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- [00:00]
A
What's up? It's Todd McShay, host of the McShay show at the Ringer and Spotify. We're building this thing up and I couldn't be more excited to be back talking college football and everything. NFL Draft with the most informed audience out there. That's you, my co host Steve mentioned. I will be with you three times a week throughout the football season with all the latest news, analysis and scouting intel from around the league. For even more insight, subscribe to my newsletter, the McShay Report to access my mock drafts, big boards, tape breakdowns and other exclusive scouting content you can't get anywhere else. It's going to be a great season and I hope you'll be with us at the McShay show every step of the way.
- [00:45]
B
This episode is brought to you by Indeed. Hiring someone new for your business can be a big move, and I understand you probably want to take your time to make sure you found the right person. But playing the waiting game could do more harm than good because that's extra work and extra stress you're putting on you and your team. It's not a healthy work environment when it comes to hiring the right people. Fast Indeed is all you need. Their Sponsored Jobs Move your job posts to the top of the page, letting you stand out first to relevant candidates. It makes a massive difference. According to Indeed data, sponsored jobs have 45% more applications than non sponsored jobs. Another great thing about Sponsored Jobs is that you're only paying for results. You don't have to worry about monthly subscriptions or long term contracts. There's no need to wait any longer. Speed up your hiring right now with Indeed. Listeners of this show will get a $75 sponsored job credit to get your jobs more visibility@inn Indeed.com plane that's Indeed.com plane right now and support our show by saying you heard about Indeed on this podcast. Indeed.com plane terms and conditions apply. Hiring Indeed is all you need. This episode is brought to you by Zendesk introducing the next generation of AI agents built to deliver resolutions for everyone with an easy setup that can be completed in minutes, not months. Zendesk AI agents resolve 30% of interactions in instantly, quickly giving your customers what they need. Loved by over 10,000 companies, Zendesk AI makes service teams more efficient, businesses run better and your customers happier. That's the Zendesk AI effect. Find out more@Zendesk.com today. Money America is rich and decades of economic research tell us that rich countries are happier than poor countries. Just as Rich people tend to be happier than poor people. So why is rich America so unhappy? One possibility that I've explored on several shows is that there is something about the isolation of American life that is stealing joy from us. The 2025 World Happiness Report ranked the US 24th in average life satisfaction, its lowest position ever. Americans have bigger houses, faster phones, better healthcare than ever before. But we eat more meals alone, trust our neighbors less, scroll endlessly through other people's perfect lives. As one study put it, social connection, not gdp, is the real ultimate driver of happiness. So we're richer than our grandparents, but we've used that wealth to buy something that is more important than money, which is a lack of social connection. There's another interpretation, though, of the question, why are Americans so unhappy? As the finance writer Morgan Housel sees it, something else is happening. Americans might be the best country in the world at generating income, earning it, but we're not world class in spending it to buy happiness. In fact, Housel says Americans are unusually burdened by by a special kind of debt. Not normal debt, not the debt you can see on mortgage statements or auto loan records. We're burdened by an invisible debt, which is social comparison and desire. Desire is a hidden form of debt, Housel says. You don't track it. It's not on your balance sheet. If you calculate your net worth, you're not going to find it there. But if wealth is what you have minus what you want, then a society that is socialized to want infinitely will find itself infinitely dissatisfied, no matter how rich it gets. And when we puzzle over the paradox of America's high incomes and low happiness, the fact of invisible debt, the invisible debt of desire, might play a key role. Morgan is today's return guest. He's the author of several books, including the Psychology of Money. Same as ever. And now the Art of Spending Money. As always with Morgan, this conversation is nominally about money, but it's substantively about human nature and working through the most ancient questions of who we are, what we desire, and why it's so hard for everyone to figure out what it is that we want. I'm Derek Thompson. This is plain English. Morgan Housel. Welcome back to the show.
- [05:49]
C
Thanks for having me, Derek. Happy to be back.
- [05:52]
B
You've written a book about the art of spending money, an art that you say can bring happiness, except you claim that most people don't know how to spend money to make themselves happy in the biggest picture. Why not?
- [06:06]
C
Well, I think it tends to be true that for a lot of things in life, we have a pretty good sense of what we need. We have a good sense of what we don't want. Knowing what you want is actually harder than it seems. I think a lot of that is just how we're wired. We're wired for survival. We're not wired necessarily to thrive. And a lot of it is kind of the modern marketing system that tells you in a shout what you should want, how you should live. That has always been true. It is true on steroids in the last 15 years because of social media, where now it is just being absolutely bombarded 24, 7 with pictures, images, stories, ideas of how you should live, and constantly bombarded with a feed of people who are seemingly, which is an important word, happier, prettier, more successful than you are, mainly because of the image that they are portraying to the world. And so it's always been a topic that is, that is an issue. But I think it's more so now. It's also more so now because more people than ever all around the world have disposable money, have a choice with what to do with their money versus previous eras. For the vast, vast majority of people in the vast majority of history, when it was food, shelter, period, you didn't ever have to ask a question, how am I going to use my money to make me happy? It was very simple, calories and shelter. And so it's a fairly new issue. And whenever you have a new issue like this, it can take generations and generations for kind of social teaching to take place. And this is true in investing as well, where the concept of saving for retirement is like two generations old at best. There's not a lot of generational knowledge transfer that's taken place. And I think that is, for many people, true for spending money too. Where for the first time this generation, maybe the generation before you, have disposable income, there's many, many options for what to do with it. And it's not always intuitive what to do with it.
