For Financial Literacy Month, the MyBankTracker team chose to read Ramit Sethi‘s “I Will Teach You to Be Rich” to see what we could learn from the book and apply the lessons to our own lives. To wrap up our monthlong project, we bring you a special interview with the author himself! We discussed Sethi’s thoughts on why people are bad at managing their money, whether his views on banks have changed, and what he says to people who tell him his advice doesn’t work.
MyBankTracker (MBT): What do you think about personal finance management tools and whether or not they’re effective?
Ramit Sethi (RS): I think some of them can be effective, but in general I’m pretty critical of them. I think a lot of the tools are built with the idea that we are rational creatures, and that if we just have enough information, our behavior will change. Like if we look at our budget, we see where we’re overspending, we’ll change.
What we know is, for example, we’re terrible at keeping budgets. Second of all, information alone does not persuade us. There are a lot more psychological reasons that we’re not managing our money, or saving more, or even going to the gym.
I think the tools that take into account our human psychology are the ones who tend to be more successful. The ones that just present just a bunch of data and charts don’t get a lot of traction.
MBT: What are some PFMs that are effective and ones that are not?
RS: The granddaddy of them all is Mint, particularly in the early days it was very innovative. What you’ll see is that this is one of those markets where winner-takes-all, and a lot of the other personal finance apps have really struggled. And that’s not to say that there aren’t good ones out there. There’s a great app out there called You Need a Budget, which has a really interesting way of looking at money. I think that’s a terrific one.
In general, just creating a way to track your spending… that’s usually not enough to change people’s behavior.
MBT: Why do you think people are so bad at managing their money? Despite the fact that they have all this information out there. Is it a matter of just being more financially literate? Or is that a bogus claim?
RS: Financial literacy is highly overrated. The idea that, “If we just educate these people, if they just learned, they would get” has been proven time and time again to not be true. How many more compound interest charts do we need to create to know that those do not work?
People know they should be saving more. People who are overweight know they should be eating less or going to the gym. Knowing alone does not change your behavior. There are deep psychological reasons why we don’t manage our money. We’re overwhelmed by information, much of it bad, and also distorted, because we have Wall Street trying to make 2% gains off of us. We have our parents telling us that real estate is the best investment, which in general is not. We’re overwhelmed with information that is often distorted and incorrect.
Most of all, personal finance has traditionally been about people telling us, “No, no, no.” “No, you can’t buy lattes. No, you can’t afford those jeans. No, you can’t go on vacation.” If everything you hear about money is people telling you “no,” why would you even bother listening?
MBT: You started with a very heavy focus on personal finance with your book, but now you’re doing more general life coaching, like how to stop being shy, how to be better with social communication. How did you transition into that?
RS: That’s pretty savvy of you to notice, I appreciate you for noticing. Here’s the truth, my background is in psychology and persuasion, and that’s what I’m interested in. Money is only a way to change and test behavior. But that’s not key interest, my key interest is actually in behavior change.
Everything I’m doing is about living a rich life. Money is part of living a rich life, obviously. So is entrepreneurship, so is finding a dream job, and social skills. That’s what I’m trying to do as I go forward with my business.
MBT: Any plans on writing a psychology-based book in the future?
RS: There’s probably another book in me. I don’t know when, but for now I spend most of my time building my courses. These courses can often take up to two years to build. I’ll test them with 100,000 data points before they see the light of day, and these are the courses that have helped people get $30,000 raises, find their dream jobs, start a business. I have thousands and thousands of students. These courses really let me get deep into changing human behavior.
MBT: Have you ever had someone tell you that your advice didn’t work for them?
RS: Of course! All the time. I think that’s to be expected when you have a larger audience. There’s nearly 500,000 monthly readers that are reading my material. Here’s the truth, I’m very honest with people. If you’re, for example, you are a Midwestern mother of four, chances are there’s probably [a finance expert] out there who’s better for you. I’m totally candid about that. In fact, I would be happy to recommend someone that would be a better fit for you.
There are people who say, “Ramit, I tried to use your material on earning more money, and it didn’t work.” There’s a couple of reasons why, and there’s a couple of ways I respond to them. Sometimes, it’s just really hard, this stuff is not easy. So if you’re talking about finding a dream job, it’s not like you’re just submitting five resumes and you wait. That’s not how you find a dream job. This is hard stuff, and it doesn’t work for everybody.
The second thing is, sometimes people are not ready to make that change. There are people who come to the site, they want to click a button, make $5,000 more a month. That’s not going to happen, and I tell those people to go away. Unsubscribe from my list. I don’t want to waste your time, and you shouldn’t waste mine. Sometimes they’re not ready to take the action.
Sometimes it just doesn’t resonate with them. I’ve had people who’ve tried to apply my material internationally. Many have been successful, sometimes they’re not.
So my answer to people who find that my advice doesn’t work is, “I totally understand. Here’s a couple of people who it’s worked for who are similar to you.” Frankly, it’s unrealistic to expect that 100% of anyone’s material will work for you. Even the people that I study, that I love… you have to read between the lines. One hundred percent of their stuff is never going to be applicable to you, you have to pick and choose what works for your life.
MBT: You mention a couple of banks and bank accounts that you personally have. Have your views (or bank accounts) changed since the book has come out?
RS: I’ll tell you what has changed and what I believe has stayed the same. Ninety-eight percent of my book have remained the same, I would not change a word of it. In terms of the banks and bank accounts, I still stand by most of those accounts. I still use my own Schwab Investor Checking Account. I still use ING, although that’s now changed to Capital One 360, and the jury is still out on how they’ll change that account, but so far so good.
I have changed my credit card to a Starwood American Express, which I think is the best travel rewards card out there, which I mention on my site as well.
Most of the banks I wrote about in my book, I chose those banks because I plan to stick with them for years and years. Decades. As long as they keep valuing me as a customer, I value them as a vendor, as a business.
I was never of the mind of, “Let me jump from one account to another to make another extra 0.25%.” That’s just not how I want to live my life, I’d rather focus on the big wins.
MBT: A lot of things have changed in the banking industry, and you’ve been pretty critical of them. Have those opinions changed?
RS: You mean, like, have I started to like banks more? (laughs)
MBT: No, do you maybe hate them even more?
RS: (laughs) I’m critical of them because I want the best for my readers, and I don’t want them to take advantage of people, that’s why I have negotiation scripts in the book. That’s why I try to teach people to beat the banks, choose the bank that doesn’t try to scam people with fees. The fact of the matter is, once you pick a great bank or a great account, that’s done. Check the box, move on. Nobody wants to obsess about the banks that they use.
So are there a lot of banks that continue to engage in predatory practices towards consumers? Of course there are. Do I worry about them ever? I got my bank that works for me, and thousands of my readers have the same banks, so let’s move on. Let’s work on the bigger things like living a rich life, travel, finding a dream job, etc. If you spend too much time obsessing about your accounts, you probably made the wrong choice in the first place.