Do You Keep Your Cash in Underperforming Money Market Accounts?

“You want me to wake up at four in the morning to call you in sick tomorrow?”

“Well, yeah. I’ve got to skip school so I can judge at the Crisco pie-making contest in Orlando. It’s FREE pie, dad!”

I was having this conversation with my 18-year-old son in April. I was in Mexico, speaking at the Sovereign Society’s Total Wealth Symposium and my son needed my help.

So, what did I do?

Before I answer, let me build my defense here. The Rational Man Theory that mainstream economists advocate says that people, when faced with a choice, will do what’s right for themselves. In other words, each consumer will make a rational decision when faced with a tradeoff about their situation.

Really?

I beg to differ.

Take money market accounts for example. They are a great idea, right? I imagine most everybody reading this has money in a money market account.

And you’re getting slaughtered, aren’t you?

Your money market accounts earn nothing. In fact, it earns a good 2.5% less than inflation.

Now, the Rational Man Theory says you should take all your money out of your money market accounts and go buy stuff. But you’re not doing that, are you?

Why not?

Because, the reality is, we’re really an irrational species. We do stupid things all the time. Like keeping our cash in our underperforming money market accounts… or rushing into the markets at the peak of a boom… or waking up at 4 a.m. in a Mexican hotel to call a Tampa school principal (yes, I did it)…

A Better Way to Understand the Economy

There is definitely a better way to understand the economy and what happens. It’s simple. Understand what drives people.

What motivates you to take out your credit card or cash and actually do something with it? What motivates you to buy a bigger house, take out a bigger mortgage and leverage yourself to your eyeballs? What motivates you to make irrational decisions?

Thanks to our 20 years of research into demographic trends and consumer spending, we have the answer to those questions.

It is children.

Children make us do stupid things. They push us to make irrational decisions. Occasionally those decisions are rational, but mostly not. These irrational decisions influence how we spend our money.

And because, generationally speaking, we follow predictable spending patterns as we age, this knowledge becomes useful to us. For example, when a generation reaches the age and stage of life where they have children, you’ll notice a boom in baby furniture. When those kids go off to school, you’ll see a boom in stationary supplies. When they’re about 14 years old, you’ll see a boom in the potato chip industry. That’s us, as parents, buying tons of chips for our ravenous kids.

This tells us something about the years ahead…

The biggest generation in America – the Baby Boomers – is now solidly in the empty-nester stage of life. They’re past the time in life where their children are driving them to make irrational decisions. At this point, their children are still out hunting for a partner with which to repeat the whole cycle for themselves.

Instead, the parents are on to the next financial stage, which is saving every last nickel for retirement, hence the reason no one is busy pulling money out of money market accounts, no matter how little they pay!

As for the next huge spending push for the Boomers that lies ahead, it will be heavily concentrated in healthcare and services as this generation ages.

Also, the generations coming up behind the Baby Boomers are not as large… and they’re young. The leading edge of the Echo Boomers is only now starting to have children. Even though they will ultimately create booms in more typical consumer products, it won’t be today… or tomorrow.


Rodney

 

 

Ahead of the Curve with Adam O’Dell

Healthcare Making New Highs

The healthcare sector still looks strong. Investors have begun digesting the consequences of the Affordable Care Act that the Supreme Court just upheld.

The consequences of this act won’t be fully understood for some time but two things are clear…

 

 

Gold Will Fall to $700/oz

Harry Dent, a Harvard-educated economist, and bestselling author reveals why and when gold prices will plummet. Find out more in Harry Dent’s new report, Gold Will Fall to $700/oz!

LEARN MORE
Categories: Economy

About Author

Rodney Johnson works closely with Harry Dent to study how people spend their money as they go through predictable stages of life, how that spending drives our economy and how you can use this information to invest successfully in any market. Rodney began his career in financial services on Wall Street in the 1980s with Thomson McKinnon and then Prudential Securities. He started working on projects with Harry in the mid-1990s. He’s a regular guest on several radio programs such as America’s Wealth Management, Savvy Investor Radio, and has been featured on CNBC, Fox News and Fox Business’s “America’s Nightly Scorecard, where he discusses economic trends ranging from the price of oil to the direction of the U.S. economy. He holds degrees from Georgetown University and Southern Methodist University.