Eureka moments are supposed to happen in unlikely locations, like the one Archimedes had in his bath. But my revelation about planning and money came in a terribly likely spot, a centuries-old ceremonial hall at Oxford University.
The sociologist Anthony Giddens was at a conference there talking not of personal finance, but about the challenge of shifting the politics of climate change. One reason it is so difficult, he suggested, is that while people see the present in crisp high-definition, the future is blurry. He mentioned teenagers taking a first cigarette to impress friends who are in sharp focus now, and ignoring the diaphanous image of their 60-year-old selves with emphysema.
Behavioral economists have a term for this phenomenon, they call it hyperbolic discounting. Our myopia sets in quickly, hence the “hyperbolic” part. We are vague about the future even a few months from now. There is even a test, economists make people an offer: $100 now or $120 at this time next year. Most people pick immediate gratification, even though the smart choice is more money later. After all, what other investment is going to yield a guaranteed 20 percent return?
Like a lot of us, I have a continuing fight against hyperbolic discounting in regard to my own finances. If only there were a strategy to warp space-time so that the future does not seem so out-of-focus.
In search of some kind of pill or corrective lens, I called a man who studies these things, Joseph Kable, a neuroscientist and assistant professor in the department of psychology at the University of Pennsylvania.
“I think we are all looking for a cure,” Professor Kable joked.
Discounting, he told me, affects decisions about our health, government policy choices about budgets, and, yes, personal finances.
If there is no cure, some exercises may help. Professor Kable said even brief reveries pondering future events might help reduce discounting’s effects.
One exercise I like is not my invention, but seems right out of Charles Dickens. Before making a big financial decision, why not try interviewing one’s future self? After all, the Ghost of David Brancaccio's Future has skin in the game, and that ghost deserves to have his say.
It is this future self who might judge that it is right to spend a fortune on college because my children will end up with more fulfilling lives. Yet, my future self might warn me from 2045 that he is stuck eating cat food because of that golden $17,000 Apple Watch I really had to have in 2015.
But since I cannot actually interview my future self, perhaps I could speak to a surrogate. Recently, I visited the man I would like to be decades from now. Herbert R. Mayer, 93, is a gifted entrepreneur with a way with money that took him from humble origins near the Dodgers’ old Ebbets Field in Brooklyn to a comfortable life in Southern California. I like to think he was Amazon decades before Amazon. Instead of the Internet, he used catalogs and snail mail to sell custom paper products directly to hospitals.
I interrogated my future self, I mean Herb, about several practical choices. I haven’t been saving enough for retirement because of those aforementioned college tuitions. This year, I might be able to kick in $10,000 to a 401(k), but I could raise the contribution to $16,000 if I canceled a much-needed family vacation that we’re planning in Spain.
Herb’s answer was swift. Cut the cost of the vacation in half and put the cash saved toward retirement. “You can do it both ways,” he said. I figure that might be easier if we un-invite our three young-adult children or switch to a vacation that does not involve airfare, such as a drive to a cabin in my home state, Maine.
Next choice: Interest rates are low, and I can get a home-equity loan to fix up a Nixon-era kitchen. If we don’t get too crazy, that could cost $50,000 in my part of New Jersey. Herb blanched at an estimate that high. His prescription: Do inexpensive improvements now with the money at hand. I should find a way to make more and use that to pay for further upgrades. Herb believes in my future earnings potential, yet does not want me to borrow.
“No, it’s ridiculous,” Herb said. “Never liked borrowing.” Why is that? “I just think it’s a tough way to make a buck.” This from a man who knows how to make a buck. If Herb represents my future self at all accurately, that future self is a tough customer. During that visit, he also pointedly showed off his newly refurbished refrigerator. Refurbished? Who knew?
For those without access to a wise nonagenarian, there is technology. The investment company Merrill Edge has an app that is supposed to mute hyperbolic discounting. It invites you to upload an image of your face that is then electronically “aged” to project what you might look like in future decades.
The results in my case were less instructive than dispiriting: Imagine a waxwork effigy left to melt overnight on a radiator. If that is what I’m going to look like in several decades, I had better start saving for a plastic surgeon, too.