The Power of Compounding and the Definition of "Rich" (With Scott Galloway)

LIZ ANN SONDERS: I'm Liz Ann Sonders.

KATHY JONES: And I'm Kathy Jones. 

LIZ ANN: And this is On Investing, an original podcast from Charles Schwab. Each week we analyze what's happening in the markets and discuss how it might affect your investments.

Well, Kathy, it's been a busy day, busy week, busy month, a lot going on out there for us to keep up with economic data, inflation data. As we're having this taping here, what is top of mind for you?

KATHY: Well, inflation and Fed policy, I mean, what else, right? For bond people, that's about all there is. And yeah, we just had some good inflation news with the release of the CPI, at least relative to expectations. It came in lower than the market was looking for, both for the overall figures and the core number. It's still too high for the Fed to start cutting rates.

In particular, some stubbornly high costs for insurance, for autos, and that rent, based on the way they measure it, still is too high. But it does look like the downtrend in inflation might be resuming after it stalled in the first quarter, so that's good news. And then, you know, that was reinforced somewhat by the weakness in retail sales, which I'd love to hear your thoughts on.

I think it might have been more interesting than CPI with the so-called control group, the items that feed into GDP declining on the month. So you know, if you look at the combination, that was pretty good news, although it may indicate some softness in consumer spending. What did you think about that?

LIZ ANN: Yeah, so I think you're right to point out the control group, because that's what feeds into GDP and may have been part of the reason why the Atlanta Fed "nowcast" came down a bit from having been over 4% to under 4%. I also think that with regard to the consumer side of the economy, you know, a lot of the, most of the consumption numbers and even things like retail sales, they're reported and published in nominal terms. And in the case of consumption numbers, the consumption number that you'll hear for 2023 calendar year was $19 trillion of consumer spending. The problem is that's not population adjusted. On a per capita basis, actually, consumption has been somewhat flattish since 2001. So I think this is one of those environments where you need to make sure you understand the difference between nominal and real, or population-adjusted. I also think interesting within things like CPI is this bifurcation of the nondiscretionary items and the discretionary items. So the nondiscretionary items being things like insurance, the stuff we have to buy, baskets of those types of indicators, you're still running at about a 6 % inflation rate where you're basically flat in the discretionary items, sort of the "wants" side of the equation. So I think that continues to be something to watch.

KATHY: So Liz Ann, you mentioned the "nowcast." Can you kind of walk us through what exactly that means?

LIZ ANN: Yeah, so it's put out by the Atlanta Fed. And the reason why it's called a "nowcast" and not a forecast is it essentially just takes the data that has come in so far in the quarter, the data that ultimately feeds into GDP. So it really just represents a snapshot in time based on the data that has come in. It's not a forecast because it's not estimating the data that has yet to come in. And given that we're only in the middle part of May, there's still a month and a half. So but it just does show that there was some sort of heat initially, but as the quarter has gone on, we've started to see a fading, and it wouldn't surprise me to see that now cast come down a bit as we get closer to the end of the actual quarter.

KATHY: Yeah, I think that's kind of been the pattern recently. We start out the quarter at pretty high level, and then you get more data, and then it goes back to more normal or trend-like growth. 

So Liz Ann, for this week's episode, you got to sit down with a pretty popular speaker and podcaster. Can you tell us about him?

LIZ ANN: Yeah, it was very exciting. So Scott Galloway, I'm sure the name at least is familiar to many people, especially podcast listeners. He's a professor of marketing at NYU's Stern School of Business, and he hosts the popular podcast Prof G and co-hosts the Pivot podcast with Kara Swisher. And in 2012, he was named one of the world's 50 best business school professors.

Scott is also the founder of several firms, including L2, Red Envelope, and a global brand strategy consultancy called Prophet. Scott has served on the board of directors of Eddie Bauer, The New York Times, Gateway Computer, and Berkeley's Haas School of Business. He received a BA from UCLA and an MBA from UC Berkeley, and he has some great and interesting anecdotes about his time back then and how things have changed in that world. And his latest book, which I really enjoyed, is titled The Algebra of Wealth: A Simple Formula for Financial Security. And I have a link to it in the show notes.

So Scott Galloway, thank you so much for joining me. I have been fortunate to be on your podcast in the seat of answering questions, and thanks for letting me flip the script on you and ask you some questions.

SCOTT GALLOWAY: It's great to be here. I'm a big fan of Liz Ann Sonders.

