By Morf Morford
Tacoma Daily Index
Money is a lot like religion; it doesn’t really matter what you believe, or even what you say. It’s what you do that matters. (James 1:22: Do not merely listen to the word, and so deceive yourselves. Do what it says.)
If you’ve ever known anyone violent, vindictive or destructive who calls themselves religious, you know that the actual meaning of faith never really soaked in.
The same with money. Someone might have all the right degrees, even be born into wealth, even take all the right financial management classes, but that doesn’t mean they know, or incorporate into their lives any of the basic principles about preserving, let alone growing, money.
In both cases, it would be easy to make the argument that some of us have entirely missed the point.
Based our life experiences, we might fear, or entirely dismiss, recessions, inflation, interest rates or even employment rates.
When we have a recession (as in 2008) some of us explain it one way, others a completely different way. Economists still argue about the causes of the Great Depression (1929) – and what ended it.
A cliché among economical historians is that you have to experience something (like inflation or a recession) to understand it.
Maybe. But many of us who went through the Great Recession of 2008 still don’t know what lessons to draw from it.
Is a home the absolute best or worst investment? I know people who, as a result of the Great Recession believe both of those things.
Are high – or low interest rates good for an economy? As with everything in economics, it depends which side of the equation you are on; are you paying high interest rates? Or earning them?
Are rising costs of housing a sign of a healthy economy? Or a bubble ready to burst?
Is a low price for oil a positive sign for an economy? Or a sign of collapsing demand because of an imploding economic system?
In short, money is far more than a medium of exchange. Our confidence (or lack of confidence) in money is the ultimate barometer of both the economy and our place in it.
There is an entire psychology of money – how we respond to it, define it and allow it to define us.
One of the core assumptions about money is that, since it’s really just numbers, each one of us should act rationally, do the math and spend, save or invest accordingly.
But if you’ve ever had an argument about money, or even the slightest problem with money, you know, beyond any doubt, that money is almost never numbers, and our spending, saving or even investing is almost never what we would call “logical”.
And for good reason.
Money, arguably the most abstract human invention, (certainly even more abstract than music or math) does not fit in any of our tight categories.
Yes, it’s a medium of exchange, and yes, we measure it and count it, keep it and use it to trade for essential (and non-essential things), but if you’ve ever been without it, or seen someone’s life go off the rails because of too much – or not enough – of it. You know there is far more to it than cash in your pocket or numbers in a bank account.
Nothing is as good, or as bad, as it seems.
As Morgan Housel, author of The Psychology of Money put it, luck and risk are often at the heart of every success – and failure.
Success is a lousy teacher. It seduces smart people into thinking they can’t lose. – Bill Gates
Failure, on the other hand, can be one of the greatest of life’s teachers.
As Bob Dylan put it, one of the most important things you can learn is that there is “no success like failure, and that failure’s no success at all.”
As Housel explores in his book, there’s a difference between being rich and wealthy. Put simply, rich can be seen – the signs of money from big houses to expensive cars – while wealth is largely unseen – a sense of belonging, security even contribution to one’s community. Being valued, appreciated and respected in your community is far more a sign of wealth than being rich.
Financial success, like any success is a very simple formula – results minus expectations.
You have probably noticed that your expectations in life, whether it’s income or vehicles or homes or vacations, or literally anything else, what was good enough, or even excellent, a year or so ago, seems paltry now.
And what other people have, or what companies offer as their latest product, seem both irresistible and certain to finally give us what we want.
But as we all know, and rarely if ever live by, is that this will never happen.
Religions and life philosophies have been built on this premise that we never really get what we want.
Brand loyalty is built on this idea; if you like this product, you will certainly want this other one.
Morgan Housel emphasizes in his book that the best investment is not the one that promises profit, or security or even financial independence; the best investment is the one that helps you sleep at night.
And he insists that what we are really looking for when we buy that expensive car or latest device, we are not really looking for transportation or even the most features; we are looking for respect, admiration and appreciation.
And when it comes to investing, there is often not much difference between luck and risk. One significant move can make our fortune – or ruin us for years; the ability to recover from a downturn, as an individual or as a national economy, makes all the difference.
His book closes with a question used in some job interviews; “What do you own, and why?”
It’s an interesting question; what, given limited resources, do we spend our money on – and what do we expect it to do for us?
He also advocates intense savings – not for any particular purpose but for the crazy, unpredictable curve-balls life throws us.
In other words, patience and a little margin of error will do you a world of good – in your bank account and your peace of mind.
As a note of how our economy has changed, the first credit card was issued in 1950 – and the interest was tax-deductible. This was to encourage post-war spending – and essentially created the consumer economy we take as something like a natural ecosystem.
How we wend our way through the swamps, morasses and distractions of the economy says a lot about who we are and what matters to us.
We might not think about it, but our use of money reveals our deepest thoughts, fears and hopes.