“Working to help parents raise money-smart kids.”
Hello, friends!
Morgan Housel’s opus, ​The Psychology of Money​, might be my favorite nonfiction book. I’ve read it four times, and I’ve reviewed my notes countless times.
It’s like the Trader Joe’s of books: tons of value packed into very little space. This is no accident, as Housel is a standout blogger. His book contains twenty surprising short stories (really, blog posts) printed and bound.
While experience is the best teacher, today I’m sharing three themes I want to knowledge-jack into my kids’ heads, Matrix-style. 🔌
(All the quote blocks below come directly from The Psychology of Money.)
— 1 —
Keep the Goalposts from Moving: My wife and I are decent role models for keeping goalposts in place. We haven’t “upgraded” our house, and our cars are paid off.
“The hardest financial skill is getting the goalpost to stop moving.”
Still, I was a twenty-something once, so I understand the magnetic pull of peer comparison. It caused me to make some silly financial decisions, like leasing a car I couldn’t write off. And even today, when I know comparison is the thief of joy, I must be mindful of not measuring myself against others.
As Housel points out, while the grass may seem greener, it rarely is:
“If you give luck and risk their proper respect, you realize that when judging people’s financial success—both your own and others’—it’s never as good or as bad as it seems.”
Comparing ourselves to peers is a fool’s errand. Because fortune plays an outsized role in outcomes, our assessment of individual success is often flawed.
“Therefore, focus less on specific individuals and case studies and more on broad patterns.”
So here are some broad patterns my wife and I talk to our kids about…
— 2 —
Avoid Complexity: At the risk of sounding like an aging hipster, desperately trying to relate to my kids “on their level,” the beat this DJ (Dad Jockey? 🎤) wants to drop is to “keep your money life simple.” Your plans need not be complicated.
In the final chapter of his book, Housel outlines the simplicity of his family’s investments:
“Effectively all of our net worth is a house, a checking account, and some Vanguard index funds.”
(Of course, he has a pretty wonderful income stream. The Psychology of Money recently surpassed four million copies sold!)
I also like Warren Buffett’s advice to “recognize you are an amateur.” Go with a basic index fund rather than one that is actively managed.
“Beating the market should be hard; the odds of success should be low. If they weren’t, everyone would do it, and if everyone did it there would be no opportunity. So no one should be surprised that the majority of those trying to beat the market fail to do so.”
I’m often surprised by friends who refuse to acknowledge this fact. Why even try to beat the market?
Keep. It. Simple.
— 3 —
No One Can See the Future: Hindsight also deceives us. So-called experts look at history and convince us that we could have seen the future. But if the future has taught us anything, it’s that we have no idea what might be headed our way.
No space shuttle had experienced a catastrophic failure. Until Challenger exploded.
The housing market was booming through the mid 2000s. Until it imploded.
Uh…COVID. đź¦
Even Yale economist Irving Fisher stated in October 1929 that stock prices had reached “what looks like a permanently high plateau.” Days later, The Great Depression began.​
To date, no one has seen the future. We are terrible at predicting the big, black swan events that alter the course of history.
Housel alerts us to how difficult following any of this advice can be. In fact, he begins The Psychology of Money with a warning:
“The premise of this book is that doing well with money has a little to do with how smart you are and a lot to do with how you behave. And behavior is hard to teach, even to really smart people.”
Money is but one tool our kids must wield to craft the lives they want. Using it wisely is essential. Because while money may not buy happiness, lack of money will surely lead to misery:
“The most powerful common denominator of happiness was simple…Having a strong sense of controlling one’s life is a more dependable predictor of positive feelings of wellbeing than any of the objective conditions of life we have considered.”
Housel’s book is called The Psychology of Money for a reason. We deal with money emotionally. Not rationally.
So internalizing these key tenets can hopefully help our kids wrest some control out of life and find more happiness than not.
As always, enjoy the journey.
John, Chief Mammal
P.S. Please consult with a financial or investment professional before engaging in any decisions that might affect your own financial well-being.
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