- [07:52]
B
Can I test this theory that people don't know how to spend money? So the researcher Matthew Killingsworth, who is referenced in your book, published a paper last year entitled Money and Happiness Colon Extended Evidence Against Satiation, which in the noble tradition of research papers is just about the most boring way you could possibly frame this work. But the substance is very interesting. The fundamental question here is, does more money mean more happiness? And the answer, as he finds in other papers in the last few decades have found, is that in fact, happiness does seem to rise with income, and it doesn't stop rising. People who earn $50,000 a year are happier than those who earn $15,000 a year. Those who earn $100,000 a year are happier than 50. $200,000 even happier. 400 even happier. 1 million plus happier still. So one could make the argument that we don't even need to worry about, quote, how to spend our money. Rich people are just happier on average. It doesn't matter how they spend their money. So, Morgan, why even write this book? Why is how we spend money important if more money seems to more or less automatically make us happier on average?
- [09:13]
C
Well, the first Derek, the reason I called the book the Art of Spending Money and not the Science of Spending Money is because I think it's very difficult to find something that looks like that. This might be one of the perfect examples. The long held discussion and debate of does more money make you happy? Might be the perfect example in social sciences of for every study, there is an equal and opposite study that exists out there. That's what, that's why it's been one of the very long held debates started with a researcher back in the 1960s, I believe, named Richard Easterlin has been kind of. And he was one of the first people to come up with the idea that there is a satiation point. And then that was really pushed back against more in modern times by Justin Wolfers and now Matthew Killingsworth. And so there's evidence on either side. I do think that it is true that most of the evidence now would tip towards the idea that you just mentioned that there does not seem to be a satiation point. Some of that. The nuance though, when you dig down to it, is very interesting. One of which is if you are already a depressed and anxious and sad person, it is very unlikely statistically that earning more money will make you happy. If you are already, if you are starting out as a happy, joyful, sleeping, eight hours a night, content person, then money can be like a leverage on your personality. It can make you happier. It will make you happier. So part of me, when I hear a study like that, would want to dig in and say, does money is money making these people happier or are happier people earning more money? And I think that might be a big part of it. Because if there is one equation that I use in the book, and I may have actually ripped a little bit of this off of you, I think I remember if there's one formula in there, it's a simple formula for a pretty nice life, is independence plus purpose. Independence plus purpose. And so I wonder, particularly for the very wealthy people cited in that study who are earning millions per year, is, are the millions making them happier, or is it that they found their purpose? Their purpose was their job, their business, their entrepreneurship, and that's why they're so happy, and that's why they're earning a ton of money as well. And you could easily contrast that, of course, with the lawyer who is earning a million dollars a year and is working a hundred hours a week and hates every second of it, and they're on their fifth divorce and they're overweight and obese and they sleep four hours a night and whatnot. That person has not found their purpose. And that is the point of if you are already an anxious, depressed, miserable person, it's very unlikely to do much for you.
- [11:30]
B
Typically, I think people look at the relationship between money and happiness and they say, well, one of two things has to be true. Either the money is causing the happiness, or it's the happiness that's causing the money. People who are happier are somehow earning more money. But another explanation I think that you put your finger on is that there's a third variable here. There is a kind of mental attitude, a disposition that can make people both richer and happier. And it's possible that what you've just named purpose, a capacity to find and define purpose, might be the sort of thing that, on average, both allows people to find a career that fits with their skills and therefore allows them to earn more money and allows them to be happy in the parts of their life that are professional and personal. And it clicks into this other thought that I've been playing around with, which is that money is possibility and freedom. Like, by definition, the more you have, the more options are available to you. But it's often the opposite of possibility that makes us happy in the long run. It's limits. Like, when you look at the highest correlates of happiness, money is there, but so is marriage, and so is religion, right? Being comfortable inside the limitations of a marriage, being comfortable inside the limitations of a religious conviction, in some ways, those are the opposite of wealth, because wealth creates opportunity, but this creates responsibility. But it's interesting that it seems to give people the most contentment. And maybe part of what's happening here, and I'm just sort of thinking out loud as you're sort of putting a bunch of ingredients on the table, is that marriage, religion, community, these things give purpose. And if purpose is this third lever, that's driving both happiness and wealth, and that's a kind of interesting thing to think about.
