The Psychology of Money

The Psychology of Money

In the winter of 2014, the small Vermont town of Brattleboro learned something that made absolutely no sense. Ronald Read, who had spent his career pumping gas and sweeping floors at the local JCPenney, had died at ninety-two. His will left $1.2 million to the local library. Another $4.8 million went to Brattleboro Memorial Hospital. Six million dollars total, from a man whose neighbors remembered him wearing a safety pin to hold his coat together because he didn't bother buying a new one.

Nobody had any idea. Not his coworkers, not his neighbors, not his stepchildren.

That same year, financial news was still covering the aftermath of Richard Fuscone's collapse. Fuscone had been a Harvard-educated Merrill Lynch executive, a man whose professional pedigree placed him at the top of the financial world. He had borrowed heavily to fund a mansion in Connecticut and other properties. When the 2008 crisis hit, the leverage that had let him live extravagantly turned on him, and by 2010 he had declared personal bankruptcy. A man who spent his career managing vast sums of other people's money could not manage his own.

Same era. Same country. Radically opposite outcomes.

Morgan Housel opens "The Psychology of Money" with these two men standing side by side, and that contrast is the entire thesis in miniature. What makes someone wealthy isn't a high IQ or an elite credential or access to the right spreadsheets. It's behavior. And behavior is stubbornly human -- shaped by fear, ego, the neighborhood you grew up in, and the era you happened to be born into. Housel, a former columnist for The Wall Street Journal and The Motley Fool, now a partner at Collaborative Fund in Seattle, spent years watching smart people make ruinous financial decisions and ordinary people quietly accumulate fortunes. His conclusion: finance is taught as if it were math, but it functions more like psychology. And until you understand that, you'll keep applying the wrong tools to the problem.