Spending Your Money Well — With Morgan Housel

Yeah.

Well, yeah, it's definitely a term that I just came up with, which means it's pretty nebulous. Doesn't have a lot of firm definitions to it. But the idea that wealth is what you have minus what you want, very simple. People have been talking about that forever. And even though how simple it is, it tends to be very ignored in the financial community. 99.9% of the effort in the financial community is how do you get more? How do you increase your returns? How do you become wealthier? Great, that's a fantastic topic. That's an important part. But all wealth is what you have minus what you want. And I'm sure you know, everyone listening knows two types of people. One who is very financially successful objectively but never feels like it's enough and is not satisfied with what they have. Wakes up every morning saying this is not enough. Not necessarily a bad person. I am so grateful those people exist because that feeling of this is not enough, I need to do better, is the seed of all progress in society. If everybody woke up being totally satiated with what they've accomplished in life, we would have no progress ever. And so even when I point out that what may look like a character flaw, I'm so grateful that the whole world by and large has that feeling of this is not enough. But I think people also know people who are not necessarily that successful financially, however you want to define that, but they're totally content with what they have. They're absolutely happy with their family and going for walks and watching the sunset and walking the dogs and reading good books and whatever it might be, having conversations with their friends. They love that and they have a wonderful life. And I think you had sort of alluded to this, that parts of the book that I had touched upon lightly in previous books, I tried to go deeper in this. I wrote this book because I needed it for myself. I needed this book for me. And it was this realization a couple years ago of if you had asked me five years ago, what is my investing philosophy? I could talk your ear off for hours about how I think about risk and volatility and whatnot. But if you said, what is your spending philosophy? What is my real personal finance philosophy? I had nothing for you. I couldn't really tell you. And so I needed to kind of dive into my own life and figure out these topics for myself. And that balance between do I want to be a never enough person where I want to wake up every day and say no matter what I have done or how much I've made, the correct amount is more. Do I want to be that person or do I want to be someone who is just like life is great and I have everything that I need right now. I do not need any more whatsoever. I think I battled that in my own life trying to figure it out. And so always with writing, I just take a leap of faith. If I've dealt with these problems, other people probably have as well. And so let me just write a book about stories that I think are interesting, about a topic that I think is interesting, and if other people might like it and latch on to it, wonderful. But I wrote this book for me.

Yes. Exactly. Right.

Yeah.

I heard this joke from the comic Jimmy Carr not too long ago. This is not in the book. And he said most people in their 20s they worry about what other people think of them. And then they're in their 30s, they mature and they say I don't care what anybody thinks of me. And then in their 40s they finally realize the truth, which was nobody was thinking about you to begin with all along. And I think there's a lot of truth to that. And I feel like that tracks in my own life very much. That a lot of what people consider a midlife crisis, however you want to define that, would be people finally realizing that you're in this alone. Nobody's paying attention to you as much as you are. You're in this game for yourself. You might as well try to figure out your own way to do it. And I think a lot of people will go through that in life. I think that's always been the case, but social media makes it a hundred million times more potent and more powerful than it's ever been because the feeling of needing to perform for strangers again has always been there, but now it is the core of life for young people in their teens and 20s, putting on a performative act on social media every day for a group of by and large strangers. If you're just trying to go viral, that's not part of their life. That is their life. And so it's just so much broader now than it's been, I think, in many ways. The FIRE movement, financial independence, retire early, that kind of got its seeds after the financial crisis of 2008 when the economy was really weak, the unemployment rate was really high. It sparked this questioning in a lot of people's minds of like, what am I really trying to do here? Am I trying to maximize income and maximize savings or am I trying to maximize life? And so that was a big movement that came out of that. And I think in many ways COVID had a similar impact on a lot of people, of after you've been locked inside for two years and desocialized in many ways and forced online to where Instagram and TikTok were your entire life 24/7, you kind of got sucked into the performative online game. And then maybe now in the last couple years there's a flush out of that, of a lot of people being like, is this really it? Is this really the life that we're going after? There has to be something else better than this that we're chasing. And so everyone will deal with that in their own little unique way. But the idea that you brought up earlier that I think is a lot of core of this is that there's two ways to use money. One is as a tool to live a better life and to actually make yourself happier and to do things that are going to give you and your family a better life. The other is as a yardstick of social status to measure yourself against others by. That's not always negative. I think in many ways it's unavoidable. Life in many ways is a competition for other people and using money as a yardstick of where you sit on that hierarchy. Of course, there are incredible downsides to that, but I think it's just an unavoidable part of how the world works. But just asking yourself the question when you're spending money, are you doing this because it gives you a better life or are you doing this as a status metric to compare yourself against others by, I think is always important.

