Psychologists point out that there is a paradox in dealing with debt. Individual efforts to take full and complete responsibility for accumulated debts may lead to manic and unrealistic dreams of escape. This may manifest in high-risk behavior — such as betting the retirement savings in gold futures or the craps tables in Las Vegas. Successful strategies involve seeking help (and empathy) from others.
Build groups to support you
But there are other advantages to buidling groups to help each other. In March 2018 in Washington DC in the middle of a nor’easter winter storm, I sat in on a book talk at the National Press Club. The author, Sam Quinones, was talking about Dreamland, his chronicle of the opoid crisis in America. During the open discussion, a middle-aged man stood up and said, “I am a recovering opoid addict. The best way for me to stay off opiods is to enlist me to help others [in the same situation].” What we need is collaboration, connection and community was Mr Quinones recommendation. This would also apply to successful strategies in dealing with money issues.
At the same time, savings and investment clubs provide a great way to build a social network around money issues. The Financial Diaries also showed that participating in a savings club can help build peer support – getting your friends and neighbors to provide moral support – to ensure that you meet your savings goals.
Join an investment club to learn
Investment clubs are also an excellent way to learn about the stock market – just be careful not to invest your money through the clubs. Brad Barber and Terrance Odean at the University of California at Davis studied 166 investment clubs throughout the U.S. in the boom-boom years of 1991-96. They found that the average return of the clubs was 14 percent while the Standard & Poor’s Index gained 18 percent – and even individuals investment in the stock market earned an average of 16 percent during the same period. The problem is that investment clubs generally have higher transaction costs than individuals. Leaders within the clubs tend to want to do lots of stock trades, whose commissions eat up any possible earnings. Nevertheless investment clubs provide several benefits – financial education, improved savings levels and strong social ties.