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Finance 101: how do you behave with money

Kirjoittanut: Irene Lai - tiimistä SYNTRE.

Esseen tyyppi: Yksilöessee / 2 esseepistettä.

The Psychology of Money: Timeless lessons on wealth, greed, and happiness
Morgan Housel
Esseen arvioitu lukuaika on 4 minuuttia.



Whether you like it or not, money is all around us and everyone has to deal with it. We can’t live without money and we are desperately after it. Money does have a central role in our culture and it becomes easily the measure of everything. It seems incredible if we think that living in this kind of culture based on money everyone can easily talk about it, but still, it is a topic that just a few can master. Keeping money under track or simply taking control of our own personal finances might be one the most difficult thing to do nowadays actually. We wouldn’t need a reason to save, it is just a good habit to have. Everyone who likes saving money just knows that it is worth having some money to tackle unexpected situations. But if it is so useful, has it to be so hard to do? In fact, not only Morgan Housel in his book but different articles too show that most of Americans struggle dealing with their money and do not put savings aside for the future. What is the real reason why people cannot stick to a budget? Why is budgeting so difficult? Why we decide to use money how we in the end use it? Most people don’t get a learning about money in school and some of us don’t even talk about it within the family. Some culture could even think of money as one of the unspeakable topics you can’t talk about with friends or colleagues and there’s surely a link between cultural differences in attitude towards money and their potential impact on individual financial behaviors. Moreover, something that it shouldn’t be underestimated in this matter is the influence of emotions on money too. Your own feelings and behavior impact your financial situation and your decisions about money. It may be guilt, it may be shame, hopes or fears, whatever plays a huge role when it comes to money decisions. 




The psychology behind financial decisions. 



“The military genius is the man who can do the average thing when everyone else around him is losing his mind.” 




Morgan Housel in his book “Psychology of Money” teaches us that being good with money is not something related to knowledge or being good at math.
It’s all about our behavior and so that’s why
everyone could think of money in a different way. It’s worth thinking about money as something with which you have a complex relationship. Your money (and more broadly your personal finances) is not a fixed entity, but rather a complex of data points, challenges and opportunities you circle around, interact with and have feelings about. You make decisions about money that impact your financial situation and these impacts in turn reciprocally affect your feelings and future behaviors. And it’s a relationship that evolves over a lifetime.” (Forbes – Prudy Gourguechon). The psychology of money is as fascinating as it’s underrated teaching topic. Emotions play a huge role, but no one is teaching us how to deal with our feelings about having money or the fear to lose it. Saving money needs patience and perseverance and investing takes bravery and courage. Is it something innate that we simply grow with? Since we are children, we learn that math and being good with numbers are the most important things and that’s it: if you like math you can invest; if you don’t, you can be better at literature. However, as Morgan Housel says, “investing is not the study of finance. It is the study of how people behave with money and behavior is hard to teach, even to smart people. You cannot simply sum up behavior with formulas to memorize or spreadsheet models to follow.” (Morgan Housel)  Moreover, also Bill Gates said that “success in a lousy teacher. It makes smart people think they can’t lose” but the contrary is true too. Behavior is inborn, varies by person, is hard to measure and a big topic as how people behave with money can let us understand a lot about that person or a specific culture. Furthermore, now more than ever before, being flexible is one of the most valuable skills to have, in this matter as in personal and work life. In a changing world, we must adapt unceasingly to new circumstances to face problems that we still don’t know about. Adaptability is a great advantage too which permits us to improve ourselves and to face different kind of situations. Thinking outside of the box, daring to be different and being flexible in how we think, are all ways we can continue to work on our adaptability to change, which can happen when a person is motivated by some sort of emotional trigger or looming consequences. We all focus for example on how we can become rich and on how, where and for how long we can invest, but what if the real question was how to avoid becoming poor? Good investments are not necessarily related to studies. Is it luck so? Well, being lucky plays an important role of course, but the main concern should be, once again, about our behavior, knowing when it’s enough and being satisfied with what we have. In addition to it, there’s nothing more dangerous than craving constantly and that’s why a good balance between taking risks and being parsimonious would be essential. 







Not all the financial decisions’ results are directly correlated to our strong commitments or our responsibility, but sometimes they might simply depend on being lucky and on our behavior. Take gambling for example: sometimes the only way you can win is to stay out of the game. We all agree that even the best advice in finance is never a sure thing. The most importance lesson out of Morgan Housel’s book and on these reflections, is the necessity to develop a smart attitude towards money by looking inward, rather than outward at the markets.  To this end, I want to conclude these series of thoughts with a Morgan Housel’s quote, a precious encouragement that he gave to his child, to remind that purchasing a goal is possible, only success and the time to reach it might be different from person to person.  “Some people are born into families that encourage education; others are against it. Some are born into flourishing economies encouraging of entrepreneurship; others are born into war and destitution. I want you to be successful, and I want you to earn it. But realize that not all success is due to hard work, and not all poverty is due to laziness. Keep this in mind when judging people, including yourself.” (Morgan Housel, The Psychology of Money). 






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