← The Psychology of Money with Morgan Housel
The Psychology of Money with Morgan Housel
Luck, Wealth, Kids, Kindness -- And A New Format: Questions From You.
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Foreign. I'm Morgan Housel. Welcome back to the show. And as I said on the last episode, things are going to be a little bit different here going forward. For one, if you are watching this on video on YouTube or somewhere else, nice to see you. That's going to be a new feature. Everything's moving on to video and onto YouTube. Time that we did it as well. Nice to see you if you're listening or watching. One of the things that's going to change going forward, maybe the biggest change is that I have promoted all of you to executive producer and a lot of the show is going to be me answering your questions. Now on the last very short episode, I put a call out for you to send me some questions and my goodness, did you come through. There were enough questions to keep me busy on the show for the next year. 98% of them are worth answering on the show. The the other 2% were very specific and hyper personal and probably not things that I should be answering on the show. But I'm going to continue with the call out. If you have questions you want me to answer on the show, send them to podongtermwords.com that's P longtermwords.com that's going to be the key to keeping the show going forward. The questions you sent in were so good that I feel so optimistic that we're going to make this work and it's going to be awesome. Thank you so much for sending them in. What I want to do first though, and I think this is going to be how the format's going to work going forward. Before I get into your questions, is one idea for me and that was kind of how the show was before this. It was just kind of a 5 minute, 10 minute monologue for me about a random idea that had to do with money or behavior or whatever it might be. So what I want to talk to you about today is this idea that I heard several years ago. I think several people have brought this up. It's one of those ideas. I don't know if we actually know where this originated, but the idea is if you want to find the smartest person in the room, find the nicest person in the room. And you can flip that around and say if you want to find the dumbest person in the room, find the cruelest person in the room. I think this is a very smart idea for many reasons. Number one, the smartest person in the room is probably fighting back against the natural tribal urge that so many of us have to want to compete and suppress and insert ourselves above other people. It takes a lot of mental horsepower to suppress those emotions and realize that if you're actually nice to people, you can get ahead. One other reason that this is so important and this is really true, and you see it often in financial media, is that the smartest people in the world know what they don't know, or they know how little they know. And they're much more likely to say, hey, that idea that you just talked about, maybe it's right. I don't know, my idea is a little bit different. But maybe you're right. Maybe what you're saying is true. I know how uncertain and difficult and complicated the world is. And so even if I have an idea and you have a different idea, maybe you're right. It takes a lot of intelligence to wrap your head around that. And it takes not as much intelligence for you to say, no, you're wrong, I'm right. If you disagree with me, that means you're wrong. And that is a much more common mentality in media, particularly financial media. Something else to think about here is that the smartest people know that the world is not zero sum. They know that I can get ahead and you can get ahead and we can both win. It takes much less intelligence for people to think that everything, every debate and every interaction is zero sum where there is one winner and one loser. And so oftentimes, the cruelest, meanest, jerkiest people in any situation are the ones who are saying, for me to win, you have to lose. And therefore, for my idea to be right, yours has to be wrong. That's the source of so many agreements and arguments in all aspects of life. Look, I think a lot of this can have to do with money as well. And I've talked about this on the show many, many episodes ago. This idea that the luckier you are, the nicer you should be. And many people listening to this episode are very lucky in lots of aspects of their life, whether it's finance, the money, career, relationships, where you're born, whatever it might be. There's elements of your life, for you person listening to this right now that makes you lucky. And I think one of the ways to deal with that, the sign of higher intelligence, of what you can do, is the luckier you are, the nicer you should be to other people, particularly other people who, you know, were not as lucky as you were. Let me show you and discuss why I think this relates to money so much. There is a very dangerous but very common idea I Think with money that your net worth equals your self worth and other people's net worth equals their self worth. And the value of their ideas, their contributions, their career are a direct reflection of how much money they make and what their net worth is. It's not surprising that this is the case because money is so countable, it's so tangible, and it's so comparable apples to apples. If I said, who is nicer? Me or you? Or who is funnier? Me