How does the stock market work? When’s the best time to buy or dump assets? And how much do you need to save every year to retire by a certain age?
These are the kinds of questions that dominate discussions of personal finance. There’s often something important left out of the equation, however. This is the human factor – in other words, the relationship between real people and their money.
Morgan Housel argues that this factor is key to understanding financial decision-making. If you want to know why people bury themselves in debt or squander fortunes, you don’t need to study interest rates – you need to delve into the all-too-human history of envy, greed, and optimism. And that’s precisely what we’ll be doing in the following blinks.
Along the way, you’ll also learn
The story of the Great Depression is well-known.
After a disastrous stock market crash in 1929, the global economy entered a decade of sustained decline.
In the United States, the “roaring twenties” came to an abrupt halt. Businesses folded, families lost their farms and homes, and hard-earned savings disappeared into thin air. Poverty and joblessness skyrocketed, while faith that tomorrow would be better than yesterday plummeted.
Today, this version of events has become the standard narrative. That stands to reason – it does, after all, describe the experience of millions of Americans. But it also leaves something important out of the picture.
The key message in this blink is: Everyone has their own experience of the economy and money.
When John F. Kennedy ran for president in 1960, he was asked about his experience of the Great Depression. His answer surprised many voters.
The Kennedys, he said, were already wealthy in 1929. And over the next ten years, their fortune wasn’t wiped out – it actually grew. By 1939, the family had more servants and lived in a bigger house than it had at the start of the decade. It was only when he went to Harvard and read about the Depression that he realized how badly many of his fellow citizens had suffered.
Not all Americans, it turned out, had been in the same boat. Kennedy wanted to change that, which is partly how he convinced voters that he wasn’t just an out-of-touch elitist, but a worthy president. But it’s not only the rich and the poor who have contrasting experiences of economic life – we all do.
The son of an unemployed farmhand and the son of a successful Manhattan stockbroker don’t just come from different walks of life – they also learn profoundly different lessons about things like risk and reward when it comes to money. But, as we’ll see later on, the same applies to equally well-off people depending on their individual life experiences.