In modern Western society we are driven heavily by consumption which is largely driven by ideology. The West was purported to be a land of discovery, vastly unexplored. Yet, over time, America became known as the "land of possibility". By the early 1900's, a major shift began to occur when American society became aware of the limitless possibilities of a free-market society. By the 1920's, Ford had introduced the assembly line and by the 40's General Motors began spearheading innovation of big business and production standards. 

The argument could be made that automobile production was the spark that ignited our modern consumerist culture. With innovations in production and rapid technological development over the following decades, Americans became increasingly expectant in the ability to participate in the free-market. Fast forward another 80 years and the average American presumes that everything should be instant access. Two day shipping is the new norm and instant downloads have overtaken our previous dial-up connections. Our ability to purchase and consume has reached a point the world has never seen. So where do we go from here?

Don't get me wrong, the ability to have access to a free-market is a great gift given to us in the West. Our access to fresh food, clothes, and other necessities is a luxury that many other societies may never know. However, this superpower is to be used with caution. Greed is not a word familiar to the people in resource-constrained societies such as Uganda or Haiti. Same day delivery and online shopping are completely foreign concepts to many in underdeveloped nations. Yet, in America, greed drives every socioeconomic class from the poorest of the poor to the richest of the rich. Greed is defined as an "excessive or rapacious desire, especially for wealth or possessions" (source). We all ​are subject to feelings of greed throughout our lives by wanting and desiring more than is absolutely necessary and required. 

The Diderot effect is named after French philosopher Denis Diderot and highlights a profound pattern of consumption that emerges across individuals related to the purchase of consumer goods. The term Diderot effect was first coined by anthropologist Grant McCracken in 1988 but actually originally referenced by Diderot himself a personal essay titled Regrets on Parting with My Old Dressing Gown.

Diderot was in financial need which became known to the Russian Empress Catherine the Great. Upon learning about Diderot's need for money, she agreed to purchase his library for a large sum of money and appoint him lifetime caretaker. What he did shortly after that windfall is what led to the realization of the "Diderot effect".

Diderot highlights how the purchase of a beautiful red dressing gown led to a spiral of consumption that ultimately landed him back in debt. Upon the initial purchase of his new red gown (and hence the parting ways with his old dressing gown), Diderot began to examine all of his other possessions in comparison to his bright new red robe. He quickly realized how lousy they were in comparison. His solution at the time was to begin purchasing new items that were more in line with the luxury of the beautiful red gown, all leading back to the same level of financial constraint that he was originally plagued with.

The purchase of a new phone is accompanied by a fancy new case, a protection plan, insurance, and a higher monthly bill to boot. Refinishing your deck or patio area comes with the purchase of a new gas grill, patio furniture, outdoor plants, and some trendy decorative lighting. A new outfit needs new shoes and jewelry to match. We are eternally damned by these types of purchases.

The goal is not to stop this urge from happening, but rather change the way you respond to it. Replacing a worn out or broken couch does not have to lead to new lamps, end tables, coffee tables, and an impressive new area rug. You can replace or fix the couch but be cautious of the temptation to enter a proceeding spiral of consumption. Consider painting the tables or simply changing the lamp shades as an alternative to complete replacements- a substitution of undesired behavior. 

Instead of substituting the undesired behavior, you could also aim for complete elimination of Diderot-like behavior. This might involve saving up an exact amount for the purchase of a new item- a couch in our example above. Any purchases made within the next 90 days would then need to be examined against whether the original purchase influenced that behavior. If you can hold off beyond 90 days, then the item you were considering purchasing is likely a desire, not a necessity.

I will admit, it is definitely nice to have nice things. Although frugality is an important trait that I hope to share with everyone, frugality does not have to be synonymous with deprivation. By recognizing that we are all subject to the same pressures as Denis Diderot, we can recognize that a spiral of consumption is never more than one purchase away. In particular, if you are already in financial trouble, one single spiral can derail a significant amount of positive progress. 

Be mindful of your purchases. Truly consider how much you will value your purchase in the long-term. Certainly do not agonize over every single purchase, but rather try to emphasize mindfulness and frugality more consistently over time. With enough practice, you will easily be able to identify what purchases are in line with your values, and which ones aren't. Overconsumption is not an impressive or attractive quality. Take the time to analyze whether something, or someone, is influencing you to engage in spending behaviors that are not consistent with your ideals. 