or you? Or who is a better dad or a better spouse? Me or you? Very hard to count those things or to create any kind of apples to apples comparison between people. So even if we know they're important, they tend to be ignored. But if I said what's your salary? I can compare that to my salary. If I said what's her net worth? I can compare that to his net worth. Very tangible, very apples to apples. And so it creates this social scorecard of the value that you get is equal to your income is equal to your net worth. And if you know anything about the real world, and particularly if you've met some wealthier people or some less wealthier people, the value, the insight, the wisdom is there is so much of a spectrum in there. Everyone, I hope if you have not, I challenge you. I hope someday you meet someone who is very wealthy and a gigantic jerk. They exist, they are out there, they're a dime a dozen. And I hope you'll meet, maybe it's an elementary school teacher or a firefighter, whoever it might be, who does not earn the highest income and is a pillar of their community, a pillar of their society. The more that we can break away from the idea that your net worth equals your self worth, I think the better off everyone will be. The way to get around that is the idea that the luckier you are, the nicer you should be. And tying into that, the original idea, if you want to find the smartest, maybe the most valuable person in any room, find the nicest. Okay, let's get into the questions. And I have to remind you, in this situation, I'm not your financial advisor. This is not specific advice for any of your situations, but I hope you find it entertaining and educational because that's all it is. The first question comes from Ross from California. And Ross asks, given that the next 10 to 20 years is going to see the largest generational wealth transfer in our country's history, what advice would you have for parents and grandparents as they prepare to transfer some of that wealth? Keeping in mind that a college degree for grandkids 10 or 20 years from now may not provide the same benefits that it did for previous generations. And mindful that significant wealth transfer can have both positive and negative benefits, I'd appreciate your thoughts on this topic. Ross, thank you for your question. And I have several ideas and thoughts about this. This topic of money and kids, particularly passing down money, which is not just a topic that applies to very wealthy people, lots of very, let's call them middle class, middle of the road, ordinary people are going to have some amount of money to both support their children while they're still alive and pass down to their children after you pass away. This topic affects many, many people and probably the vast majority of you listening right now. Let me start off with a story that I heard a couple years ago. And it was one of those just like stopped me in my tracks. That's an incredible story. It was a story from a priest who had worked in a hospital for many decades and part of his job in the hospital was performing last rites. And now a big part of that are children whose parents are dying, whose parents are about to die, who come to the priest and say, how do I say goodbye to a parent who meant so much to me? It's such a big deal. And how do I make any sense of this? And the advice the priest had was go into the room where your dying mother or father is and tell them the one thing that you are the most grateful for that they did for you as a parent. That's the most meaningful thing that you can do. But the priest had a very interesting insight. He said, in relationships, in families where he knew that there was a lot of tension and a lot of strain, not a very good relationship between the children and the dying parent. He said almost always what the child thanked the parent for was financial thank you for putting me through college, thank you for buying me a car, thank you for the support you gave me. Whatever it might have been, it was a financial thank you. It was a tangible. Something tangible that they purchased, the priest said, and families that he knew had a very good relationship between the parents and the children. The child every single time said the same thing, which was, thank you for believing in me. And I love that story because there's so much in financial media that talks about what money can do for you. And there's a lot that money can do for you. There's a lot in which money can give you a better life, of course. Absolutely. There's an even longer list and a bigger topic of what money can't do for you. And I love that idea that when people are looking at the fulsomeness of their life and thinking about, you know, what did a parent do for me, the people who had the best relationships, it was never about what did you do for me financially. Now I want to help my children financially. I've actually evolved my views on this quite a bit in the last couple years, which is maybe the question that Ross is talking about. I have two young children, they are still young elementary school. But I love the idea that my goal as a parent is not to raise good kids, it's to raise good adults. I want to instill in them values that's going to help them raise to become good adults to 10, 20, 30, 50 years from now. That is the idea. And can I use money for that? I sure hope so and I try and I want to do it. But of course this is an endlessly difficult topic. Charlie