Reading: The Psychology of Money 💸

Yesterday, I read a superb piece titled “The Psychology of Money”. Must read for everyone. A few gems that I came across:

“That’s because investing is not the study of finance. It’s the study of how people behave with money. And behavior is hard to teach, even to really smart people.”

…

Grace and Richard show that managing money isn’t necessarily about what you know; it’s how you behave. But that’s not how finance is typically taught or discussed. The finance industry talks too much about what to do, and not enough about what happens in your head when you try to do it.

And, point #11 absolutely nails it…

11. The social utility of money coming at the direct expense of growing money; wealth is what you don’t see.

I used to park cars at a hotel. This was in the mid-2000s in Los Angeles, when real estate money flowed. I assumed that a customer driving a Ferrari was rich. Many were. But as I got to know some of these people, I realized they weren’t that successful. At least not nearly what I assumed. Many were mediocre successes who spent most of their money on a car.

If you see someone driving a $200,000 car, the only data point you have about their wealth is that they have $200,000 less than they did before they bought the car. Or they’re leasing the car, which truly offers no indication of wealth.

We tend to judge wealth by what we see. We can’t see people’s bank accounts or brokerage statements. So we rely on outward appearances to gauge financial success. Cars. Homes. Vacations. Instagram photos.

But this is America, and one of our cherished industries is helping people fake it until they make it.

It is a long read but so worth it!