Previously we outlined how to begin investing with 5 actionable steps. Begin with this article if you do not currently have an investing account. After reading that article and setting up an account, then you may proceed to the information below.

After choosing the type of account that you would like to transfer your savings into, you have some options once the money arrives for what you would like to invest in. You could try to pick individual stocks and become the next Warren Buffet, but I strongly encourage you to avoid this temptation. Rather, I like to keep 90% of my money exposed to a broad array of stocks which typically earn 8-10% per year over the last 200 plus years. How do I do this? Low cost index fund investing.

The choice is yours. Consult a financial advisor immediately if you are not willing to embark on this journey alone and accept the full responsibility of managing your own money. For those so inclined, managing your own money has the ability to yield superior results, if you are willing to become an expert in personal finance along the way (yet another reason to start reading).

My favorite companies to open investing accounts with are Vanguard and Fidelity. They offer some of the lowest cost index funds that give you the opportunity to participate in years and years of compound interest, without all the added fees that active mutual funds typically carry.

Be advised, not all companies will offer top notch low cost index funds. Often times, especially in 401(k) and 403(b) plans, your options will be very limited. I believe that you can still find good low cost options that expose you to a broad array of stock ownership by following some simple tips outlined below.

When considering index fund investing, here is primarily what you are looking for.

1. The fund should track a major index

• For those seeking investing in stocks:
  • Seek and index that tracks the S&P 500 or a Total Market
• If you are looking for bonds, it seems most folks choose funds that track a bond index such as:
  • Bloomberg Barclays U.S. Aggregate Bond Index or Intermediate to Long-term bonds
  • Municipal Bond funds

2. The fund should be low cost

• ​Total expense ratio less than 0.1%, in our opinion
• If there is a fund manager, they should have little to no expenses
• The fund should be passively managed, NOT actively managed
  • ​This will help keep fees down. Besides, active funds typically always have lower returns over the long run than passive funds
  • If it is not listed in the description of the fund whether it is active vs. passive, look at the turnover rate of the fund.
    • High turnover = active management
    • Low turnover = passive management

3. Beware of ANY and ALL annual account fees (especially those of you saving in a 403(b) or 457 plans)

• These fees are for the account itself, not for the fund you are investing in
• Look for administrative fees, annual account fees, and advisor fees that may not be listed in places that are easy to find. In the past, we have had to dig for these! Several calls, several emails, several meetings later we finally found our answers. Trust me however, it is all worth it because it means more money in your pocket to invest!
  • ​Sometimes you even have to ask "Are there any other charges or expenses, either one-time or recurring, associated with owning this account?"

When index investing, you have as few different options into what types of funds to choose from.

You can invest in exchange traded funds (ETFs) that trade in real-time like other individual stocks. Or you may choose a index mutual fund which typically trades once per day at the closing price. Either one is a great choice as long as you keep the expense ratio under 0.1%. Vanguard and Fidelity have great index mutual fund options and iShares, as well as Fidelity, have some great ETFs.

There are additional options for those who wish to further diversify such as small cap and mid cap index funds which place greater emphasis on smaller and medium sized companies. My personal preference is to stay with large cap which is what an S&P 500 index will offer. If you were to choose an ETF or an index mutual fund that tracks the Total Market, you will inherently diversify into small cap and mid cap companies as well since it carries large, medium, and small companies in it's portfolio.

Speak with you financial professional regarding the above options when investing. If choosing to DIY, check out my resources page for books on how I learned to start investing without needing to pay a financial advisor. 

Let's face it, most of the discussion around personal finance and net worth involves the Baby Boomer generation. Perhaps this is due to their overall proximity to the traditional retirement age of 60-65 years old.

Generally speaking, the Boomer's have a sad financial state of affairs given their age (more on that later). This lack of financial net worth is significant because of how many Boomers there are in this country. According to a 2019 survey, there are just over 69 million Boomers in the United States. However, most are unaware that there are actually more Millennials in the US to the tune of 72 million.

The fact that Millennials actually outnumber the Baby Boomers is lost on most people. Most of the news and media reports are focused on the Boomers proximity to receiving Medicare and requiring long-term care. It seems unwise to focus so intently on one group, especially if they are not the largest percentage of our overall population. That said, we need to put the present state of financial affairs of the average Millennial into focus.