Munger once told the story. I may have mentioned this before, it's a good story. I'm going to tell it again. He said one of his very wealthy friends came to him and he said, Charlie, if I leave money to my children, is that going to ruin their ambition? And Charlie said of course it will, but you still have to do it anyways. And the friend said why do I have to do it anyways? And Charlie said, because if you don't they will hate you. And maybe that's overstated as a lot of things he said were, but I think there's a lot of truth in this. This is a very, very difficult problem to solve. How do you use money to benefit your children without spoiling them? Here are a couple of my thoughts. Number one, the antiquated, I think idea of waiting to give money to your children until you have passed away does a lot of harm in the world. I think there is literally trillions of dollars in the economy that passes from generation to generation with very little benefit. What I mean by that is a 90 year old parent dies and leaves their money to their 70 year old children who probably don't need it that much. They've already made it through life up to age 70, they probably already have a house. Maybe it's not the greatest life ever, but it's their life and they don't necessarily need it that age. And then those kids hold onto the money that they don't necessarily need. They die when they're 90 and pass it along to their 70 year old children who don't need it that much. And so the idea that I love. I read this in Lloyd Blankfein's biography recently. He said it's much greater to give with a warm hand than a cold hand. Because when your children probably need your money most is not when you die and they're 70, it's when they're 30 and they're trying to buy their own house, put themselves through college, maybe pay off their student loans. They have children of themselves and they're staring down childcare costs and healthcare costs and they're working 60 hours a week and hanging on by a thread. That's when they need your money. That's been the biggest shift in my thinking with this over time, is yes, I want to use money to help my kids. I want my kids to inherit some of my money, but I want them to do it during the most meaningful portions of their life, which is not, hopefully, when I die. And they are older, established adults. The problem with this for a lot of people, if I. If you hear that, what a lot of people will say is, yes, but if I give money to my younger kids when they're young adults, it's going to spoil them. It's going to ruin their ambition. Sort of what Munger just mentioned. Here's my evolving thought on this. Now, this is not an academic study, but it's something I increasingly believe just the more that I see it all over the place. And giving your children money almost certainly will not spoil them. Now, it's possible that you give your kids money and they turn into spoiled little brats. My theory is they would have done that anyways, regardless of whether you gave them money or not. There's so much evidence at all stages of your life that having more money, whether you're earning it yourself or getting it from other people, just exposes who you already are. And yes, there are lots of trust fund kids who got a lot of money, or even not trust funds, just inherited money and they turned into ungrateful little brats. But let me tell you, of course this is not a bold statement. There are lots of people in the world who did not inherit money, who do not have lots of money, and they are little brats themselves. They have all kinds of personality traits that you would not find pleasant. And it is very common that if an unpleasant, ungrateful person happen to inherit a lot of money that we automatically make the jump and say, well, the reason that they act like that and they have that personality trait is because they inherited all the money. And I don't think that correlation always exists or if it does it tends to be very loose. The flip side of this, this is maybe what changed my mind on this topic the most are the number of people who I've met who've come from very wealthy families who've have access to lots of money when they are young. And they are some of the most pleasant, down to earth, empathetic, hard working, taking responsibility for their own life people, because again, and it's very common in that situation to say, how did your parents do it? They gave you all this money but you're not spoiled. How did that work out? I think they're just, that's who they were. Even if they did not come from a family that had lots of money, they would have been good people. Now it is frustrating. As a parent, I deal with this a lot to understand like on the nature nurture spectrum, how much of your child's personality is probably nature and not nurture and that everyone's personality was forged many, many years ago, before you were talking. And that what we do as parents, yes, of course, has an impact and you can guide them in the right direction. But by and large the kids are who they are. And I think a lot of parents being scared of turning their kids into spoiled rats, have withheld financial support in a way that if they gave them financial support, the kids are probably going to be who they are regardless. I have known people in my family who have, let's say three siblings, all of them inherit the same amount of money at the same age. And the variance of outcomes among those kids can