The Psychology of Money: Timeless Lessons on Wealth, Greed, and Happiness
Morgan Housel uses a collection of short stories to demonstrate how people perceive money and wealth and the ways in which it can impact the trajectory of life.
Author: Morgan Housel
Audiobook listen time: 5 hours 55 minutes
Rating: 5/5
It has been a while since I have done a book review, and it isn’t because of a lack of intent. I had my PhD defense in May 2024, and a myriad of things took a back seat in the lead up to the defense, with book reviews being one of them. My six year PhD journey taught me a lot along the way, with perhaps the most prominent lesson being how much I don’t understand and need to learn. But of all the beautiful and complex things on God’s green Earth, one that has always eluded me is the science of finance – what makes markets move, what factors influence finance and how, and how to approach personal finances. That brings us to ‘The Psychology of Money’.
I ended up listening to this book by happenstance. There was an unused credit staring at me in my Audible account, and there wasn’t any specific book I could think of getting with it. ‘The Psychology of Money’ by Morgan Housel (@morganhousel) was the first book that came up on searching for books on finance, and all it took for me to take a leap of faith was the high number of positive reviews. Finance is a unique aspect of the human experience, in that you may not work in the field, but will definitely need to garner some knowledge of the subject as you transition from student to work life.
‘The Psychology of Money’ is a collection of short stories that act as lessons on how finance should be approached. It isn’t unlike Ryan Holiday’s ‘Ego is the Enemy’, although I dare say the former is much more interesting. The prologue draws you right in with a story about Ronald James Reed, an average man who became a millionaire with some simple financial decisions and Richard Fuscone, the vice chairman of Merrill Lynch who had to file for bankruptcy. Right off the bat, Housel makes the point that even though there might be a lot of books and formulas attempting to help the masses understand money, finance is not a hard science like physics, but is more of a soft skill, which is the psychology of money. Now even before reading the book, this has something that had crossed my mind numerous times, and I’m sure, the minds of many others. That is exactly what the book does with a lot of the stories – it makes you (or at least attempts to make you) recalibrate your thoughts about money.
But the question is, why is more of a soft skill? The simple answer is because everyone looks at money VERY differently. Differences in opinions on spending and investing are bound to have a major impact on your finances. The unsatisfactory number in your bank account might be the number of someone else’s dream. This is simply because the concept of money and wealth is shaped by life experiences, and Housel addresses this in the first chapter.
“People from different generations, raised by different parents, who earned different incomes and held different values, in different parts of the world, born into different economies, experiencing different job markets, with different incentives and different degrees of luck learn very different lessons.”
This is quite relevant to my current situation. Going from a PhD student to a postdoctoral scholar, my income more than doubled. Having been used to a frugal lifestyle, I can already see myself saving up a lot in the next few months. But I often hear my industry counterparts, who significantly outearn me, complain about the lack of pay.
If the message of the book had to be boiled down to one paragraph, it would state that be patient, don’t be greedy and let compounding do its job. That is what Ronald Reed did, and that is what Morgan Housel recommends as well.
One of my favorite chapters in the book is ‘Never Enough’, which brings to light the fall from grace of multimillionaires like Rajat Gupta and Bernie Madoff. These individuals had more money than God, and still went down fraudulent paths to secure more wealth in their coffers. While there is a lot of good that capitalist societies have brought with them, there also comes with it the ceiling of social comparison, which keeps rising. That is very natural trait of human beings. But somewhere, we need to consciously stop moving the goalposts to attain financial peace of mind, or we are doomed to go the way of Richard Fuscone. Beyond a certain amount, the dependence of happiness on wealth stops being linear, and eventually even wanes. This reminds me of the stress-strain curve, but with money on the x-axis and happiness on the y-axis.
I went into ‘The Psychology of Money’ with an open mind, having heard of neither the book nor the author. But now, I can see myself listening to it every couple of years to reevaluate my thoughts on my finances. One of the things that Morgan Housel deserves a lot of credit for is brevity. The author talks about deliberately keeping the book small, using 20 short points rather than one long point to capture the attention of the readers/listeners. It is definitely a book I would recommend everyone to go through.
As a parting thought, I believe we need to elicit happiness from the small things in life rather than chasing after money – small things like watching excellent films on finance like ‘The Big Short’ or ‘Margin Call’. Don’t fall victim to the old Dave Ramsey quote-
“We buy things we don't need with money we don't have to impress people we don't like.”