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The Art and Science of Spending Money
Article

The Art and Science of Spending Money

Morgan Housel
Collaborative Fund, 2023
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9

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  • Applicable
  • Eye Opening
  • Engaging

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Picture a committee in charge of making two investment decisions: $10 million to build a power plant and $20 for employee snacks. The decision to invest in the power plant comes quickly – none of the committee members can put such a large sum into context; they’re too intimidated to debate. Yet the $20 investment gets the bulk of the discussion, because everyone has an opinion about employee refreshments. According to former Wall Street Journal columnist Morgan Housel, many people behave the same way when making personal finance decisions, letting quirks of human psychology take the wheel.

Summary

How you grew up greatly influences how you spend your money.

A 1927 Washington Post headline read, “The More You Were Snubbed While Poor, the More You Enjoy Displaying Your Wealth.” That sentiment still rings true. Your background greatly influences how you spend your money. To the person who grew up wealthy, purchasing a Lamborghini, for example, might seem like a vulgar display. But to people bullied in childhood for their poverty, the car represents their worth and success, and a way to heal their “social wounds.”

Experiences such as living through a pandemic or months of hard work also influence people’s spending behaviors. Some turn to “revenge spending”: splurging to make up for lost time or spending.

Spending more doesn’t equal becoming happier.

Just as your background influences how you spend your money, so do your ideas about happiness. If you harbor a core belief that lavish spending will make you happy, and it doesn’t, your belief demands you spend even more. The fruits of this mind-set are not happiness but, often...

About the Author

Morgan Housel is a former columnist for The Wall Street Journal and The Motley Fool. He’s the author of The Psychology of Money: Timeless Lessons on Wealth, Greed and Happiness.

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