be extraordinary. You can have one sibling that blows everything and is irresponsible and goes into debt and ends up in rehab, and another sibling who came from the same parents with the same values, from the same household who gets the same amount of money and saves everything in index funds and leaves it alone for 50 years. And that is, that's the situation where the money didn't ruin the person. The person already was who they were. So my, my biggest point and takeaway for this, Ross, is I want to use money for my kids soon when they need it the most. I don't want to wait until it's a generational transfer. I want to make it an in life transfer. Now. When both of my kids were born, I wrote them a letter giving them some financial advice. Now of course there's more to life than finance, but that was my field. So I wrote them a letter giving them some advice, writing what I hope for them in the future. And one of the things that I wrote is I hope at some point you are poor. And I said not, not struggling, not flat on your face, of course, but you only understand the value of a dollar when you experience its scarcity. And so I hope this doesn't contradict anything that I just said. I don't think it does. But I do want my children, when they are very young adults, maybe in college, just out of college, to struggle a little bit, to struggle enough so that they do understand the value of a dollar and that they understand what it takes, that this is not like oxygen that's always available. It's something that requires work and dedication and providing value to society that I want. What I want to do is hopefully when my kids are beyond that early adult phase of their life and they get in their 30, 35, whatever it might be, they're married, maybe they have kids, they're looking to buy a house. That's when I want them to get effectively all of their inheritance. And look, is that simple? Is that a fail safe formula? No, absolutely not. But I think that is the biggest misconception and some of the best advice that I can have for people in the situation. So Ross, I hope that helps. Thank you for your question. All right, moving on. Next question. This question is from Sushil, who asks, for the past year I have been asking friends and family, are you optimistic or pessimistic about the future? Almost everyone I ask seems to be pessimistic and calls me crazy for being optimistic. Why is it contrarian to be optimistic about the future when the arc of humanity's progress is so clear? Sushil, wonderful question. I've been thinking about this topic for many, many years because you are right, particularly the last thing you said. If you are any lay student of history, you know that for the vast majority of people, the vast majority of the time, life gets better. Now that's not true for everybody all the time, but that tends to be true, particularly if you're looking at the last 300 years or so of history. Life expectancy gets longer. New technologies and new comforts, comforts that used to be the exclusive domain of very wealthy people, become ordinary, run of the mill things for ordinary people. That's the arc of history. And yet if you are any kind of reader of the news or the media, you know that what gets people's attention is not the idea that things are getting better. What you see over and over again is the idea, the headline, that things are not only bad, but they are worse than before and they're going to get worse. And this has been documented over time, studies that can gauge kind of the tone, the vibe of headlines looking at many decades, so that the headlines in major news outlets have gotten more pessimistic over time. This is even if you're looking over the last a hundred years and look at the rise of life expectancy, look at the rise of technologies like antibiotics and airplanes and air conditioning and all kinds of modern medical marvels. The technology that I'm using to speak with you right now, that would have seemed like magic 30 years ago, let alone 100 years ago. Despite all of that, the news headlines tend to get worse. And it has always been like this. This is not a new phenomenon in the slightest. Many years ago, the historian Deirdre McCloskey said, For reasons I have never understood, people like to hear that the world is going to hell. That's been true not just in the last 10 or 20 years, that's been true for hundreds of years. Matt Ridley, in his wonderful book the Rational Optimist, he wrote, if you say the world has been getting better, you may get away with being called naive and insensitive. If you say the world is going to go on getting better, you are considered embarrassingly mad. If, on the other hand, you say that a catastrophe is imminent, you may expect a MacArthur Genius Award or even the Nobel Prize. Now, this is a very complicated topic. Talking about people's relationship with the news and the media and why they're more attracted, why pessimism is more seductive than optimism. I think there's a couple of reasons why to talk about, to try to make sense of the situation. Number one is that most good news happens very slowly and most bad news is quick. It's like in an instant. So what is bad news historically? Pearl Harbor, 9, 11, Covid, those kind of things. One of the common denominators of those things is that they happened instantly. They basically happened in one morning. And there is no good news equivalent of that. Like what is the good news equivalent of 