- [13:21]
C
Yeah, I mean, I mean, to take very extreme examples of this, if you listen to and study the life of Warren Buffett or Elon Musk, unbelievably wealthy, the most money in the world, clearly clear as day, they have found their purpose. For Buffett, it was picking stocks. For Musk, it is hardcore engineering is what he calls it. And you can clearly say, if you took those things away from those people, if you told Warren Buffett he can't invest, if you told Musk he cannot be an engineer, they'd be absolutely miserable whatsoever, even with all of their money left. It is a purpose that's making them happy. And I think in more common terms, for more ordinary people. All of us know, and this is anecdotal, but that's why this is the art of spending money, because I think the science gets very blurry here at all of us know, anecdotally, the person who is decidedly middle class, right smack in the middle 1800 square foot house, drives a Honda Accord, earns $70,000 per year, and they absolutely love every second of life. They love life. They're married to their soulmate, they're in good health, they love their job, they love their coworkers, their children admire them, their community admires them. They have a clear conscience. Those people have found their purpose as well. And so, and we all know, like I said earlier, the opposite of that as well. The lawyer or doctor, whatever it might be, who is stressed out beyond belief, cannot stand their job dream. All. The only thing that gives them a little bit of pleasure is the idea of retirement sometime down the future. That person has clearly not found their purpose. And I think the evidence would show that there is virtually no amount of money that you can earn in that situation that's going to counter that lack of purpose.
- [14:49]
B
You said the art of spending money is in part about the art of understanding what you want. And understanding what we want is the sort of question that is worth, no exaggeration, hundreds of billions of dollars. I mean, you're talking about the entire industry of wellness, psychotherapy, maybe religion as well. I mean, this is an enormous question. And to make any headway on the quest of how do people figure out what it is that they want would be quite a mitzvah for the world. Have you made headway on that question? What progress in the writing of and research of and thinking through of this book? What progress have you made in helping us as a species answer this question? How do we figure out what it is that we want from life, I.
- [15:42]
C
Wouldn'T be so bold as to say I've made headway on a fundamental question that has been debated for thousands of years and will continue to be. But I think what is true in the material world, in terms of the spending money on things world, is that so much of what we want in our core, we might tell ourselves that we want a bigger house or a nicer car or shinier jewelry, whatever it might be, and we tell ourselves that we want those things, but by and large, we don't. What we actually want is respect and admiration from other people for having those things. That so much of it is a signaling endeavor. And if you ask the question, how would you live if nobody was watching, if nobody could see anything that you were doing, except maybe your immediate family, where would you live? How would you live? How would you dress if nobody else was watching? And that question, I think, by and large, if you are honest with yourself, virtually nobody would say, I would live the exact same way. It tends not to be the case. Now, signaling is not bad. Signaling is not a social devil, because anytime that you want to interact with another group of people and your coworkers, there's a certain amount of signaling that you need to do to fit in. This is not a bad thing. I think what it tends to be, though, is that in the material world, we massively overestimate how much attention we're going to get and whose attention we are, we are going to get when we engage in material signaling. And so I wrote about this in my first book. The idea of if you see somebody driving a nice car, you might stop and ogle at that car and say, that's. That. That's an amazing car and be very impressed with it. Very rarely, if ever, do you look at the driver and say, wow, that guy's cool. What you probably do is you imagine yourself as the driver and you say, if I was in that car, everybody would look at me and say, wow, he's so cool. And it's like, the irony is nobody's thinking about the driver, but they want to be the driver because they think then everyone will think about them. And so I think we just always overestimate how much attention we're going to get. Nobody is thinking about you as much as you are. They are busy thinking about themselves. And so on the. On the topic of we just want respect and admiration, for me, it was breaking it down to, well, whose respect do I want? There's a lovely Warren Buffett quote where he says, success in life is when the people who you want to love you do love you, that's that. That's what it is. And everyone's going to be different in this aspect. But for me, for that question, it was, well, my wife, my kids, my parents, and probably three of my friends. That's who I desperately want to love me. And everyone else is very, very secondary after that because they're not really paying that much attention to begin with. And then, so then the question was, okay, these seven people is whose admiration I want? What do they admire me for? And the answer is not the square footage of my house, the horsepower of my car, the carrots of my jewelry, whatever it might be. What those people care about is, am I a good dad? Am I a good father? Am I a good friend? That's what they care about. And I think you can use money to leverage those things. And so I use the example in the book of Will a bigger house make you happier? The answer might be yes, if having a bigger house makes it easier to spend time with your friends and family. But the recognition is that that is what is making you happy. That is the attention that you want. That's the love and admiration that you want is from those things. Will going on vacation make you happ. By and large, the answer can be yes. But oftentimes the answer is because it is the only way that you can have unstructured, uninterrupted free time with your friends and family. And that is what's making you happy. And so I think if there's any headway into it, it was that it was breaking down. Why do I want these things? I want it for respect and admiration. Why do I. Whose respect and admiration do I want? Not the people who I'm. Whose attention I'm actually trying to get. I want it from these people who don't care about the material stuff that I have. Once I came to terms with that, then I think it was easier for me to want to use money for what I think is its highest purpose, which was independence. I didn't want to use money for flashy stuff to get the attention of strangers. I wanted to use it for independence so I could wake up every day and say, I can do whatever the heck I want today with the people whom I want to spend time with, and everybody's different. But that, to me, was the highest purpose of what I could do it for. And a quick point on this, too, that I think is important. When I say independence, I mean saving money, having wealth, having reserves. I don't view saving money as savings per se. I view it as purchasing independence. I think if you save $100, you have purchased $100 token of independence. And it's not delayed gratification, because I can get pleasure out of that. Today, right now, I can have a sense of independence that whenever the vicissitudes of life are going to hit me in my personal life and the economy, I'm going to have a level of cushion there to back me up. That's going to give me a level of independence, and that's going to give me more joy than anything material I could buy.
