and Hold,” mentality that makes it possible for mutual fund managers to accumulate and hold large regulated accounts.
FEAR holds people in mutual funds. FEAR keeps people from stepping out and taking accountability for their own results. FEAR keeps people from seeking advice to develop a personal investment plan. Because if a person DOES step outside of the mutual fund paradigm then they can’t complain about the lousy mutual fund manager anymore… They can only look in the mirror – and THAT is just too scary for some.
Too many mutual funds, ‘financial advisors’ and the swarm of Internet marketers offering – “Top 10 Stocks that Will Save Your Retirement!” understand exactly how to target people’s deep seated FEARS, instincts and desires.
These promises are like sugar to people starving for solutions. It is so much easier to hand your money over to somebody else than to spend 2-3 hours a night (or even 2-3 hours a week) understanding market fundamentals, market internals and money management.
Not enough people are interested in learning (or teaching) important concepts and rules like:
* Be on the right side of the trade.
* You are either right or you are right out.
* The trend is your friend… Until the trend ends.
* Manage your money with good position sizing or other people will end up managing your money for you.
Of course if everybody could see The Matrix for what it is…
I hear friends and family talk about how much money they have lost in their mutual funds. Some have been hit tremendously hard. I truly feel bad for them. Kiyosaki’s “Who Took My Money,” is happening right before our eyes.
And people ask me, “What stock should I trade?” I can only answer them that if they need to ask me that question then they shouldn’t be trading or holding any equities. And they certainly shouldn’t be handing their hard earned money over to a ‘di-worsified’ mutual fund. The best thing they can do is to invest in their own learning and develop their knowledge to make good decisions for themselves – or at least to question those giving them advice.
We all need to take accountability for educating ourselves about our physical and our financial health. Further we owe it to ourselves and our families to take action with that knowledge and to apply it with discipline to create results.
You taught me years ago in Calgary that Low Knowledge equals High Risk and more importantly that there was an alternative – namely High Knowledge = Low Risk. I thank you for that, among other things.
The knowledge is out there and people like you are willing to share and impart that knowledge. Now the question is how many people are ready to take the Red Pill and see for themselves how deep the rabbit hole goes?