9, 11 where the world got 30% better in an hour? It can happen on the way down. The world can get 30% worse in one hour, particularly if you're involved in a war or a terrorist attack like that. Absolutely. It happens with bad news. There is no good news equivalent of that. Good news is slow. It is, hey, over the last 50 years, the heart disease mortality rate has declined by 1% per year, which over 50 years is unbelievable and has improved and saved tens of millions of lives. But it was slow. It never made the news headlines. No news headline that said, says heart attack deaths declined by half a percentage point last year. That will never make the headlines, even if over time it makes it a dramatically better world for almost everyone. Good news happens slow. Bad news happens very fast. And because of that, what's going to be talked about in the news and among your friends and that you see and that you experience tends to be bad news, even if you are in the background and the backdrop of things getting dramatically better over time. One other reason, I think, is that when you are pessimistic about how things are going, you look very informed about what's going on in the news. The bad news, that happens fast, you're aware of it. So you talk about, hey, have you seen the national debt? Have you seen the war in Iran? Have you seen what's going on here? Have you seen this challenge? Have you seen what this senator tweeted yesterday? You look very informed. If you were to say, look, guys, I think we're actually going to be okay and we're going to pull out of this. You look kind of naive, you look kind of silly. It makes you look like you don't even understand what's going on in the world and you just kind of live in this fantasy cartoon, whereas the real people who are paying attention to what's going on are the pessimists who are warning. Another reason this happens so much is that this is related to the last point. A lot of pessimism sounds like somebody who's trying to help you, and a lot of optimism sounds like a sales pitch. So if I say I'm making this up, don't worry. If I say there's a recession coming in the next six months, the unemployment rate's going to surge and stock market's going to crash, you pay attention to that. It sounds like, I'm trying to help you, I'm trying to warn you of something. But if I were to say, and again, I'm making this up, too, hey, I know a stock pick that is going to triple in the next six months and you should buy it. That sounds like a sales pitch. And 99% of the time it is. And so I think because of that, people have a, probably a good, a healthy BS detector in life that makes them much more aware and much more attracted to and have the ability to believe pessimism in much greater amounts and in greater strengths than they are to believe optimism, which often just makes them feel gullible. The other, I think this is an important one, is that particularly for investing advice, a lot of pessimism requires action, requires that you gotta go do something. And so it catches your attention because you're like, oh, I need to write this down so I don't forget. I need to go do something about this. Where a lot of optimism is just, hey, just stay the course. And you don't need to do anything. So it's easier just to ignore that. You even read that optimistic advice. If I were to say again, making this up, the stock market is going to crash in the next six months. You should probably go do something about that. You should probably go sell, raise cash, pay off debt, whatever it might be. You should go take an action. But if I were to say, hey, I'm optimistic On the next 50 years, I think the economy is going to grow, I think the stock market is going to grow, you don't need to do anything with that news, by and large. What you need to do is just keep owning the stocks that you do. Keep trugging along. There's not much that you need to do. Just like if you go to the doctor and they say, hey, there's, there's a lump on your neck. We need to do something about this, we need to biopsy it, give it an mri, whatever it might be. If you go to the doctor and he says, hey, you're looking good, seems like everything's going the right direction, you might ask yourself, why didn't even come to the doctor. It was just a waste of a morning. The same thing happens with news over time. Thank you for your question. All right, last question. This comes from Walter. And Walter asks about the paradox of automation. He says, what is your outlook for such economic shifts? Should countries protect themselves, such as a prohibition on robots? What happens to people who live from a universal basic income? What is their life like? Let me try to interpret some of this for people who may not have understood all of that. The idea that AI and automation and robots are going to put large numbers of people out of work, which of course is in the news everywhere and frankly has been for centuries, depending on what technology you're looking at, whether it was steam engines or the big factories of the early 1900s or the Internet in the 1990s, of course, now AI and robotics today, the terrifying belief that we used to have a full employment economy where roughly everybody who wanted a job could have a job, and we're staring down a future in which that is not the case. Let me talk about two things here. One, if AI were to do that, if AI were to create a world in which Unemployment rate went to 20% and