- [20:11]
B
There's an idea embedded in that answer that I love, which is this question of whose admiration are you spending your life seeking? And I know that there have been work days where I have spent hours fighting with people on Twitter, and unfortunately, this happened quite a bit after abundance came out. And sometimes I would show up to the dinner table with my wife and daughter, and I would be there. Like, my body would be present at the dinner table, but my mind would not be there. I'm still fighting with little tiny photos of avatars on my computer. That's downstairs, even though I'm sitting at the table. And this happened for enough days that my wife eventually brought it up and was like, you know, you're here, but you're not here. And it made me think that. But my attention is a little bit like a finite jug of water. And every day I have a choice to fill up certain glasses. And my wife is one glass of water, and my child is another glass of water. And all the people who hate me on Twitter are another glass of water. And if there was some way to account for whose glass held the most water at the end of the day, and this account was read back to me as clearly as my aura ring data or something, I think some days would be astonishingly embarrassing just how much water I poured into the glass of people I don't care about and I don't love.
- [21:39]
C
While your wife and daughter were dehydrated.
- [21:41]
B
In the corner, right while I'm dehydrating. My poor daughter. That is exactly it. And it's been a while since I thought of that concept, and I don't think I've talked about it on this show, but it's a concept that I started being very purposeful about. Whose cup am I filling? I only have so much water in any given day. Attention is literally the most finite resource. No more can be made of it on any given day. Whose cup am I filling? And it seems to speak very deeply to this question of wanting. Which to you redounds to the query, whose admiration am I seeking in life? It's a powerful idea.
- [22:19]
C
And here's one other spin on this, Derek, and that was a lovely way to phrase it. And I say this as somebody who loves nice cars, loves nice houses, loves nice things, has some nice things. This is not a plea to live as frugally as you can. But I had this realization that my personal desire for a Ferrari and Gucci, this and that, my personal ambition for that, just because.
- [22:42]
B
Just to stop you there, is your personal desire for Gucci and Ferrari, or can you use an. An actual thing that you. Morgan Housel desire here?
- [22:50]
C
It was. It was at this point in time, so when I was 19, 20 years old, that kind of era, it was absolutely that desire. I want. I wanted the Gucci. I wanted the yellow Ferrari, absolutely. I don't anymore, but back then I did. And of course, I didn't know this at the time, but I think looking back, the reason I had so much desire for a Ferrari, let's say, was because I had nothing else to offer the world. I had no intelligence, I had no humor. I didn't know how to love somebody else. I didn't know how to. I didn't have very much empathy. When I didn't. I didn't know very much. I had nothing to offer. And I think it was. It's very common. It's very easy that in that world, when you say I have nothing else to offer the world, maybe people will admire me for my car. They're sure as hell not going to admire me for my intelligence because I don't have any. They're not going to admire me for my workability because I don't have any. And so then it was a default to maybe they'll love me for my car. And that's not black and white. I think there are people who, like, have lots of legitimate love and admiration from their family who also have a nice car collection. This is not a black and white thing, but for me personally, it was. My desire for material status was the inverse of what else I could offer the world. That if I could get my love and attention from being a good husband, being a good father, being a good author, then that would fill the cup, so to speak. And then the desire for a lot of material stuff after that was going to be much less. And you can ask the question of, like, if nobody was watching, how would I live for just my family? And I. I heard this Great thing from the comic Jimmy Carr, recently, one of my favorite people, he said, in your 20s, most people worry about what other people will think of you. In your 30s, you say, I don't care what anybody thinks of me. And in your 40s, you realize the truth, which is that nobody was thinking about you all along. And I think that's like, that really plays into the money thing of early on in life. You're like, and you're so desperately trying to get the attention of people who are strangers because that's all you have to offer. And as you get later enough, you're like, you're like, they're not even watching. I just need to turn this inwards and focus on my relationships, my health, like that's what's actually important.
- [24:46]
B
You have lots of great stories in the book. One of them is about an experience you had talking to a group of NBA rookies, group of basketball rookies. Can you tell me about that experience?
