Publisher’s write-up:
‘Doing well with money isn’t
necessarily about what you know. It’s about how you behave. And behavior is
hard to teach, even to really smart people.
How to manage money, invest
it, and make business decisions are typically considered to involve a lot of
mathematical calculations, where data and formulae tell us exactly what to do.
But in the real world, people don’t make financial decisions on a spreadsheet.
They make them at the dinner table, or in a meeting room, where personal
history, your unique view of the world, ego, pride, marketing, and odd
incentives are scrambled together.
In The Psychology of Money,
the author shares 19 short stories exploring the strange ways people think
about money and teaches you how to make better sense of one of life’s most
important matters.’
The Psychology of Money is a
collection of twenty essays from Morgan Housel – fund manager and former
columnist to the Wall Street Journal. The author focuses on how staying
wealthy is behavioural than the ability to earn.
To build his case, the book
starts with the story of Ronald Read – who had a very different profile compared
to other multi-millionaire philanthropists; that he was a janitor and gas
station in a small town in Vermont, US. This was the result of frugal living
and investing most of the savings in blue chip stocks resulting in compounded gains
over the years. Most of us wish to be millionaires but the reasons why
we wish to be millionaires in most cases is not for financial independence but
rather, a desire to spend a million dollars, which is very different
from being a millionaire.
Considering this paradox where to
be wealthy, you should not be spending it; the author builds the case for
saving money over the many essays. Most of it was behavioural advice which is
simple to follow in personal life.
This book was well presented and
was simple to read. As promised by the author, each of these essays were short;
the 20th essay being his own journey of accumulating wealth. Some of
the observations were important, being an economics graduate myself – one of
the fundamental assumptions we have is that financial decisions are rational;
though from the perspective of personal economics, it is difficult to be fully
rational (need to be only reasonably rational). To elaborate on that, when debt
is available cheap and the market returns are higher than the cost of debt – an
absolutely rational decision would mean to buy the car or house with debt;
however, what is not valued is that people like being debt free and that leads
to the decision of buying a major asset at once if the means are available.
The book had the following
takeaways – that it is important to save, staying wealthy is largely
behavioural and that it is easy to embrace some of these behaviours. A statement
from the book, that is very true is:
‘The hardest financial skill
is getting the goalpost to stop moving.’
This book could be read by all –
but if you are looking for ways to make quick money, this book is not for you.
That is perhaps the drawback of the book – that it focuses more on savings and
compounding of savings and many who live paycheque to paycheque often do not
have a choice when it comes to savings.
There were also times I felt that
the book could have been better researched; in the notes, the author had stated
their source to be ‘Quora’; which is a question-and-answer website where anyone
could write an answer; hardly a reliable source. While the author’s point greed
was well made, so was the example of Rajat Gupta, former CEO of McKinsey
convicted for insider trading; there seems to be a temptation to portray any
person with an Indian origin as having had a ‘rags to riches’ story. While
Gupta did achieve enormous riches in the US, he certainly was not from the
slums of Calcutta as the book described but from a privileged Indian family.
To conclude, this is an easy to
read, well researched book and could be read especially by those who still have
a long way to go before retirement, as they are the ones who have the maximum potential
to tap into the strategies presented by the author. On that note, I would award
the book a rating of six on ten.
Rating – 6/10
Andy
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