money lessons | Squirrelers

I was watching a documentary recently on the “Dust Bowl”, which was really a term for situation back in the Great Depression of the 1930’s. Many farmers in the Great Plains of the U.S. ended up dealing with incredible financial hardship and in many cases, financial ruin. Additionally, an ecological disaster took place which impacted the landscape of that part of the country.

Now, I really don’t watch much TV these days. But this show drew me in for some reason, and got me thinking about what we could learn from this. I actually googled a few sites just to learn a little bit more about that period of time! There are some lessons we can take away from the dust bowl era, that can apply to us today in terms of our money.

Summary of the Dust Bowl

First of all, here is a quick summary (from a non-historian) of what happened during the Dust Bowl era. Basically, back in the early 1900’s, people moved to these areas of the western great plains – often as a part of homesteading. Whether Americans moving westward, or immigrants seeking a chance for a better life, people took on large amounts of acreage and began to farm the land.

A big issue here was the usefulness of the actual land. This land had been prairie, not previously used for farming the types of crops that would later be planted there. This was considered dry land, with prairie grass and not a ton of moisture.

However, land promoters apparently tried to market the land as being ripe for farming, and weather that was atypical in terms of having more rain than usual for the area ended up changing perceptions. It seems as though people almost wanted to believe that the climate had changed, and that they could farm the area through the help of more advanced farming techniques and equipment. Enticed by the prospect of harvesting crops that commanded a high price on the market, people took to taking this raw prairie land and turning into what they thought would be profitable farmland.

Unfortunately, the land wasn’t entirely suitable for this farming to the extent that they thought, as a period of dry weather severely impacted the ability to successfully grow these crops. Prior success turned to failure. Topsoil blew across the land and created incredible dust storms that engulfed communities. It’s remarkable how massive and ominous some of these storms seemed to be, and you can search for dust bowl pictures to see this.

At the same time the weather was not cooperating, and dust storms were brewing, the U.S. economy had become a disaster of its own. The Great Depression was wreaking havoc with the lives of many Americans, and prices for commodities plummeted.

Thus, farmers now had much weaker harvests (less to sell), and weaker markets to sell into (less per unit revenue). Naturally, when you have less to sell and at less per unit prices, it means economic disaster. People lost everything in many cases.

Dust Bowl Money Lessons

There are a number of financial lessons we can learn from the Dust Bowl era. Here are 4 that I came up with:

Don’t Ignore Historical Patterns

It seems as though people didn’t want to believe that this particular area of the country was really quite arid. Maybe not a desert like some parts of the Southwest, but more dry than needed for what they were hoping to accomplish.

They might have looked at a period of time where there was more rain than had usually fallen in years or decades previously, and come up with the conclusion that the climate had changed. Also, there was some mistaken notion that by farming the land it would impact the climate, which seems hard to imagine. But the former – ignoring historical patterns – proved costly. Some years may have seen a decent amount of precipitation, but others saw less. Those drier years proved to be very difficult for farmers.

For the rest of us in modern times, let’s pay attention to historical patterns. Just because the stock market is hot for a year or two doesn’t mean that we are headed toward long-term spectacular returns. Just because real estate surges in value for a period of time doesn’t mean a seller’s market will go on forever or never correct itself.

Be Careful of People Selling the Dream

It seems like many of us simply believe what we want to believe. Often times, we support our hopes with facts that tend to fit what we want to see, thus resulting in skewed beliefs on certain things. This seems to have been the case with some of the people who took on land in the Dust Bowl area and tried to make their fortunes on it. They bought the pitch – hook, line, and sinker.

This can be the case with investors, who think that great returns are easy to obtain. If a few others do it, why can’t I? I’ve seen this with some bloggers too, who see a few people making big money and think that they’re just a break or two away from easy, passive income. Then spend good money and a ton of time pursuing the dream. It might happen, but it might not either. Just be careful not to give in to the notion of easy money!

Don’t Put All of Your Eggs in One Basket

The land in the Dust Bowl area wasn’t exactly farmed for centuries. It was grassland. Nevertheless, people tried to make money farming wheat. Sure, that seemed great when wheat prices were high! But when crop production plummeted due to natural weather cycles, and the actual market for wheat cratered as well, many farmers faced serious financial issues. As in, losing just about everything. Many people were practically broke, and packed up and moved across the country to start over as a result.