- [24:55]
C
It was so fascinating. This is, I guess five or six years ago. And I was brought in to do this like consulting session with NBA rookies. And the point was the very well known statistics of the pro athletes who are making $10 million a year at age 22 and they're bankrupt by age 32. Everyone knows those stories. And it was like, please try to help these people. And this, this one rookie, I won't say his name, but he brought up something that I thought was so profound and so insightful. And he said when athletes go bankrupt, it's usually not because they bought themselves a mansion. It's because they bought their fifth cousin, who they don't even know, a very modest house. And they had so much pressure to do that. And he said, when you sign a big contract, that's not your money. He was like, particularly for if you come from the inner city poverty that is mom's money, dad's money, brother's money, cousins money, cousins, neighbor's money. Like you, you, you can't just leave all those people behind. And so I came up with this idea of what I called social debt, which was, I think for a lot of young athletes in particular, they have, you know, $10 million of assets, let's say, but with that probably comes $12 million of social debt. It's not actual debt that you will repay a bank, but it's a social debt where you have so much pressure in order to spend your money in a, in a, in a, in a certain way and on certain people. And that's an extreme example. But I think we all have some version of that, of society tells us who we should be, how we should live. No matter what you are, like if you have this job title, you're supposed to dress this way, live this way, act this way, socialize with these people. And it's very hard to remain purely independent when there is pressure from the people around you, the people who you socialize with, to live, to live a certain way. I remember experiencing this too. I grew up in the woods outside of Lake Tahoe, the tiny little mountain town. And this was before Tahoe had tech money, was truly just a poor mountain town. And when I grew up, regular people had old pickup trucks and rich people had new pickup trucks. That was like the definition, that was the stratification of wealth. And then I went to college in Los Angeles. And in Los Angeles the definition of wealth is deca billionaire and 50,000 square foot mansion and private jets. And one, it was just a completely different definition. And I honestly think the people in Tahoe were happier because it was so much easier to keep your ambitions in check. There was not a society telling you and like coming up with these crazy definitions of what wealth was. It was very easy to keep a modest definition of like, oh, if I can buy a new F150, I'm rich versus in LA, it was like, I only have a two year old Bentley, I'm poor. It was kind of like the mentality and so the idea of like, be very careful who you socialize with because that is going to absolutely set the expectations that you have for how you should or should not spend your money.
- [27:36]
B
Yeah. It's interesting because it seems like one thing you're saying is that earning money means not only earning income, but also earning a certain expectation of what someone who earns that income should do with their money. Is that what you're calling social debt, essentially, as people hopefully achieve the American dream and move from one class to the other, one tax, so to speak, on the American dream is that as they enter a certain class, they accumulate a new set of expectations that then they feel like, oh, I should buy this because someone like me typically buys this. I should send my child to this school because someone like me typically sends their child to this school and that those expectations essentially SAP the joy and the independence that we should accumulate as we earn more money. Is that the idea?
- [28:25]
C
I think that that tends to be the case now. It can also be the case that the things that society tells you you should have, sending your kids to a good school, having a house in a safe neighborhood are wonderful things. This is not all that. It's just, it's just a bunch of marketing BS and not. It's not that whatsoever. But it is hard to be truly independent and live that the way you do. Once in a while you see it and it's amazing thing. I'll give you an example. The author Ramit Sethi, who's written a lot about the psychology of spending money as well, he's wonderful author. He talks about how everyone kind of has their thing and it's different from other people's thing. So his example is he loves clothes, he loves fashion, spends a ton of money on clothes, dresses like a million bucks and looks great. He couldn't care less about cars. So I think he drives like an old Honda Accord and there's like he could just care less about cars. And so that is someone who is truly independent. It was a thing in politics where it's like if I can guess your political beliefs on one topic by you telling me your political beliefs on another topic, if you tell me your views on abortion and I can then guess your views on immigration, you're not thinking independently. Very likely that's the case. And I think it tends to be true with money as well, that if you tell me your salary and I can guess exactly how much you spend on every different line item, you're probably not thinking independently because everyone's desire for certain things is going to be different. And if I can predict that, it's likely that you're just going along with the flow of what society tells you you should want, rather than figuring out what you what is unique to your needs and your desires.
- [29:49]
B
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- [30:23]
D
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- [30:47]
E
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- [31:19]
B
There's some very high quality Morganisms in this book and I want to go over a few of them because they're memorable, but they're also just opaque enough to not necessarily be able to explain themselves. You write quote, all behavior makes sense with enough information. I love this general concept. What does it mean in the context of money?