Yeah. And I mean, I think we massively overestimate how much admiration we get from strangers. And the idea that if you... oh, people are going to look at my car, they're going to look at my clothes, they're going to look at my jewelry, they're going to look at my house. The answer is no, they're not. They're busy worrying about themselves. And so the idea of which would I rather have, the attempt, the misguided, I think, attempt to get strangers to turn their head and look at me, or be a good dad, be a good husband, be a good friend. It's so obvious when you frame it like that. And so if money is a tool to do either of those things, it's a tool to either try to get people's attention or to be better, happier, more content at the things that are going to actually give you meaning and happiness and contentment in life. Which of those would you rather have? And there's nothing in this book that is against spending. I love nice things. I love nice cars and nice homes. Like all of it. There's no plea in here to live like a monk and don't try to have any of the nice stuff in life. It's not that whatsoever. But I think if you always ask yourself what the purpose of this is, and I think I have to remind myself of this almost daily. It's not intuitive whatsoever. Like humans are wired very effectively for social status and for social hierarchy climbing. Like we are, it's one of the things that we're just so innate and so incredibly good at doing that. And so it's almost a constant daily reminder to yourself. Even if you have been thinking about this topic for a very long time, the pull towards wanting to climb the social ladder and try to impress strangers who are not even paying attention to you is always there. It's always ever present.

Yeah.

Yeah.

Look, what I'm about to say is not black and white. There are many exceptions to this. But most of the time if you wake up in the morning and you are well loved and admired by your spouse, your children, your community, your co-workers, you enjoy your work, you're in good health, you sleep eight hours, you have a clear conscience. Most of the time if you check those boxes, your desire for very nice, fancy things is not that high. Again, there are exceptions to that. There are people who just love the craftsmanship and the engineering of Ferraris and they're doing it for that reason. But I do think most of the time when you see someone that has a very high propensity to spend and to show off with very nice things, not always but much of the time it is making up for they could not achieve the respect and admiration from the more durable qualities of your spouse, your friends, your children, whatnot. If you can't achieve it from that, it's very common to then reach for the next best lever, which is if nobody loves me for my intelligence and my humor and my love, then maybe they'll love me for my car. Maybe they'll love me for my jewelry and my necklace and whatnot. That's a very real thing that happens. And there's no formula for when that's happening or how exactly to spot it. But I think you see it enough if you dig into a lot of these people. And the opposite of that, the people who do make a lot of money, they are quite wealthy, but they have such amazing marriages, such amazing relationships with their friends and their children. They're in good health. Their communities admire them. And those people, even when they are wealthy, don't live big ostentatious lives. And there are plenty of people like that. So again, that's not black and white, but you see that very often that if you can't receive your love and admiration from the people who you want to love and admire you, then you try to seek it from strangers. And the way you're going to try to seek it from strangers is through your flashy material stuff.

That's... Oh, I think that's a fascinating thing.

Yeah, I think we could come up with counterexamples of this. Maybe Taylor Swift is one, but I think it's right that a lot of us...

But no, I think it's very true. A lot of artists, whether it's an author or a painter or a musician, do their best work when they're angry or in some kind of pit of life. I think that tends to be the truth. I think Chris Rock talked about this. He said, anybody who thinks for a living is bound to be depressed. Whether you're an author or a famous comedian, whatever it might be, if you spend your day thinking about humanity, you're bound to be kind of bummed out about it. But those are the people who end up doing the best work.

I think that's true. And again, there's also this weird paradox of the reason we have amazing medical technology and digital technology and everything that we have made major progress in in all of humanity is because people woke up in the morning with a feeling of this is not enough. They woke up anxious and feeling like this is not enough. And so I am 100% confident that 100 years from now my grandkids and our grandkids will be living in a world where it is much better than it is today in terms of medical technology and various technologies because there are so many people even who are wealthy beyond imagination, the Musks, Zuckerbergs in the world, who still wake up every morning and say this is not enough.

