I Read It So You Don’t Have To

I Read It So You Don’t Have To: The Psychology of Money

A recent book explains how humans think about wealth, economics, and success

What did I read?

The Psychology of Money: Timeless Lessons on Wealth, Greed, and Happiness published in September 2020.

So who is Morgan Housel?

Morgan Housel is a former financial columnist for the Wall Street Journal. He is now a partner at Collaborative Fund, an early-stage venture capital firm.

Give me the 30-second sell.

Unlike in the fields of medicine or engineering, expertise in finance requires an understanding of human psychology. Investors and consumers behave with flawed attitudes such as overconfidence, impatience, and anchoring bias. These irrational patterns have tangible effects on global markets and, likely, on your own personal finances.

Housel explores these topics with a thoughtful mix of anecdotes, research, and advice for the reader. If you want to succeed in business or simply hope to gain insight into the human mind, this book has something to offer you.

What will I learn, in a nutshell?

The first takeaway is that everyone is different. Your relationship with money depends largely on your upbringing. Two children — one born into poverty and the other raised with multi-generational wealth — will grow up with different habits of spending and saving.

Even as adults, our views depend on personal experience. A person who came of age in the Great Depression will likely invest more cautiously than someone who entered the stock market in the 1980s.

Nevertheless, there are common threads in our financial psychology. For one, humans are incredibly poor at thinking long-term. We tend to overreact to current events, unable to keep our cool when we hear pundits making dire forecasts.

Additionally, few of us appreciate the incredible power of compounding interest. Linear thinking is more intuitive than exponential thinking. Most people are stunned by a chart that shows how much…