lesson 3.1 - Prelude: The stockdale paradox - financial self-determination
“You must combine optimism with brutal honesty and a willingness to take action.”
One of my heroes is James Stockdale. Read this: The Stockdale Paradox.
If you prefer video, here is business professor Jim Collins talking about the Stockdale Paradox:
A deeper dive into Stockdale’s Paradox here. The video is optional, but here’s the key idea: a lot of people are more excited about talking about what they want to create than doing the work. But ultimately, we’re going to have to pay the price. And we’re going to pay the price in discipline, day in and day out in ounces, or at the end of our lives in regret in tons.
I know so many people pay no attention to their personal finances because they have certain beliefs about “the system.” Whatever your beliefs about capitalism or any other hegemonic system we live in, it’s no excuse for being bad at money. However much you believe in community and or inherent interconnectedness, it’s no excuse to not take care of yourself. In fact there’s a strong argument that you have to take care of yourself first before trying to take care of others. You should put your mask on before helping others.
So much of financial freedom is being honest with the facts of your life, and then having the vision, desire, and plan to get to what you want. To put it another way, Jungian therapist James Hollis describes becoming an adult as (1) knowing what you want and (2) knowing how to do it. Easy to say and very few will do.
The Stockdale Paradox for Women
Women are 80% more likely to retire in poverty than men and more here. When you control for income, the investment gap disappears. The income gap and the investment gap are real. And yet you have to combine that reality with optimism and the willingness to take action.
Grace Lee Boggs was a civil rights activist in Detroit for many years. This is what I consider her version of Stockdale Paradox:
“Over the past seventy years the various identity struggles have to some degree remediated the great wrongs that have been done to workers, people of color, Indigenous Peoples, women, gays and lesbians, and the disabled, while helping to humanize our society overall. But they have also had a shadow side in the sense that they have encouraged us to think of ourselves more as determined than as self-determining, more as victims of ‘isms’ (racism, sexism, capitalism, ableism) than as human beings who have the power of choice… If we want to see change in our lives, we have to change things ourselves” - The Next American Revolution: Sustainable Activism for the Twenty-First Century
You can learn everything you want about personal finance, but if you don’t change your attitudes and beliefs about money and what makes you happy, it won’t matter. Again, this goes back to your money scripts. What if your current beliefs guarantee that you’ll never get to where you want to go? What if your models of the world prevented you from getting the life you want? This is the deep work of personal change, work without which you cannot achieve financial freedom.
Joan Didion wrote that self-respect springs from “the willingness to accept responsibility for one’s own life.” It’s easy to blame outside factors for personal financial instability and insecurity (capitalism, sexism, racism, etc.), because those things are real. Also, being a victim means you are morally blameless. But here’s the cost of carrying the internal narrative of victimhood: agreeing to be helpless and give up control over your life. The flip side of financial freedom is financial responsibility, the willingness to accept responsibility for your life. You don’t get to achieve financial independence if you don’t adopt an attitude of self-determination in your financial life, whatever circumstances you are given. Whatever challenges you face, you must be willing to face them with brutal honesty. And, with optimism, take action.
Will Smith distinguishes fault and responsibility:
One core principle from the book Your Money or Your Life: no guilt, no shame. Whatever financial mistakes you made in the past are in the past. What matters now is changing your attitudes, beliefs, and behaviors to live a better life. And then doing the work day to day.
I would add two brutal facts about life that we all have to face as well:
1. We live in an economic reality where money matters. Many people who take this course are money avoidant or have moral objections to this basic fact. Nonetheless, money is central to the economic reality we live in from the moment you wake up to the time you go to sleep. And while you sleep. It does you no good to live in a capitalist system while denying or avoiding that reality. It is the game we have collectively agreed to play (or more accurately, the game we were born into), and playing it badly or refusing to play only harms yourself (you can try to change the collective game, but that’s a topic for a whole different course). In the words of Wu Tang Clan:
2. At the same time, spending money cannot make you happy. This goes to the money worshippers in the cohort (on some level, all of us). In the words of Eknath Easwarwan, “Our whole civilization seems to be built on whipping up desire… All day we are bombarded with promises that acquiring things and experiencing sensations will make us happy, and since they cannot - happiness can only be found from within - frustration cannot help building up below the surface of consciousness.” Again, this is the truism “Money doesn’t buy happiness.” But on some level, all of us (including me) still believe the consumerist dream, because we live in a system that constantly perpetuates it. But, personally I believe that money CAN buy security and freedom. You just have to be conscious, i.e. aware, of the false money dream we live in.
Here’s one fundamental idea from the philosophy of Stoicism: to live a good life we have to learn about how the world actually works, as opposed to how we wish it would work. For people who consider themselves progressives, that’s a difficult proposition, because we want the world to be different. But that goes back to the Stockdale paradox: we must accept the facts as they are first, instead of fighting them.
It’s scary to let go of our current mental models and choose a new one. It’s hard work, too. But until you change your lens, how does anything else change? And on a basic level that’s why you took this course. You knew you had to do something different in order to get a different result. This last Module is about understanding exactly what you want, what the facts of your life are, and making a plan to do something about it.
Discuss below these three things:
Again, back to money scripts: do you believe in your own financial self-determination? Are you able to fully accept the reality of your situation and yet have the long-term gumption to get to where you want to go?
Which mental models about money keep you from getting where you want to go? Which mental models will be helpful going forward?
Discuss the two truths I pose here, the reality of living in capitalism and the false promise of acquiring things and experiencing sensations.