Finance Lessons from Michael Scott

October 07, 2020
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It is no surprise to anyone who knows me well that I am a huge fan of “The Office”. Behind the ridiculous, cringe worthy moments, is an accurate portrayal of working in an office setting (albeit hyperbole). I have often attributed certain characteristics of the show’s many colorful characters to people that I work with, much to my amusement. The show’s most essential character by far is Michael Scott, the hapless, politically incorrect regional manager at the center of The Office. Over the course of the shows 9 seasons, we see Michael make his fair share of mistakes in business, life, love and even finance. Thankfully for us, there is something that we can learn from his many, MANY mistakes.

Emotional Decision Making

               Throughout the show, Michael is shown to be a man whose decisions are heavily influenced by emotion. This is not a particularly good thing when making important financial decisions which we see when Michael is approached by a health insurance salesman. His coworkers convince him that the salesman is a member of the Italian mafia. Even though he has no need for additional coverage and is unable to afford it, Michael purchases a policy from the salesman out of fear for his life. He then rationalizes his decision by saying that the coverage, “only costs the amount of a cup of coffee an hour."

               It can be very tempting to make a financial decision based on emotion rather than sound reason especially when one is afraid of the potential for harm. However, this is almost always the wrong answer and typically causes more harm financially in the long run. A few examples of this are panic selling when the market takes a drop, taking unnecessary risks when the market is doing well, or avoiding the purchase of life insurance because end of life planning is an uncomfortable conversation.

Irrational Bias

               In one episode, Michael arrives at the office late after a trip to the dentist’s office. He becomes infuriated to find that almost everything in his office was made in China. Having just read a magazine at the dentist warning of China’s rise in the global economy, Michael is distraught as he has always believed that “America was #1; that was the saying. Not "America is #2", England is #2, and China should be like 8.”

               We often hear from clients that for one reason or another they dislike a certain type of investment product or strategy. Often this is because the client had a bad experience in the past or simply does not understand how the strategy or investment works. A good example of this is a client of ours who had a strong aversion to annuity products having had a bad experience in the past with another advisor. However, after discussing with us how the policy actually works and why it would be beneficial for him, he was very comfortable in moving forward. Do not let irrational biases cloud your judgement when making financial decisions!

 

False Confidence

               Michael Scott sees himself as a natural born leader and runs his office with supreme confidence in his own abilities. Of course, he is very often ill prepared when crises arise and lacks the ability to make the tough decisions. This does not however, stop Michael from rushing headlong into bad decisions and making mountains out of mole hills. Mr. Scott probably said it best himself “I knew exactly what to do but in a much more real sense I had no idea what to do.”

               Often, we tell ourselves that we have the situation under control when in reality we don’t know what we don’t know. Personally, I have learned that this is the case when it comes to handyman projects around the house. I am far better off swallowing my pride and asking for help than trying to go it alone and making an expensive error. This is the case for many when it comes to financial planning. You are likely much better off hiring a professional to manage your finances than trying to do it yourself. Those who do attempt to do it themselves often find themselves seeking the assistance of a financial advisor to fix their mistakes later. It is important to note that this is not a matter of intelligence. Every one of us has knowledge and expertise in a certain area and it is a sign of intelligence when we are able to identify our areas of weakness as well as our strengths. This is especially true when it comes to personal financial planning.