LIZ ANN: Well, I'm a big fan of Scott Galloway, so mutual admiration society here. So I was thrilled that your team sent me your latest book, The Algebra of Wealth, and I poured through it. I was just telling your team that it's filled with the yellow highlighter and lots of dog-eared pages. But I want to first just ask you about the book, because its message is quite different from what maybe the typical retirement advice is that you find either in books or in other formats. And I know you said it's not a Suzie Orman-like book. So talk about who you wrote it for and how it differs from that traditional air quotes "retirement advice."

SCOTT: The inspiration for the book was that famous study that shows you are the sum and then the average of your four closest friends. That, as parents, we like to think we can engineer our kids, but what actually has more impact on them is their peer group. And when you hang out, if you take the four people you hang out with most or spend the most time with, you end up with the same body mass index. You end up with the same political complexion. You support the same teams. You become kind of the same person. And so the advice to parents is do whatever you can to try and surround your kids with impressive, kind people. But where there's variance is of those five individuals, even if they make the same amount of money, one will end up much more economically secure at our age than the rest. And there are stories of all these people who make tens of millions of dollars and lottery winners and professional athletes who end up bankrupt. And what doesn't get talked about is there are millions of public service employees, people who work at the post office and schoolteachers, who end up millionaires. And what I wanted to write a book about was, what are the behaviors and strategies of the people who don't necessarily make a lot more money than their neighbor but end up economically secure?

You could have done the voiceover on this book because we know what they are. We know the principles, but I don't think young people recognize just how powerful these principles are. And what I'm trying to do is kind of write a memo to my younger self. I have an MBA, I teach at a business school, and I made a lot of really dumb mistakes. So I demonstrated a lack of character and a lack of discipline when I was younger. And I try to be very transparent about this. I'm very open and honest in the book. My oldest son had the poor judgment to come marching out of my girlfriend. I was 42, and the great financial recession had hit, and I didn't understand the power of diversification and assumed that anything I was involved in and working hard would just naturally be awesome. And so my company had gone public, Red Envelope, and I borrowed money against the stock to double down. And I ended up going from a net worth of $30 million to negative $3 million in about three weeks. Just about the time my first son was born, and I was so nauseous and terrified in the delivery room, and it wasn't because of what was going on in the delivery room.

It was that for the first time I felt what I would describe as cosmic failure. And that is, as a dad, and this is sexist, I feel that every man should take at least from a starting point economic responsibility for his household. And sometimes that means getting out of the way of your partner who's better at the whole money thing than you. But I think it's a good place to start. And I've always felt that obligation. And so sitting there as my first son was born, the first emotion I felt wasn't bright lights and angels singing. It was a feeling of failure. That if I'd just been a little smarter, Liz Ann, if I'd just taken some money off the table and diversified, if I hadn't always been swinging for the fences, if I'd realized how fast time was going to go—you know, the basics that we tell you, I'm sure you tell your clients—I just would have been in such a better place emotionally and mentally. And I wasn't. And I mean, that's just one example of "memo to my younger self." And just going through trying to distill it down to a basic kind of equation for what are the basics. Like, "I don't want to crush your dreams. I hope you have a best-selling novel. You win the lottery. Your business goes public." But just in case that doesn't happen, there is a strategy for economic security. And it's simple, but it's powerful. It requires some discipline. It's not easy, but it's doable by almost anybody. And so I wanted to just articulate it, ground it in life lessons, and give people a sense for, "OK, this is possible." Because it's just striking how smart people are, but how stupid they are about financial literacy. It really is the great gap in America. My kid, I already see it now, my kid can do calculus, but he just can't wrap his head around what the interest rate on his credit card means. Like how that translates into something real.

LIZ ANN: I think the absence of financial literacy being taught to our kids is a real shame. I made myself a complete pest with my kids' high school principal about why there was not a financial literacy course. And her answer continued to be, "Well, we have a stock picking club." I said, "That's not what I'm talking about. I'm talking about the basics." I totally agree with you. One of the things I loved, it was an early quote in your book, one of my favorites: "The stress surrounding work declines dramatically when it becomes a surfboard instead of a life preserver." I think that's a great way to frame the way we think about money as we go through our lives.

SCOTT: Yeah, look, what is rich? What is the definition of rich? And for me, it's passive income that's greater than your burn. I have a very close friend who runs the most successful M&A division likely in the world of a bulge bracket investment bank, makes between $3 and $12 million a year depending on the market. And living in a high-tax state, an ex-wife, alimony, child support, house in the Hamptons, the trappings of trying to give the impression he's a master of the universe. I think he spends nearly all of it. And I can just sense the stress that what happens when the music stops. He is not rich. Money has become a huge source of anxiety. And despite the fact he makes millions of dollars. My father, between his Social Security, who's turning 94 in a couple months, his Social Security, his Royal Navy pension, and he owns some washing machines in trailer parks where he goes and collects $35 a day in quarters.

