When Intuition Fails

I recall about 40 years ago seeing a short film called, “You Are What You Were When.” It really was a film, with a projector, screen, and the lights off. How quaint.

The thesis was your intuition about how the world works can be understood fairly easily if you take a look at how the world worked for you on your 18th birthday. That mind set is not going away and you should know it’s there if you wish to get along successfully in a world that is much different. It could be influenced by your personal situation, too. Someone who watched a parent’s business fail, or a job loss, or a premature death, tends to have a higher need for security than others who had it easier.

Our brain is wired in such a way that our deep understanding is our first response. Our intuitive idea.

A difference we can see

It’s like the difference between young people who understand the digital world and we older folks who have to think about it. Old people try to figure out things. What our wasps for? If you are much over thirty-five and talking with friends, you might try to come to a consensus by talking about it. If younger, you will probably just Google an answer. The idea of negotiating a purpose for them would never occur to you.

A difference we cannot see yet

We are moving towards a period of higher inflation. Conceivably very high. Again, for people under thirty-five or so, there has never been significant inflation. They have no intuition about how deadly it can be. Take a look at this graphic from a Jim Otar article. Inflation Lessons From History. The Point of the article is about retirement portfolios which you might also find useful.

Figure 1: Inflation, 1900-2021  

Source: U.S. Bureau of Labor Statistics and Statistics Canada

It looks like people learned things between 1915 and 1948 or so that you probably cannot learn any other way. Easy times are not instructive. Inflation has been almost a non-issue since the early 90s. How aware of it are you?

If you were born in the late 40s, life was fairly smooth in your formative years. Your risk aversion is likely lower than most people. If you were born in the mid 60s, you are likely more risk averse.

What if you were born after 1980? Do you think your intuition about how inflation works is fully developed? I would be amazed if it is.

When intuition fails

No one who decided to work in a reptile zoo would rely on their natural instinct to handle venomous snakes. They would want to learn about what could happen under what conditions, and what to do if it did. They would study. They would accept instruction and advice. They would get better, but they would not be “natural.” They would always have to think first.

Young people are in that place about inflation. They have not seen it. They have no natural instinct that will protect them from it. They will be forced to think their way through the problem. Recall a Yogi Berra thought. “You can’t think and hit at the same time.” You must do your thinking before you get to the plate.

If you don’t, everything that happens will be a surprise. Surprises like these are never welcomed.

Anticipation helps 

Think through some important aspects:

  1. How dependent is your job or business on people having disposable income above the price of necessities? Are the goods or services you offer postponable? If yes, your income may fall as prices rise.
  2. What will happen to investments and interest rates? People who invest the money you borrow are not interested in losing purchasing power. They will demand a higher rate to make up for their inflation. How would a mortgage rate 3% higher than you pay now affect your budget? Aside form cash flow problems, that higher rate would likely reduce the value of your home. For two reasons. 1) It would be more expensive to carry, and 2) the market will be flooded with homes for sale by the people who cannot afford their mortgage. Zero interest car loans? Likely gone. On the plus side, your savings account might actually pay some interest. While you have one. The stock market would likely fall some and for the same reasons your income might fall. People with fewer disposable dollars affect businesses.
  3. The government will not help much. They are even more resource deficient than you. The only way they can improve their budget is to further unbalance yours.

Put money in its place

Financial things are just part of your life. Not even the most important part. More like a limit than anything else. Financial things intrude on life when dollars are in short supply. You have likely heard Billy Joel’s song “Scenes from an Italian Restaurant” It contains some wisdom you can take to heart and avoid by anticipating the future.

“They started to fight when the money got tight. 
And they just didn’t count on the tears.”

Money is not life. Think it through and decide what really matters.

The bit to take away

If you are much under 40, you have nearly no practical experience with inflation.

Anticipation is the defense to unpleasant surprises.

Your family is a team. Be sure they all know how to play the game when the field of play or the rules change.

Work it out and act on what you find.


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I build strategy and fact-based estate and income plans. The plans identify alternate ways and alternate timing to achieve both spending and estate distribution goals. In the past I have been a planner with a large insurance, employee benefits, and investment agency, a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business. I have appeared on more than 100 television shows on financial planning, have presented to organizations as varied as the Canadian Bar Association, The Ontario Institute of Chartered Accountants, The Ontario Ministry of Agriculture and Food, Banks – from CIBC to the Business Development Bank.

Be in touch at 705-927-4770 or by email to don@moneyfyi.com

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