People change. Our values, goals, and personalities are always shifting. People marry and then divorce. People raised progressive become conservative. Happy people become depressed. Fashions come and go. I used to hate spicy mustard. Now I put it on everything.
But there's a funny thing about change: Most people don't think it'll happen to them in the future.
A year ago, three psychologists from Harvard, the National Fund for Scientific Research, and University of Virginia wrote a paper about this phenomenon. They called it the "end of history illusion."
"People have a fundamental misconception about their future selves," they wrote. "Time is a powerful force that transforms people's preferences, reshapes their values, and alters their personalities, and we suspect that people generally underestimate the magnitude of those changes."
We tend to think that change is something that occurred in the past, but now, today, we've got it all figured out going forward.
"People expect to change little in the future, despite knowing that they have changed a lot in the past," the authors wrote. "And this tendency bedevils their decisions-making."
The psychologists asked a group of same-age people how much they changed in the past 10 years, and how much they thought they would change in the next 10 years. They compared those answers to another group of people 10 years older than them. This measured the size of the end of history illusion. And it's pretty big:
The more I thought about the end of history illusion, the more I realised how important it is to money and investing.
Are you sure you know what you want?
Any financial advisor will tell you to think and invest for the long run. Start saving for retirement in your 20s. Start saving for your kids' college when they're young. Build up a down payment for a house years before you're ready to buy. This is how you meet your goals. It's indispensable advice.
But how do I set goals for the future if I have no idea what I'll want in the future?
I know people who purposefully make very little money and live a simple life barren of material pleasures. Their personalities push them toward freedom and free time over wealth and luxury. And good for them! Broke or not, they're totally happy.
But when you understand the end of history illusion you can see how devastating this could end up.
Maybe you're in your 20s and think you'll be happy forever on a shoestring budget and no savings. Then you have kids in your 30s and realise this is ridiculous. Maybe you're in your 40s, full of energy, loving work, and don't save anything for retirement because you never want to slow down. Then you hit your 60s and your back hurts and you want to see your grandkids more.
In both cases, your future values and goals will be hard to reach because your past values and goals were so different. Even if you thought you were making a great decision at the time, your lack of savings or ignorance of your career derails the future you. When you don't know what you want in the future, making long-term goals gets really difficult.
A life wasted?
This works in the other direction, too. Imagine someone who goes to ends of the earth to save and invest because they need to fund an expensive lifestyle they've become accustomed to. Then, decades later, they realise they don't need much to be happy in life and want to cut way back. Having more money than you need is a nice problem to have, but spending your life working like a slave to pay for stuff you no longer want can be a devastating realisation. In his book 30 Lessons for Living, gerontologist Karl Pillemer interviewed 1,000 elderly Americans and reported:
No one — not a single person out of a thousand — said that to be happy you should try to work as hard as you can to make money to buy the things you want.
No one — not a single person — said it's important to be at least as wealthy as the people around you, and if you have more than they do it's real success.
No one — not a single person — said you should choose your work based on your desired future earning power.
The natural reaction for young people to read that is has to be, "bull." The younger you are, the more likely you are to believe that more money is the key to happiness. This is why, in my experience, many confident 20-year-old uni students want to go into investment banking.
And it's why we work like machines in our 30s and 40s. But Pillemer's book showed those with the most life experience thought this was crazy. It wasn't that money was unimportant to elderly Americans. They just wished they spent their lives in jobs they enjoyed and found purposeful. Again, there's a gap between what you think your goals are when you're young and what you wish your goals were when you're older. That's why making long-term goals is so difficult.