He makes $52,000 a year in passive income. Doesn't have to work. He spends 48. My dad is that guy. He goes out once a week to eat out with his health aide. They go to Mexican food. And he's the guy who takes home, he gets to-go, a half-consumed frozen margarita. He gets that to-go, right, and then puts it in the freezer hoping something's going to happen to it and he's going to drink it again. He's the cheapest man in the world, but that's just the way he's built. He is saving money at the age of 93. He's rich, he's happy, he likes his life, and he has passive income greater than his burn. And I'm rich because despite the fact that I'm still working, it's absolutely a choice. I do not need to work. My passive income is now greater than my burn.

That's the definition of rich. And it sounds obvious, but the insight is that people focus on their income. What they don't focus on enough is their burn. And that is, you can have that exhale of being quote-unquote "rich" at a fairly low passive income level if you adjust your lifestyle to a lower burn. And there's real opportunity now with remote work. People are getting more comfortable with what I call a lifestyle arbitrage. I'm getting a ton of questions around, "Scott, your book feels like it's for 20s and 30s. We're in our 50s. What do we do?" And I'm saying, "We've got to lean into your advantage." And I was talking to a couple about this. And they figured that their passive income is going to be about 68 grand a year by the time they're done working in about 15 years. And I'm like, "OK, where do you live?" 

"San Jose."

"Do you have kids there? Are you tied there?" 

"No."

I'm like, "Where have you been that you just loved recently?" 

And they're like, "Well, every year we go to Costa Rica."

I'm like, "Why wouldn't you consider moving there? You can live a really nice life in Costa Rica on 68 grand a year. What is holding you in San Jose?"

You want to lean into your advantages. And your advantage, your superpower when you're young, is you're young. You got another 50 years to let one dollar turn into 28, if you're disciplined enough to put it aside. And the example I use, and I started at Morgan Stanley right out of UCLA. I did the two-year analyst program in fixed income. I made a lot of money. I never had money in my life. I got a salary of $58,000, which in 1987 seemed like a lot of money. And then I got a $35,000 bonus my first year. I mean, this was a lot of money back then. And I immediately took all $35,000 and went and bought a BMW and hung swimming goggles off the rear-view mirror thinking, even though I didn't swim, thinking that would make me more attractive to potential mates.

And what I realized is like, it felt good, I get it. And I understand, I empathize with young people who want to signal, they want to enjoy themselves. I get it. And the other example I use is when I was in New York. So I left New York because I couldn't afford it. I was making $800,000 a year in 2011, and I couldn't afford to live in New York. Or I couldn't afford to live without a lot of stress. I had two kids, and I thought, "I hate making this much money and feeling poor." It's just, it's humiliating. And so we moved to Florida. That was a lifestyle arbitrage. But I did the math. I'm a narcissist. I want to signal to people status is important to me. So I thought my kids, they were three and a newborn, but when they turn four, they're going to have to go to school, so I was either going to send them to one of these tony schools in Manhattan, $62,000 a year. That's before you give money. And by the way, in every interview, they ask you how philanthropic you are, which is code for "How much money are you going to give us?"

So $62 ,000 a year, and there's now a lot of studies saying the best thing you can do for your kid is send him or her to the closest school and take all the additional time they spend commuting on sleeping, playing, studying, whatever it is. But let's assume you're wrong. You send your kids to public school. Let's assume you're wrong.

Well, why do you send them to a school like that? Well, we hope they get the skills to be successful. What does success look like? Well, that they can meet nice people, but basically it's have economic security, buy a home, be able to have a family, be able to afford the trappings of a life that we, their parents, had. It's like, "Well, OK, send them to public school, take that $62,000, invest it, be really disciplined."

Assume you're wrong. Assume you screwed up sending them to public school, and they're not as successful. You're going to have $5.5 million to cushion the blow when they turn 35. So that'll make up for a lot of public-school disadvantages. So if you're sending your kids to private school for emotional well-being, OK, fine. You think they're going to become more whole human beings, OK.

But if at the end of the day, it's you want them to be successful in a capitalist society, which is really understandable, because life's just harder for people who don't have money, take that money, put it away, and $5.5 million will solve a lot of economic problems when they're 35. 

LIZ ANN: Yeah, just the power of compounding, and I know you wrote about and have spoken about, I don't know if it was an actual story or just an anecdote about a comment made to you about somebody putting $2,000 in an IRA, and you thought, if $2,000 matters to me, you know, X point down the road, then boy, that's terrible life.