There are people that get tempted to put everything into stocks. Or, everything into their job. Maybe they put money into their home, thinking (mistakenly) that it’s guaranteed to be the best investment they have. Sometimes people count on inheritances. The bottom line is that when that one thing you’re counting on doesn’t come to fruition, big problems can ensue. There is something to be said for the power of diversification!

We Have Fewer Material Needs Than We Think

Many of those people in the Dust Bowl era lived on land that ended up being harsh, and in living conditions that turned out to be tough. On top of that, they had very little money.

Yet, people made it through the situation. Now, medical care wasn’t the same back then, so that was a problem. But people didn’t need to buy expensive cars, drink lattes daily, or buy pricey shoes. They were able to get by with very little, as money was incredibly tight.

This is not to say that we want to live like we’re in the Dust Bowl! 🙂 However, when we think that things can never get bad and the good times will last forever, we’re putting ourselves at risk. Best to balance wants and needs, and at least think twice about what we buy. Do we need that $30,000 vehicle, or can we get by with a $20,000 instead? That $10,000 could come in handy someday, and could grow to a lot more through investing.

Key Takeaway – I think we can learn a lot from history. We should because there are many things that end up repeating themselves in one way or another. Might as well learn from it and turn the knowledge into something positive!

My Questions for You

Do you think there is a lot that we can learn from historical events?

What do you think about the lessons learned above?

Have you ever heard of the Dust Bowl, in terms of how it came about and it’s financial impact?

Accepting reality is a great habit for each of us to embrace. The more we can see things for how they really are in life, the more likely we will be to succeed.

Being a typically optimistic person, I’ve usually woken up each day with the natural tendency to think about how it has the potential to be a really great day. Not all the time, as there are some days you just know are going to be ones that you just have to get though. But most days, yes. That said, I’ve been taking a look at my own views on some things and lining them up with reality, and have been finding that blunt realism has its value and place at the table. How I optimistically assume and hope things are doesn’t always match up with the pure, unvarnished, and sometimes brutal reality of things.

It’s not just me. I’d say this applies to all of us – and I mean each and every one of us. We each have our own biases and perspectives that probably make it impossible to be 100% objective about everything. Sure, maybe most things – but not all things. This includes the way we approach health, relationships, and – yes, this too – money.

With respect to money, there is great value to being optimistic and reaching for the stars, so to speak. If you expect to be exactly middle class, you won’t be wealthy. If you expect to be wealthy, you have a chance to get there but you still might be middle class. Having expectations and aligning behavior accordingly, is better than giving up before you start.

Back to that reality thing – it can only help if we balance optimism with reality. Sometimes, our best moves can be made by avoiding the big mistakes. Of course, recognition of such landmines requires that we be honest with ourselves and not tell ourselves financial lies.

Here are 5 financial lies we tell ourselves, and how they can impact us.

Financial Lie #1: Someday My Ship Will Sail In

No, it won’t. There will be nobody to rescue us from anything financial. Across the horizon, we won’t see a ship full of heroes that sail into the harbor of our lives, bestowing money upon us to bail us out of things or make us financially secure. There is no “Prince Charming” to rescue us. Be your own Prince Charming, whether you’re male or female!

I think that the illusion that someone will be there to take care of us is present with a lot of people. It’s easy to just assume that things will work out, or that somebody or some “system” will help us when in need. I’d say to that: just look at people that are homeless or begging. Who’s taking care of them? Why would anyone take care of you or me, and who would that person or entity be?

This can also apply to aspirational thinking. As if, someday we will just magically be rich. Things generally don’t just happen to us magically. Optimism without a realistic plan has marginal value.

This reminds me of a guy I knew a long time ago – as in 2 decades ago (yeah I’m getting older…realism, right?). He expected to become a U.S. Senator someday, and seemed confident that he would be successful in that arena. You just had to take one look at the guy and know that this would never happen (one could say the same thing about me…again realism). If you talked with him for 5 minutes, it would cement your view that this would never happen.

Yet, he spoke with conviction that he saw himself doing this someday, as if he would be “discovered” as an up and coming political talent. Clearly, he hadn’t thought it through well enough and had delusions of greatness. Today, the guy is a regular middle class guy doing nothing out of the ordinary at all. The ship never sailed in.

I think a better approach is to have dreams and try to achieve them, but be realistic about what you need to do to get there, and what your strengths and weaknesses are at the moment. Don’t count on miracles happening without having a plan to make them happen, and be the captain of your own ship.