- [31:38]
C
Well, I got that quote from my brother in law who's a social worker. He works with very disadvantaged kids, many of whom were homeless and physically abused as children. And a lot of these kids perform very poorly in school. They get into fights on the playground, they don't do their homework. They're very poor students. And it's common that a teacher or principal will look at them and be like, why are you behaving this way? How can you not see that this is the wrong thing to do? And my brother in law said there's a saying in the social system, all behavior makes sense with enough information that if you saw the abuse and neglect that that child was dealing with at home, you would understand while they're picking fights on the playground, you don't. You don't agree with it, but you start to understand it. And I think that phrase can apply to a lot of things in life that it might be in the money context. You can look at me and I can look at you and I can say, Derek, like why are you spending your money that way? Why do you invest your money that way? I don't understand where this ambition you have comes from. And you might say the same to me and everybody else, but all behavior makes sense with enough information. I think we want to think that we are thinking very independently and we're just trying to make sense of the world as it is. But the truth is I think we are all so molded and shaped and almost imprisoned by the experiences of our past. And my experiences are different than Yours and I have a different family dynamic, a different social ambitions. I was bullied in a different way than you were going down the list. And so no two people are going to have the same views about not just money, but politics, social aspiration, right and wrong and whatnot. Everyone is a little bit different in this sense. And so it's very common to see somebody's financial decisions with a sense of either judging or even cynicism, particularly like how they're, how they're investing their money, how they're spending their money. Oh, you're too frugal. Oh, you're spending too much. There's no right or want or wrong way to do it. We're all just trying to scratch a lot of the psychological itches that we've had in our own life in our own way.
- [33:26]
B
It's a really profound idea for understanding difference, I think. I mean, in politics right now, I bet most people listening to us feel like if they had the opportunity to explain to someone sitting across a table from themselves everything about their lives and their outlook, then their political opinions would make sense with enough information. But I don't think we necessarily believe that about other people. We feel like other people's political ideologies might be entirely incomprehensible, even though we trust in our own. And I like this idea. Like, my behavior is explicable, your behavior is inexplicable. But as you say, all behavior makes sense with enough information. And I imagine this must be true about spending differences within relationships. Like, I love going onto these subreddits, for example, to read about money squabbles between couples. And I wonder whether sometimes in fights about money within relationships, we wouldn't fight the same way if we had perfect information about the other person's viewpoint. Right. Why do you spend money the way that you do? What does it have to do with the way you were raised, how your parents spent money, how they didn't spend money and made you want things you couldn't have. You know, this idea that our partner's behavior would make sense to us if we had more information is in many ways, I think, a hopeful one.
- [34:42]
C
And I think the most important question that you can ask, certainly in politics, but in a lot of areas in life, including money, including with your partner, your spouse is not, why do you believe that? The question you should ask is, what have you experienced that causes you to believe that? And if I experience the same thing, would I believe that as well? And that's much easier said than done. But it's true for politics as well. And of course I fall in that trap as well. Looking at people who I disagree with. How could you possibly believe that? Are you an idiot? Are you uninformed? That's always the knee jerk reaction. And sometimes the answer is yes, of course. But I think a much better question, even when the person is clearly uninformed, is what have you experienced? How are you wired that causes you to leap to that conclusion, that causes you to get there? And if I experience the same thing, would I believe it? And the answer is almost always yes, that if I lived in your shoes, experienced what you had, had my own psychological, had your psychological scars instead of my own, I might believe the exact same thing. The other part of this that I think is, is true, that's hard to come to terms with, is just my growing belief of how much of behavior is forged at conception and there's not a lot that we can do about it, that people are just wired very differently. Warren Buffett talked about this a lot with money. He used to talk about the money mind, where he's like, some people just get it automatically. You don't have to teach them anything about money or invest. They just get it intuitively. And Munger put this even starker. Charlie Munger, he said, when you're teaching money matters to young people, they either understand it instantly or never. And I'm like, I think there is unfortunately some truth to that, that some people are just wired naturally in a different way to understand good financial behavior more than others.
- [36:22]
B
I do want to attach this idea, or I do want to pull this idea into the realm of socioeconomics, because I do think it explains some spending differences between the rich and the poor. Right? Like a classic example of a question that is asked of low income Americans is, why do you buy so many lottery tickets? You are throwing your money away. You don't have enough money to begin with. Why would you not save it rather than keep spending it on lottery tickets? And what I love about this, this axiom that you're putting out there is, well, if you didn't have money and you felt like you needed three times more of it, might you think that in that moment of desperation, it makes more sense to buy the lottery ticket than to save a small amount of money and hope for compounding interest. Now you're a huge fan of compounding interest. I am too. I'm not defending the general practice of buying lottery tickets. I'm saying that it is defensible to buy lottery tickets. Perhaps under this theory that all behavior makes sense with enough information. You have some parts of the book that talk a little bit about how as a matter of academic research, a big difference between the way the rich and poor spend money is that the poor tend to not consider the deep future because they're so worried about the 24 hour future. Do you want to speak to that principle a bit? Because it's here in the book and I think it's really important, especially for the purpose of contrast, contrasting the experience of the rich, the experience of the poor.
