http://www.collaborativefund.com/blog/the-psychology-of-money/
(via kottke.org)
I found this discussion on common cognitive biases people make around money enlightening. It opens with a comparison of Grace Groner, the secretary that saved 7 million dollars to give to charity by the time she turned 100 with Richard Fuscone, former vice chairman of Merrill Lynch’s Latin America division, who recently filed for bankruptcy.
It's a long read, but it's full of rather profound insights in the biases we bring to the table concerning money and finance.
Some of my favorite quotes:
Singer Rihanna nearly went broke after overspending and sued her financial advisor. The advisor responded: “Was it really necessary to tell her that if you spend money on things, you will end up with the things and not the money?”
You can laugh. But the truth is, yes, people need to be told that. When most people say they want to be a millionaire, what they really mean is “I want to spend a million dollars,” which is literally the opposite of being a millionaire. This is especially true for young people.
and
When you see someone driving a nice car, you rarely think, “Wow, the guy driving that car is cool.” Instead, you think, “Wow, if I had that car people would think I’m cool.” Subconscious or not, this is how people think.
The paradox of wealth is that people tend to want it to signal to others that they should be liked and admired. But in reality those other people bypass admiring you, not because they don’t think wealth is admirable, but because they use your wealth solely as a benchmark for their own desire to be liked and admired.
(emphases mine)
And this take on generational investment advice is fascinating:
If you were born in 1970 the stock market went up 10-fold adjusted for inflation in your teens and 20s – your young impressionable years when you were learning baseline knowledge about how investing and the economy work. If you were born in 1950, the same market went exactly nowhere in your teens and 20s:
It surprised me how many major financial decisions can be attributed to common, measurable cognitive biases.
Submitted June 04, 2018 at 02:18PM by nedarb https://ift.tt/2JjlXpr