Financial Lie #2: I’m Certain I Can Beat the Market

Why would anybody be sure that they could beat market returns? Stats have shown that when looking at actively managed funds vs. index funds, in the majority of cases the latter perform better This tells us that many professionals who specialize in this work can’t be counted on the beat the market averages.

So, if they can’t do it, why would you or I be highly confident that we could generate returns that outperform the market? Is it that others are dumb, or perhaps not motivated enough? Or, is it that maybe we succeeded in one or two years and therefore think that we can always do it?

Now, I’m sure there are some people who can beat the market and do so. There are plenty of very successful investors out there, and I do think much can be gained by examining historical trends and investing opportunistically. However, counting on incredible returns to fuel future retirement dreams is delusional for most of us.

A better approach might be to consider near-historical averages as expected returns, and then strive to beat them by a little bit without blindly expecting it.

Financial Lie #3: I’ll Be Able to Work Into Old Age

No, most of us won’t be working when old. If you’ve been visiting here for a while, you’ve probably noticed that I’ve expressed this view multiple times.

The idea that many of will probably need to work into old age is nothing to be embarrassed by, as it probably applies to most people at this point in time. Not all, but most. However, the disconnect is the opportunity to work when older might not be there for many people. Sadly, being unemployable when older (ageism) is one issue, and a bigger one might be health.

With respect to that latter, there is so much rationalization out there that it’s insane! Sentiment along the lines of:

I keep myself healthy, so I’m sure I’ll be fine in the future
My uncle (or aunt, father, etc.) worked until he was 85, so I see no reason why I can’t do the same
Most people in my family haven’t had any major health issues when older, so I have genes on my side
I’m sure I’ll figure something out, I’ve always been resourceful

Those are expressions of belief that don’t factor in the reality that if you look around you at people in old age, many simply can’t work demanding jobs much less any jobs. Just look – how many have health issues, or simply seem too tired mentally and physically to work? Not to mention the ageism issue alluded to earlier.

Bottom line: that nobody can count on being able to work when older, and should plan as if it won’t be on option. If we take care of ourselves and get some good luck, maybe it will end up being feasible and then it’s a bonus.

Financial Lie #4: Education is Overrated

First off, I would absolutely say that undergraduate programs are generally not a universal slam dunk in terms of financial ROI. The costs have really escalated, and there are many programs that are simply not comparable investments to others that are much less expensive. So, I would say choose wisely rather than don’t choose at all!

Beyond that, I’ve heard and read a bunch of things that sound like wishful thinking. For example:

All that matters is what you can prove on the job, not a piece of paper like a degree
Nobody has time to go to graduate school
You can learn anything you need to know by searching online

There is some validity to each in many cases, but ultimately they’re also excuses. Sure, what we actually do on the job matters a lot, but some doors just won’t open without the right credentials. Yes, graduate school can be a daunting commitment of time and money, but some people seem to make it work and even go full time. Of course we can learn so much by doing quick online searches, but that doesn’t always substitute for structured academic programs.

I know that education is pricey, and can leave people in big trouble with massive student loans. That can lead many to ask if it’s worth the trouble. My opinion is that education and wealth are correlated, and the former is more necessary than ever. However, not all schools are created equal in terms of return on money spent. The pricey private school just might be a much worse investment than its public school counterpart.

Financial Lie #5: It Makes Perfect Sense to Prioritize Buying a “Dream House”

A home, especially one that seems really cool to us, can be very enticing. After all, we spend a large portion of our time in the place where we live. Plus, in our society, where one lives seems to have some impact on status and perceived social ranking for some people.

Most people I know would probably really like to have a truly amazing home, myself included. However, where I draw the line is when we start deviating too far from the wants vs. needs paradigm. In terms of personal finance needs, it makes sense to spend on shelter for ourselves and family. We need to live in a place that’s safe, has decent schools, etc. But we don’t need to sacrifice other needs to go overboard on our home.

It’s the going overboard part that I think some people rationalize. The concept of “dream home” is one that just seems funny sometimes. Since when it is the unalienable right of each of us to live in the home of our dreams? Isn’t it more important that we are able to retire someday, pay for health care, and raise our kids – while living in a home that meets our needs?

It really seems like many people buy a home based on what they can afford instead of based on how much they should spend. My line of thinking is that it’s not understandable that anyone would choose to work an extra 5 years for retirement, or neglect to help their kids, just for a home that has more bells and whistles than another home. It seems like a lie that people tell themselves, when deciding that it’s totally sensible and understandable to stretch financially and go into deep debt to buy a dream house.