- [37:50]
C
Well, this is something I also got from my, my brother in law, the social worker. He was one time trying to talk a family into saving a little bit of money so that they can make rent next month so that would not be evicted. Seems like very simple, basic advice. And they laughed at him. It's like what? And he said, I don't know, you're laughing. And the person said to my brother in law, they said oh, you're a future thinker. And he said what, what? He said, a future thinker. And he said this, this, this other, this lower income person said people like us live in a 24 hour window. The old like as, as much as we can think is where's the next meal going to come from? The idea of saving money for rent next month, like no, no, it's 24 hours. That's it, it's 24 hours. And at other points in your life it might be, it might be one hour, it might be 10 minutes. Is the, is the gaze of your long term thinking. Like that's, that's the boundary of it. And, and so I think it's, I think some people who are in more comfortable positions have better jobs, have more savings. Those are the ones who are like you and I are able to think about investing for the next 30 years because we are not worried about where our next meal is going to come from or where our shelter next month is going to come from. That's kind of already taken care of. Like we already have that and so we're able to do it. And that's when you see the financial, the short term financial behavior of let's say a low income person buying lottery tickets. And you and I might just look at that and shake our heads and say that's absurd, why would you do that? But in a world where you don't have the capacity, you don't have the privilege of being able to think more than 24 hours ahead, it starts to a little bit more sense in that situation.
- [39:17]
B
Have you spoken to groups about the psychology of money, the art of spending money for low income people. Right. Because there's a way in which I'm trying to square the idea that on the one hand there's a Charlie Munger quote that suggests that people either get it immediately or they don't get it, period. But on the other hand, you don't. I certainly don't want to feel like we should just write off tens of millions of people as being entirely incapable of understanding the principles of saving money and spending responsibly. When you've spoken to groups or even spoken to groups whose job is to speak to low income people about how to spend money and save money, do you have certain tips for folks who aren't, as you say, future thinkers who don't have the privilege of thinking in 10 year time horizons because they're thinking in 24 hour, one week time horizons? Like where do you start with your principles there?
- [40:19]
C
The most boring, basic, but I think the most important and effective advice for people who are, who don't have a lot of disposable income, let's say, is so simple and so basic, it's check your bank account every single day. The vast majority of financial mistakes come not from lack of intelligence, it just comes from ignorance. It's just out of sight. And most people in that situation have no clue how much money's coming in, how much money's going out. If you ask them how much money you spend on food, how much money you spend again, they could not tell you. It's, it's, it's completely out of sight, out of mind. Now I do think there is a little bit of a donut hole here. If you are extremely poor, then you probably know where every single cent is and where it's going. It's the people kind of in the middle that tend to be out of sight, out of mind. They get a paycheck, they swipe their card, they don't really know what happens after that, and check your bank account every day it takes 30 seconds, everyone can do it. Just become a little bit more cognizant of what's coming in and coming out. And, and I think in a similar way I watch the stock market every day. I have for 20 years, every single day. I know what the stock market did that day, several times per day. I never use it to trade, I don't trade, I'm not a trader. I just think it's a fascinating window into what's going on in the world. What's going on in Society, what's going on in the economy. It's imperfect, but it's a pretty good proxy over time for what's going on. And so just becoming a little bit more cognizant, a little bit more aware, even if you're not necessarily taking a different action. I think that's, that's the first, that's the first advice. The other going deeper, kind of like on the psychological side, is there is a list of things that you can purchase to give yourself a better life that you can either do today or aspire to have in the future. That list exists. There is a longer list of things that it is not going to do for you. And so as we talked about earlier, if we're talking about purpose, relationships, health, clear conscious sleeping, that kind of thing, it gets harder to spend your money to improve those things. You, you, there, there is a way around the edges, but it becomes very common that people will, if they wake up every morning with kind of a hole in their soul, they, they, they're just not too satisfied with how the, how their life is going right now. The, the most common thing that people can do by and large is say, if only I had more money, these problems would go away. That is a very common assumption to make. Sometimes it can be true, very often it is not. I think part of the reason, it's just because money is so tangible. If I said I want to be in 10% better health or be a 10% better husband, I have no idea what that means. It's a good goal. I have no clue what it means. But if I said I want to increase my income by 10%, I can track that to the penny. I can compare my income to yours. It's so tangible that it becomes a top goal to fix the problems in your life, even if its ability to do so can sometimes be marginal at best.
- [42:53]
B
Saho Bloom has this lovely idea of time wealth that one thing we should care a lot about is that we spend our time the way we want to spend our time. And this seems very much to click into some ideas that you've been talking about, about how if we're trying to think about what's the best way to spend my disposable income, One way, one framework you could use to answer that question is how do I buy myself time, Time to have independence, to find my purpose, to spend time with my family. How do you think about the general principle of spending money to buy time?