SCOTT: Shoot me. Yeah. My friend Lee Lotus. I was in the fraternity my senior year. He was already a graduate working at Great Western Financial in downtown LA, and he had one of those jobs. He was up at five in the morning, done at one or two, about the time I was waking up. Swing by the fraternity, we go to the beach. I remember telling him like, we parked not near the beach. We parked where it was free. And he's like, "I'm trying to get my $2,000 together for my IRA Roth, and Great Western will match a thousand of it." And I'm like, "I'm going to be such a baller," was my attitude, "that 2,000 bucks shouldn't mean anything." I don't think Lee has ever made more … I bet he's made a tenth as much as me in terms of current income. And he is a multi, multi-millionaire because it's like what I tell these kids is, you got to resist this flaw in the species. And the flaw in our species is that—because for 99% of our 300,000 years on this planet, we haven't lived past 35—it is impossible for us to imagine that at the age of 25, you're going to be here another 80 years. You cannot wrap your head around it. And the other thing you can't wrap your head around, and you got to believe Scott Galloway and Liz Ann Sonders when they tell you this, it is stunning how fast it will go.

Stunning. So just suspend your natural instinctual beliefs and believe you're going to live 60 years or 40 years from 25, and that it's going to go like this. It's going to go really fast. And youth, they have one real advantage, and that is time is so powerful. And I just go through a bunch of examples to try and convince them, trust me on this, a little bit of effort goes just so far.

LIZ ANN: You know, you and I have similar backgrounds. Off camera, I realized that I'm two months older than you, which is a little frustrating, but we're both at the tail end of being Boomers, and you may not be aware of it, had a similar background, didn't grow up with a lot of money, although I was raised by two parents, they're still alive, my dad also is turning 94 next month, and grew up living a very, very frugal life. 

One of my other favorite things, and this is the first highlight that I put in the book, the first dog-eared page was, "We live in an era of innovation in finance, but no cryptocurrency or payment app will offer what I want most, to send money back in time to the people I loved who didn't have it. The insecurity and shame present in my childhood home will always be there, but that's OK, as it was motivating." So how did that shape you and the way you not only think about money and wealth and success in general, but how it sat behind the writing of this book?

SCOTT: Well, I think about this a lot as a parent, because the question I get is "How do you instill a level of grit in your children?" And always the answer is "I don't know," because here's the bottom line: If I had what my kids have, I wouldn't have what I have.

I didn't grow up wanting to change the world or be a good person or save the whales or follow my passion. I wanted to be economically secure and take care of my mother. That was my only priority. I also think that when we talk about diversity, I think we need the diversity score—universities or elected officials—should be adversity. Specifically, I think we should have affirmative action based on color, but that color should be green, based on whether you had money or not. Because people with money, and it's not their fault. There's a lot of people who grew up with money who are empathetic. They just can't understand what it's like.

People always say, "It must have been hard growing up without your father present." I'm like, "No, what was hard was not having any money." It's as if you have this ghost following you around telling you you're not worthy. Everyone goes out after Little League, and your mom kind of shuttles you into the car, and we go home because we can't afford to go where they're going. We can't afford to go to the Sizzler, right? And you start picking up on these little cues that you and your mom have failed.

And there's just no getting around it—it's humiliating. People don't understand. They get the highlights of a kid who comes out of poverty and is remarkable and gets to Harvard. Well, most of us aren't remarkable. And I remember when I didn't get into UCLA, people would say to me, "Well, why don't you apply to the University of Oregon or Arizona or Michigan? You're a smart kid."

And if I'd been totally honest, I'd be like, "I don't know how to buy an airline ticket. I don't have the money to buy an airplane ticket. I don't have that confidence. I don't have that money. I don't." And that's what it is. When you're raised without money in America, you're taught that you're not worthy. The good news about America is you're told anyone can do anything. You can do anything. There's some wonderful attributes to that.

The downside is that if you and your mom don't have a lot of money, it means you're not worthy because anyone can do anything in America. So if you haven't made it out, it's your fault. And I was very focused economically.

I'm fundamentally a lazy person. I work a lot, but now it's because I do what I love. But the reason I worked 60 or 80 hours a week for a good 20, 30 years was like, "I am not going back to that place of insecurity." When my mom got sick, I couldn't take care of her. As an only son, that was just so humiliating. And I thought, I'm just not going to feel that way again. And regardless,

I don't like to say no matter what, because a lot of it's luck. I still could have ended up financially insecure, because a lot of it is luck. The smartest thing I did was being born a white heterosexual male in 1964 California. A lot of my success is not my fault. But I absolutely added the water of very hard work, because I just wasn't going to go back there. And I don't think people who grew up with money will ever really be able to understand how many cuts every day you take to your self-esteem in a capitalist society.