Yeah. So it's like in the pursuit of admiration, if I do this thing, achieve this success, have this house, have this car, whatever it might be, different for everybody. In the pursuit of admiration, it's very difficult to know if people are admiring you or if they're envious of you. And I think it's extremely difficult to know what kind of attention you're getting from people. But admiration can be useful. Envy is always a liability overhanging your head. It's always like that. I remember this. I've told so many stories about when I was a valet, when I was at the hotel. I worked there from I guess 18 to 22. That was the age I was there. And if there would be people coming in a Rolls-Royce or that kind of thing, to the extent that I would stop and look at them, sometimes it would be two feelings that I would generally have. One is I would imagine myself being them and I couldn't give two shits about them, but if I was them then people would care about me. Or maybe on my more cranky days I would be like, you think you're better than me because you have a better car? You think you're better than my dad who's a hardworking salt of the earth guy? You think... it was this... and this is a character flaw. This is not a good thing, but it was this sense of envy that hit me. But I guarantee you the person driving in that car who gets out of the car and notices that everybody's looking thinks that everyone's admiring them, but they're actually envious of them, and that always comes back to bite you. So it's very difficult to figure it out. There's this thing I wrote in the book that's been written about many times before called the reverse obituary, which is this mental exercise where the exercise is write what you want your obituary to say today. If you like, what is your dream obituary that when you pass away, your obituary comes out, what do you want it to say? And then the exercise is try to live your life up to that. And that's what the exercise is. But I think for most people, it's going to be different for everybody. But for mine, I would want it to say Morgan was a good husband, a good father, a good author, he helped his community, he was a good friend, like things like that. Nobody in that situation would talk about the square footage of their house or how many carats their ring had. Nobody... like so many of the things that we actually pursue would not make it into the list of things that you actually want to be known for. And so that idea, David Brooks called it eulogy virtues versus resume virtues. Resume virtues are your GPA and your SAT scores. Eulogy virtues are he was a great friend, he was a great worker, he was a great spouse, a great parent, etc. And so I think living up to those ideas, because the eulogy virtues are what you are admired for. The resume virtues are what you tend to be envied for.

Somebody was talking about this recently. Andrew Ross Sorkin of the New York Times just came out with a book called 1929 about the crash of 1929 just before the Great Depression. And someone brought up a point that I thought was really fascinating, which is all of the big characters of that era of the Roaring Twenties, the richest people in the world, the CEOs of the banks, none of them are remembered anymore. Like nobody remembers them. Like Charlie Mitchell, all these people, these were the titans of the day and nobody remembers them anymore. And I think part of the reason why that might be is because all they did was make money. The only thing that they did was make a lot of money and live in big homes. And nobody will be remembered for that. And to the extent that we do remember some of these people like Charlie Mitchell and whatnot, it's a sense of envy or not envy but looking down upon them for the chaos that they caused. And then so who could be remembered from those eras? If it is a wealthy person, it's someone who was probably remembered for their philanthropy, like Rockefeller, those kind of people, Carnegie, those kind of people, or someone like Winston Churchill or whatnot who did things that were not just about attention seeking for themselves, it was helping other people even if they had all of their flaws, etc. And so I think that idea of the people who are just seeking resume virtues will not be remembered at all, like barely even by their own family members. But I think so many of us have a great-grandfather who is just like a legend of lore. Even if they were not that financially successful, there's so many stories about what they did and who they helped and whatnot. That's what actually gets you remembered over time.

Yeah. Social debt is a term that I came up with which is when the money that you have influences other people's perception of you or your own expectations in ways that are a debt, a liability in your life. And so I mean a very extreme example that I used are the huge number, the huge percentage of lottery winners who either go broke or are clinically depressed after they win. And a lot of the reason why that is, is because when you win the lottery, everybody comes out of the woodwork asking, begging at your knees, groveling for money, for handouts. And that...

It seems like a small enough amount that he can give away, but it's meaningful enough in your life. I wrote about this experience I had. This was probably 2020, 2021. I did a group very similar like this, but it was in person with a group of NBA rookies. And the idea was, hey, talk to these rookies because they have such a high degree, a high percentage of going bankrupt. Everyone knows that with pro athletes, they make $20 million when they're 22 years old and they're bankrupt by 30. That's a very common path for these people. Try to talk some sense into them. And one of the rookies, he was 19, he brought up this idea that I thought was so wise for someone his age. And he said, the reason so many athletes like him go bankrupt is not because they spent all of their money on themselves on their own mansion. It's because they had so much pressure to buy their fifth cousin who they didn't even know a small house. It was not because they bought themselves a big house. It was because they had so much social pressure to buy everybody who they knew a house, a car, financial security. And when you grew up in inner city poverty, that pressure is completely overwhelming. And he said, look, when you signed a $10 million contract, that is not your money. He was like, that is mom's money, dad's money, grandma's money, cousins' money, friends' money, high school principal's money. Everybody that you know is going to come asking for their little piece. And you cannot tell them, hey, I got mine. I'm going to go buy my Bentley, live in a mansion. Good luck to you all. You can't do it. So he was like, look, the amount of social debt that young athletes have is off the charts. And when you sign a $10 million contract, it comes with $20 million of social debt or whatever it might be. And it's not actual debt. It's not like it's actually a loan, but it has the same purpose of having to be repaid before you can enjoy any of this. And I think even in non-extreme examples in people's own lives, when they get a raise in their job, let's say their salary goes up by $10,000, if their expectations in their own head might go up by $15,000. Hey, now that I got a raise, we need to move to the other community. We need to take nicer vacations. We need to do this. It's a shifting of expectations that is its own debt, its own liability that has to be paid. And I think those liabilities are enormous. They're huge. And because they're not actual real debts, they're easy to ignore, but they're very real. It's a psychological debt that has a big impact on people's well-being when they're dealing with money.