just displaced tens of millions of white collars of workers who could not find any job. I'm not saying it's impossible. What I'm saying is it would be the first time that that happened in the history of innovation, the long history of innovation in which there is a constant chain of people worrying in the same degree about roughly the same thing that they are right now, that this new technology is going to put me out of work and I'll never be able to recover. That fear has been around forever. And what has happened forever are that those people who were displaced went out and found something else to do. Now that can sound callous because if you're 56 years old and you lose your job, it's not the best advice to say don't worry, you can go back to school and figure out a new skill. By and large that's not the case. So I don't want to poo poo this. It can absolutely disrupt tens of millions of people's lives. But whatever that new thing might be, maybe it's using AI just to become much more productive at your job. You don't lose your job, you just become more productive and hence you earn a lot more money. That's also been the history of technology. It would be astounding if AI did that. Now AI is moving fast and it's impacting a level of workers that I think are not used to being disrupted. At least for most of the last 50 years. Where white collar college educated workers who sit in an air conditioned office cubicle, those have been some of the most protective jobs of the last 50 years. People got used to blue collar workers being laid off and I think kind of accepted that fate. At least if you are looking from the outside in. Yeah, that happens. I'm sorry your job got shifted to Mexico. That's how the world works now. It's happening to people for whom they never thought that this would be their lives. So I think from a psychological perspective it has a huge impact. You brought up a question that I think deserves some attention here, which is what if people need to rely on a universal basic income? Now what that means is let's say AI creates a world where we naturally have 20% unemployment. All those people can't have jobs anymore. Maybe in that world what we'll need to do is take some of the profits from AI and give those people a basic income, basically Social Security for people who are still in their working age. So the government will say if AI displaces you and you can't find a job, we will give you $5,000 a month, whatever it might be. Here's why I think that would never work, at least for a long period of time. People need hard problems to work on and they need the dignity of knowing that they are contributing to the world and contributing to something bigger than themselves. And if you told some big chunk of society, hey, AI took your job, but don't worry, we're going to give you a universal basic income and you can go back home and tend to your garden and write poetry. The amount of psychosis that I think would be unleashed on society would be off the charts. It would never work. Those people would lose their minds. I would lose my mind. In this situation. People need stimulation, they need hard work, they need challenges. Now, I think we will get there. I think whatever jobs it might be and however it might take shape, the people whose jobs will be displaced by AI will find something else to do. Again, cold comfort. I want to be empathetic and sympathetic to these things, but that's always how it's worked. But the idea that we can rest on our laurels and just say, hey, it's inevitable and we'll just send them a check and everything will be okay, I think that doesn't work at all. I think that would unleash more terror on society than people who have to go out and find something else to do. It's a very tough problem. It might be the biggest problem of the next generation, but history would show time and time again. And I think it'll be the same case this time that we will figure it out. Thank you again for those questions. Again, I want to ask you because it was so helpful the first time. Send those questions to podongtermwords.com I can't wait to see more of them. Thank you so much. You are. Who's going to make the show possible? I want to end now with a recommendation. Sometimes these would be books, sometimes they might be documentaries, blog post, whatever. It might be something I've read recently that I would highly recommend you do as well. I read this book two weeks ago. It's called London Falling by Patrick Raiden Keefe. London Falling by Patrick Raiden Keefe. It was so phenomenally good. It was one of those books where when you start reading it, after you get to like chapter two, you say, clear my schedule. Like, I, I, I, I have to just sit here and finish this book. It is that good. It is not pleasant reading. I won't give anything away but it's about a pretty sad story that took place in London in 2018. Not very pleasant, but it is so phenomenally well written and such a window into the human soul and the emotion of grief and getting a youth getting wrapped up in a crowd that he shouldn't have been wrapped up in. One of the best books that I've read in recent years. That's my recommendation for you this week. And I think Patrick Raden Keefe might be my favorite new author. Overall, he's phenomenal. Such a good author. Such a good writer. That's it for this new, longer, new edition, new format episode. Thank you again for being part of this. We'll see you next time.