So this for me is, you know, it's been a journey. And also, you've got money. I've got money now. And what is really wonderful about America is that having money is great, but I actually think the getting was even more rewarding. Like finally being able to take a nice vacation. I remember the first time I flew business class, and it was my money. And I remember just how rewarding it was. When I cut a check for my kid's school, or I do something frivolous with money, it's just so awesome. And I know that sounds very crass and materialistic. I try and give away a lot of money. But there's so much reward around building wealth. And I would want, what I would wish for everyone is to have the opportunities that I have, but also just the reward of building something, especially with a partner. When you find a partner you align with on finance, you have kind of a similar approach to spending, saving, and you build something together, it's the closest thing to having kids, right? Those moments when your kid does something, you're at their graduation and you shared it with somebody, and you feel a bond. One of the most rewarding things in my life was building wealth with someone else. But the book is really couched in relationships. I think money is essentially a vehicle so that you can have an absence of stress to focus on your relationships. That's what it's been for me.

But money is much deeper. People think of it in very basic terms. I think of it as really the Neosporin for a lot of the attacks on self-esteem that capitalism will make on you. America becomes more like itself every day. For people with money, it's a loving, generous place. For people without money, it's a rapacious, violent place. And this book isn't about what should be. This book is about what is. And what I'm telling people is, be clear, money's going to have a big impact on your happiness. And you need a strategy from an early point. And if you have some discipline, a little bit of luck, you can get there.

LIZ ANN: And you point out in the book that having an obsession with money is fine. It just needs to be a rational obsession. I know you've had experiences in the past. You have had a couple of riches-to-rag stories as you write about. So what is your perspective on dealing with significant loss, either through your own fault or just that's the way the universe set it up at that moment in time?

SCOTT: Well, the first is don't be dumb like me, and try and minimize the loss. So in '99, I was all tech, all the time. Even though I was making a ton of money, I came out of the gates really strong. Right out of business school, I started a firm, sold it for $30 million, a strategy firm. But between a divorce and the dot-bomb implosion, lost it all. Now, if I'd just diversified a little, I probably would have had a million or two million bucks to just sort of ease the pain. Instead, I went to zero slash negative zero. I still didn't learn my lesson. I built back until 2007, tens of millions of dollars again. Boom, great financial recession hits, Red Envelope, Chapter 11, all tech, back to negative zero again. Again, I didn't learn. I made the same mistake twice. What I wish I had figured out much earlier was the power of diversification, and it just sounds so simple and so trite, but it really is your Kevlar. Like now, I had a business, I had an investment yesterday go out of business, the investment I was most excited about. I have about 30 or 40 investments. The one I would have guessed that would have gone up tenfold. Amazing investors, amazing concept, amazing CEO, zero, yesterday shutting down. But I now don't invest more than 3% of my assets in any one asset. And that way, bum me out for an hour. But then I'm fine. It's my Kevlar. I can take a bullet to the chest right now. I can go to zero. And it hurts. I don't like it, but it's not fatal. 

And then around resilience, the key to my success, other than being in the right place at the right time, is failure. Specifically, my ability to endure it. I ran for sophomore, junior, and senior class presidents three times. Lost, lost, lost. And then based on my track record, decided to run for student body president, where I went on to wait for it, lose. And a lot of rejection on all levels. Success, the only pillar I guarantee you in success, is a ton of rejection. That's why I'm actually for the first time thinking my kids might be successful because they're both good enough to play sports, but they're awful athletes. They're usually the worst person on the field.

I hope they don't listen to this. And it's amazing for them. It's amazing. They try hard. They practice hard. And one's a goalie in soccer, and he gets pelted, 9 to nothing. And you know what, he's fine. He's fine. And I'm like, that is the best thing that could happen to this kid. I mean, occasionally I want them to have victory, but the fact that he gets pelted, he walks off the field, he shakes it off, I'm like, that is the best gift I could give this kid is an ability to endure rejection. He's not afraid to work out. He's not afraid to get on the field. He's not afraid to raise his hand and say, "I'll play goalie." And he gets pelted, and he's fine. But rejection is absolutely the key to my success.

LIZ ANN: It's part of the stoicism that you talk about in the book. I'm 100% Norwegian, so we're known as being stoic. So that's another section in the book that resonated with me, especially as it relates to money. You said in the book that everywhere conspires to separate you from your money, hence the need for stoicism. And I liked your broader definition of that word relative to what I thought it related to growing up as a stoic Norwegian. 