- [43:30]
C
I think about it not necessarily in terms of buying time, although that, that, that's not a wrong way to frame it. I view it as buying independence. And by independence, I largely mean the ability to deal with the inevitable ups and downs of lives. And so if I said, what are the odds that, Derek, you and I will face at least one of these, Divorce, job loss, major medical illness, wayward children, go on down the list of bad things that happen. The odds that we will experience at least one of those are virtually 100%. And, and so, and some people will experience all of those over the course of their life. That at some point in your life, bad things are going to happen. And the ability to make, to be able to make choices and have options in those moments will mean everything to you. Most people realize this. I remember the statistic was in the early days of COVID when, when we had a shutdown, the average restaurant had enough cash on hand to survive 12 days. And they were, and they were, and they were staring down the barrel of a 12 month shutdown. And so in these situations, it was very similar in 2008 when financial advisors will tell you, oh, if you have a three month emergency fund, that's pretty good. And then people were facing 12 months of unemployment. And so the gap between what life can throw at you and what you can endure can be huge sometimes. And the ability to make a choice rather than being forced in a certain direction at that point, that to me is all of independence. And so that is the lower level of independence. And you can get up to the higher levels of independence of I'm going to choose a career doing what I enjoy rather than one that I'm just going to maximize for money and salary. I can live where I want. Maybe that has a shorter commute versus somewhere else out in the sticks. So you just have the independence to make your own choices. And you get that by the money you haven't spent, by the money that you have saved, the money you have invested. That's giving you both choices and options and the ability to do what you want. That's always how I viewed it.
- [45:18]
B
It. Last question, Morgan. And it's another great Morganism of yours. You write desire is a hidden form of debt. What does that mean?
- [45:30]
C
It's a hidden form of debt because you don't track it. It's not on your balance sheet. If you calculate your net worth, it's not there. But all wealth is what you have minus what you want. And there is almost an entire attention on the first part of that question and so much ignorance on the second part part of that equation. And, and so, look, I. I want more money, I want nicer things. I want more wealth, of course. But you also have to recognize that if you don't go out of your way to manage your expectations and keep a check on your desires, it's never going to feel like it's enough. If your income grows, if your expectations grow faster than your income, it will never, ever feel like it's enough, no matter how much you make. And so, you know, people very understand, they, they understand very well the concept of mortgage debt, credit card debt, because it's tangible and it's on a statement and you can look at it, but your desires and your expectations as a hidden form of debt. And not only a hidden form, but maybe the largest form of debt that exists out there. I mean, I think one way to summarize what's happened in the broader economy over the last 80 years is our incomes have gone up a lot on average, and our expectations have gone up by even more. And so we live in an era where people live, the homes are 50% bigger than they were in the 1950s, and health outcomes are so much better. We're living longer, we're healthier, and people don't feel that much better for it because their expectations have gone up so much. Now, very important to point out that I want to live in a world where expectations go up over time. I want to live in a world where people expect great, great outcomes, tons of wealth. I want to live in a world where my grandkids are going to have a material abundance that would be definitionally spoiled by today's standards. Like, that's the world I want to live in. But it's also true at the individual level that that is, that is the cause, by and large, for lack of contentment over time. It's not necessarily that you don't have enough. It's that what you have is being swamped out by your expectations and desires. Yeah.
- [47:22]
B
And I personally, I don't know if I'll include this part, but I personally like the concept of desire here rather than expectations because I feel like, I think we've had this debate before. I feel like high expectations can be a virtue, but bottomless desire is clearly not a virtue, Right? So I want to hold myself to enormously high expectations, like for my work, for the quality of my relationships. My expectations are very, very high. And I wouldn't want anyone to tell me, derek, you should probably lower your expectations because if you aim for worse articles and a worse marriage and being worse at being a dad, you'll be much happier because it'd be much harder to disappoint yourself. That would be a perverse way calculation. But there's something about this concept of desire that I think gets closer to the bone of what you'd want to avoid. It's this bottomless desire for what you do not have that I think is what's most poisonous. Especially in a world where it's so easy to see what other people have. Because social media is essentially a universal window into all the neighbors who live near us and far away from us.
- [48:29]
C
Yeah. So both you and I don't ever want to lower our expectations on the quality of our writing. But I do want to keep my expectations in check for my house, for the house I live in. I do want to say this is enough. I'm totally happy here. I don't need any more than this. I do want to get to that point, but not for our writing, not for our relationships, whatever it might be. So I think it just depends on which aspect of our life we're looking at.
- [48:53]
B
Morgan Housel thank you very much.
- [48:54]
C
Thanks, Derek.
- [48:56]
B
Thank you for listening. Plain English is produced by Devin Beraldi and we are back to our twice a week schedule. We'll talk to you soon.
- [49:36]
C
And Doug, here we have the Limu emu in its natural habitat helping people customize their car insurance and save hundreds with Liberty Mutual. Fascinating. It's accompanied by his natural ally, Doug.
- [49:51]
B
Limu is that guy with the binoculars watching us.
- [49:54]
C
Cut the camera. They see us.
- [49:56]
E
Only pay for what you need@liberty mutual.com.
- [50:01]
B
Savings Ferry Unwritten by Liberty Mutual Insurance Company and affiliates. Excludes Massachusetts.