Most Millennials (generally considered those born between 1981-1996) entered the workforce around The Great Recession between 2007-2009. That said, with rising costs of education and living in general combined with decreased earnings, the unfortunate average financial net worth of a Millennial is below $8,000 per household according to a 2019 study by the Deloitte accounting firm.

​Typically parents want their children to do better than they did. Consider how low that bar might actually be set given that the average Baby Boomer household retirement savings is $144,000, per a recent Transamerica survey. Boomer's are widely considered those born between 1946-1964. That leaves some Boomers older than 75 years old with the youngest Millennials in their early 20's (as of 2020). Some Millennials may be up to 50 years young than some of the oldest Baby Boomers. 

According to recent U.S. Census data, 60% of married Millennials and 80% of unmarried Millennials earn less than $40,000 per year. The folks over at SmartAsset report that the average salary of a Millennial today is an estimated ​20% lower, in inflation-adjusted dollars, than the average salary that a Baby Boomer had at the same age. Although generally Millennials are off to a rough start, there may just be hope for the future.

First, let's assess the biggest areas where Millennials are failing. Then we can take a look at what might give Millennials hope fore the future.

The vicious cycle of spending and consumption that follows societal expectations is leaving Millennials in a difficult situation financially. It is unattractive to live with your parents, drive an old car, and wear old shoes and clothes, so we don't. Instead Millennials have an ever-present pull towards consumption because most of their friends and family mistakenly judges success by your possessions. According to modern society you must be broke and failing if you do not own nice things. This is one of the most pervasive fallacies of the West in the 21st century.

Displaying a high social status is not a measure of success. I would argue that conforming to societal expectations of increasing possessions by giving into unnecessary spending behavior to impress others is borderline pathological. 

So how has this absurd idealism and pathological societal expectations impact the average Millennial?

• Millennials across the U.S. carried an average of $4,712 each in credit card debt in Q1 2019 - Source: Experian
  • Older Millennials (age 38) carry more debt than younger Millennials (age 22) at $6,675 and $2,288, respectively (Source: Experian). Older Millennials simply have had more time on their "spending journey" than younger Millennials. 
• Borrowers age 25 to 34 $497.6 billion in outstanding student loan debt for about 15.1 million borrowers. This translates to an average student debt of around $33,000 dollars for each borrower according to Forbes.

Perhaps Millennials demonstrate the most resilience out of any prior generation. Recall that nearly every young person in the Millennials generation entered the workforce during The Great Recession, or otherwise one of the greatest economic downturns of any of our lifetime's. 

To make matters worse, when Millennials were supposed to be experiencing stability typical of approaching or entering your 30's, a had a pandemic hit. During COVID-19, the unemployment rates have spiked sharply. Another economic downturn was bestowed upon this generation making their increased debt and financial obligations even more difficult to combat.

Millennials also tend to attain higher education, specifically college education. The downside to this is the ever-increasing student loan debt but there at least demonstrates the continued resilience to endure a 4 year liberal arts education and at least give themselves a crack at becoming more enlightened (although this doesn't always happen).

Another positive attribute is the entrance of women into the workforce. According to the Pew study, In 1966, when Silent Generation (born 1928 to 1945) women were between the ages of 22 and 37, only 40% of the women were employed. Compare that to today where 72% of Millennial women are employed. With increased participation in the workforce, families are at least given the chance to earn more money than prior generations, although this has not yet proven to be true largely due to two significant economic downturns during the earliest earning years of a Millennials life.

Despite the woes of the Millennial generation they do demonstrate some additional positive attributes:

• A greater willingness to save than older generations (source)
• Earlier participation in retirement plans compared to previous generations (source)
• Greater confidence than previous generations in facing difficult financial situations (source)
• Greater tendency to spend on experiences compared to material possessions (source)
• They move less often thus reducing total transaction costs (source)
• Start families later in life which could increase the probability of starting a family from a position of financial strength (source)

I believe overall the potential for Millennials in the future is great despite previous history treating them unkindly. Millennials demonstrate their resilience in the face of increased student loans, higher costs of living, The Great Recession, and now a pandemic. We must encourage the entire Millennial generation to continue to increase their financial wit through reading, researching, and asking prudent questions. They have demonstrated that they are willing to ask for help, but this is when the rubber meets the road.

There is hope in the future yet as long as we continue to grow stronger and wiser with our finances and realize that their still may be many challenges yet to come.