SCOTT: Yeah. You have to, and we were talking about this off mic, the need for an adulting class, senior year in high school. I think there's just some basic adulting things that people should be made aware of. And one of them is that godlike technology, leveraging the fact that you are in front of a screen in an algorithm 16 hours a day, is going to do everything it can, deftly tested psychologically millions of times a second, to take every disposable dollar from your person possible. I'm not immune to it. I order a Tunacado from Joe & the Juice the other morning, and immediately it pops up, "Hey, would you like to add flourless chocolate cake from Balthazar Boulangerie?" I like chocolate cake, yes. "Scott, Sale on United right now on your trip to Miami, you can upgrade to business class for just $210." And the beautiful seat, and I'm like I deserve this. I deserve this. This isn't a cost. This is an investment in me. I mean, you are competing against technology that is really hard to win against. I'm in London right now, they have this thing where if you save 4,000 pounds in their equivalent of an IRA, they top it up to 5,000 pounds. And the key is having it taken out of your paycheck, so your hands never get on it. Because here's the bottom line: I am disciplined, I understand finance better than 99% of the population, and I will spend what is ever within reach.

So I purposely put things out of reach. I buy investments that require that I make payments. A house is a great forced savings plan. I'm not suggesting you get in over your head, but most people tend to make their mortgage payment. They'll say, "OK, we can't go to Tulum. We got to make our mortgage payment." But the best thing you can do, options in a company, if you go to work for a company and they offer you options, I would say negotiate more equity and less current income, because you'll spend all your current income, but you can't spend your options, and hopefully it grows tax deferred. So recognize the world of capitalism is conspiring against you. It'll likely win, and the way you fight back is you don't even enter the battle because you never give yourself access to the money. And I know that's infantilizing, but it's powerful. Don't ever let the money get into your bank account in your hands.

LIZ ANN: You know, another piece of advice you offer to the younger generations in this environment is essentially two words: get out. So talk about, based on your own experience, but observing the younger generation and maybe especially in the context of remote working and the fact that it has limited young people's ability to establish alliances and networking. So talk about why that is so important for the younger folks out there. My daughter is four days a week in the office. She's 24. I think it's absolutely fabulous. I keep telling her. I also told her max out your 401(k) if you can. This is what matters. Same exact advice. Our son is 27, is fully remote. And I think it's terrible.

SCOTT: We're siblings from a different mother on this. Google did a study, their product manager did a study. If they have a product management position within 24 hours, they get 200 CVs. They pick the 20 best, and they bring all 20 in. Eighty percent of the time, the one person they give the offer to is someone who has an internal champion that is that person's friend.

So the key to your success is collecting allies and people who want to put you in a room of opportunities when you're not physically in that room. And it is very hard to form those relationships on a screen. And so the office is a feature, not a bug, for young people. That's where you meet mentors. That's where you meet friends. That's where you meet co-founders. Also, we don't like to talk about this. One in three relationships begins at work. 

And there's this taboo because there's been some terrible instances of abuse of power. But I think I've had eight or nine weddings of people at my companies. It's a mitzvah. It's wonderful. These two young people met each other, fell in love, totally consensual, got married. I mean, where do young people meet now? They're not going into work. They're supposed to meet on dating apps? And there's a whole other talk show about that, but you need to be able, especially young men, if you had said I have a daughter and a son, I would have hoped that the son was going into the office place, because the reality is men mature more slowly and they desperately need guardrails. If I hadn't had to get up every morning at 7:30 and commute to downtown for Morgan Stanley, I would have never showered. 

I had people constantly pulling at me out of rooms and conference meetings and pulling me into a room going, "Don't say that. That's stupid. Don't say that." And if we'd been on Zoom, I'm not sure they would have called me back and said, "Don't." The office was amazing for me, amazing. And here's the thing, in terms of your own career trajectory, you're 38% more likely to be promoted if you're in the office because for every promotion, there's three people that are qualified. The decider who gets to pick that person will pick the person they have the strongest relationship with. And relationships are a function of proximity. 

And men especially need the socialization of being in the office, especially because women are much better at maintaining a social network outside of professional. Men tend to only have a social network that is a derivative of their professional network. The professional network and the romantic relationship. A woman can work remotely and not have a romantic relationship and still have a strong friend network. A guy who doesn't have a girlfriend and is remote tends to have a very, very thin social network, and every young person needs guardrails. And work, especially hard work as a young person, are not only an unbelievable upside, but the guardrails you need. I can't imagine what an arrested adolescent I would have been. Like my second day of work, I was there like 9:05, not 9:00, and they're like, "If you're not here by 9:30, it's a paid day off. And you get 20 a year." And I was like, "Whoa." So I think literally my second week, I responded to an RFP for a financing, and I had said, "base rental payment." And then in the next sentence, I said, "base rental payments." It was plural. And my boss called me in and said, "This will get you fired. Everything has to be perfect here. You have to read it backwards. It has to be perfect." And that attention to detail that was instilled in me, quite frankly, through fear, has served me well my whole life. I just instinctively check everything, and I think the quality of my work is just much better.

So I think remote work, for you and me, for older people, for caregivers, I think there should be a different classification. You're taking care of kids. You're taking care of parents. You can't afford to be near the office. I think that those people should be given a lot of rope, a lot of license, even additional compensation such that they can do it. But my god, before you collect dogs and kids, get into the office.

LIZ ANN: Another piece of advice you have given to young people in this book, and I've heard you talk about it often, is it goes against the idea of following your passion, and you say instead "Follow your talent, and the passion will come along with it."

SCOTT: Anyone who tells you to follow your passion, Liz Ann Sonders, is already rich. It drives me crazy. At NYU we bring these people in to talk about, to the students, we bring in two types of people, really impressive, substantive people and billionaires. We've just decided billionaires have insight into life once their net worth gets three commas. And the guy telling you to follow your passion made his billions in iron ore smelting. 

And my advice is "find your talent" because a lot of young people will mistake their hobbies for their talent. "OK, you enjoy being a DJ. Are you one of the 20 or 30 best in the world?" Because only the top 20 or 30 make crazy amounts of money. You can make a living if you're in the top 0.1%. That's not the top 20 or 30, that's the top 1,700. But find something you're really good at, and then you think you could be great at if you really invested 10,000 hours, and here's the key part, in an industry that has a 90+ percent employment rate, and the good news is 98% of industries have a 90+ percent employment rate. There are 180,000 members of the SAG-AFTRA union. That is the union for actors and people in the creative. And by the way, it's not easy to get into the union.

These are the most talented creatives in the world, 180,000 of them. Last year, 87% didn't qualify for health insurance because they made less than $23,000. So I don't want to crush your dreams, but unless from a very early age you are getting bright green flags that you were in the top 0.1%, find something that you could be great at. You could be in the top half, top quartile, top 10%, maybe someday the top 1%. And if it's in an industry that has a 90+ percent employment rate, you're going to have a fantastic life. The top 1% of basketball players, right, the 99, not the 99.99, but the 99 get to play junior varsity in high school. And here's the thing. Mastery of something, real mastery of an industry that has a 90+ percent employment rate, the accoutrements of that—relevance, prestige, economic security, camaraderie, people become interested in you, the ability to take care of your parents, the ability to take care of your kids—all of those things will make you passionate about whatever got you there. Mastery is the fuel of passion. I am so passionate around taking care of my father. You know, when I was younger, I thought I was going to be an athlete. And I've decided, and this is a flex, I would rather be Federer or Nadal than me. But I'd rather be me than the number seven player in the world in tennis. Because guess what? I get to go to Wimbledon.

And when I go to Wimbledon, I'm not going to throw up before the match and be nervous and scared and worried about tearing my ACL. I mean, yeah, I'd rather be Serena Williams. OK, fine. But I'd much rather be me than the number nine player. And by the way, I didn't need to be a fraction as talented as the number nine player in tennis. All I needed to be was in the top 10,000 of analytics, business intelligence, and consultants.

And that provided me with the ability to go to Wimbledon on better terms than the ninth best tennis player in the world. So find something you're great at, and mastery and the accoutrements of mastery will make you passionate about whatever it is.

LIZ ANN: I want to wrap things up, staying on the subject of mastery and finding your talent. And one thing you say that everybody should try to focus on, regardless of your field or your passion, is about being a good communicator. And that is something you do extraordinarily well. And I totally agree with you. I think, much as you say, "Money is the ink in your pen, not your story." I think being a storyteller, being a communicator, is such a key to your own sort of personal feeling of success and the success as the outside world views it. So you, as an exceptional communicator, what is your advice on that subject? How do you hone that talent?

SCOTT: Well, the superpower of our species is cooperation, and the competence around cooperation is communication. So we're the only species that writes cartoons and stories on cave walls or has a printing press, such that we've gone from, you know, Cro-Magnon to AI faster than any species because of our ability to communicate. And as a result, we are fascinated by people who can tell stories really well. It's the reason why we're fascinated with an 80-year-old Mick Jagger.

If I could give my kids any skill, it wouldn't be Mandarin. It wouldn't be computer science. Storytelling is the enduring ability. You can be brilliant, hardworking, you're making a good living, but you're never going to be a CEO, you're never going to be a billionaire, unless you have the ability to frame what you do in a compelling narrative that helps people remember it and motivates them to action. 

So a lot of it's genetic, but a lot of it is learned. And what I think is just hugely important, for kids is the ability to understand how to communicate. And there's so many different mediums of communication. There's texting, your social media platform, your ability to put stuff out in 140 characters. The written word, oh my god, if you can write, lean into that. Any time someone gets an email from somebody, and it's really thoughtful and articulate, they immediately go, "Oh, this person is educated and intelligent." So next time we need to check that box for promotion, educated and intelligent are really good associations with your brand. There is no faking writing a long form document or memo. You can't phone it in. That is really hard, the ability to put together a really solid presentation. All of these mediums of communication are so important. And when you think about, at the end of the day, the primary skill in a CEO is they're great storytellers. That's it. They have an ability, turn of phrase, thoughtful, give you the impression they're listening, tell you back something that you want to hear in a format … I see it as the core competence. 

It's the one thing I hope my kids inherit from me, but also, a lot of it's inherited, but my god, I speak, especially when I was teaching, for 22 years, I stood in front of 300 adults twice a week for an hour and a half. So I have a ton of practice. I write like crazy. I got a C in high school English, and I'm writing books now because I just kept writing and kept failing and getting better at it. But if there's any skill you really want to hone or at least modulate to average. You need to find situations where you're speaking in front of other people. You need to be able to be a competent writer. You need to be able to express your views in data and charts and visually. Who is really powerful in this world who isn't a great storyteller? They just aren't there.

LIZ ANN: And you are second to none as a communicator, and I've learned a tremendous amount from you, especially during the entrée into this world of podcasting. So I'm always grateful for the opportunity I have to spend some time with you and listen to you and read your work. You are a master storyteller. So thank you for coming on and telling your story and the story behind such a great book that will be forever top of my bookshelf. So Scott, I'm thrilled to have you.

SCOTT: I appreciate the kind words, Liz Ann, and congratulations on all your success.

LIZ ANN: Thank you.

KATHY: Yeah, really interesting guy and great interview, Liz Ann. Looking to next week, what do you think investors should be watching?

LIZ ANN: Well, we've talked obviously these days a lot about the Fed, but there's also regional Fed data that comes out, and that can always be interesting. Philly Fed, Chicago Fed, Kansas City Fed. There's also the S&P Global version of the PMIs, the Purchasing Managers Index. ISM tends to be more widely watched, but you can sometimes get some interesting nuggets around trends, especially because they announce services and manufacturing essentially at the same time, and I think the spread between those two is worth watching. We get some home data, existing home sales, new home sales, I'm guessing one of the things that's going to be on your radar, which also comes out next week, is the Fed minutes, and then we also have claims and the UMich stuff. What about you?

KATHY: Yeah, I think the economic data is sort of, you know, it will be interesting, but after CPI and retail sales, I don't think it'll be as big a factor unless there's a huge shock in there. But I always like to read the minutes of the Fed meetings, and it's always after the fact, but you get a little bit more detail about how many people at the Fed were on this side of the fence, and how many were on that side of the fence, and how many were straight down the middle on the fence.

So I'll be curious to see how that played out. It gives us a little bit maybe more insight into what to expect at the upcoming meeting.

That's it for us this week, but you can always follow us on social media. I'm @KathyJones, that's Kathy with a K, spelled K-A-T-H-Y. I just had an imposter who kind of changed up the spelling, but it's just regular old K-A-T-H-Y on X, formerly known as Twitter, and on LinkedIn.

LIZ ANN: And I'm @LizAnnSonders on X and LinkedIn. And by the way, those are the only two social media platforms on which I am active, speaking of imposters. We've had just an unbelievable rash of them largely on Facebook, purporting to be me pitching a stock-picking club that you can join. Those are all imposters. Those are all fakes. We've been playing whack-a-mole to some degree, but just before I put these headphones on, I got an email saying somebody just looked on our internal team, and there were 150 of them after we thought that they were all down. So this is getting to be a real problem. Just know any profile or purported profile on Facebook, that is not me, so don't fall for it. 

But back to the podcast, be sure to follow us for free, really important in this environment, in your favorite podcast app. And if you've enjoyed this episode, do us a favor, tell a friend about the show or leave us a rating or review on Apple Podcasts.

KATHY: Next week, we're going to dig into money market funds with my colleagues Lynn Paschen and Linda Klingman. So if you've ever wondered about how money market funds work, be sure to join us next week.

LIZ ANN: For important disclosures, see the show notes or visit schwab.com/OnInvesting, where you can also find the transcript.