Yeah, I think every generation is scarred and influenced in their own little ways. And a lot of debate in society in general, when you look at other groups of people and say, why do you behave like that? How could you possibly believe that? What makes you think that? A lot of the question that you should be asking is what have you experienced that made you think that? And if I experienced the same thing, would I believe the same thing as well? And so the idea of like you look at different generations and how they think about topics, even just racism, things like that, the question is not why do you believe that, it's what did you experience and grow up with? What were the norms of your era that caused you to believe that? And I think it is foolish for people to think for any topic, whatever this might be, whether it's money or anything else, that if you didn't grow up in a different situation, in a different country, in a different generation, to different parents, in a different part of the country, that you would not have fundamentally different beliefs than you do right now. Everybody wants to think that they are thinking independently and thinking about the world, you know, just soaking up the information of the world and creating a mental model of the world based off of how it actually works. But we're so heavily influenced by our own unique past, the vast majority of which were out of our control, being where and when and to whom we were born. And so I think when you come to terms with that, it gives you a little bit more empathy for other people. It makes you less cynical about other people's decisions of how they might be living their lives or how they earn their money, how they spend their money, how they invest their money. One of the criticisms of my first book, The Psychology of Money, was, Morgan, what you're saying might be true for a college-educated white American male, but it's not true for me in Zimbabwe, for me in China, for me in South Africa, whatever it might be. And my response to that was like, yes, guilty as charged. I'm as influenced as anybody would be and so are you. Nothing is more persuasive than what you have experienced firsthand. You can read about other people's experiences. You can try to empathize with them, but nothing will be as persuasive to you in terms of building your mental model of how the world works as what you have experienced yourself firsthand.

Yeah. Behaviors make sense if you have done your research.

Yeah.

Yeah. Yeah, I think this might be wrong, but I think the idea that the baby boomer generation was probably the most eager to display their wealth and millennials started pulling back and I think Gen Z has pulled way, way back from it. And I think it's just moved towards other areas of social status signaling. For baby boomers, it was a McMansion. That was how you signaled your status. For millennials, I don't know what it's been, but I think for Gen Z, it's followers on TikTok and things like that. It's how many retweets did your last hot take get? That's how they signal their status. And when you are getting your status from that, nobody cares that MrBeast wears a dirty t-shirt. That's not where the status comes from right now. He has half a billion followers or whatever. That's where you get your status. And so I think that we've shifted the metrics of what our status would be. And I think that's...

Yeah. And I think maybe for the greatest generation it was like how many military honors you had and how many kids you had. It was just a very different metric of how you measured your success.

Yes. That's like...

until the middle or later stages of life, because we are so primed early on in life when we don't have a lot of tangible skills and haven't really figured out a lot of things in life. We are so good at that age, in your 20s and your 30s, to signal your status with whether it is material possessions or social media followers — things that are much more tangible and much more externally faced, comparing yourself to others. Whereas you ultimately get to a point where you're like, the comparison game to others is futile and it doesn't really matter that much. All I really care about is, does my wife love me? Do my kids admire me? And so I think, yeah, that's the ultimate stage that everybody gets to.

I can only speak about it from my own perspective, although I imagine this is not uncommon for parents: as soon as I became a parent, it was instantaneous that my measure of success in life shifted from how well I'm doing to how well my kids are doing. And there's that saying that when you become a parent, it's a medical procedure in which your heart is translated outside of your body into somebody else. I think that's really what it is. You stop chasing your own status and it just becomes for other people. And so it felt like not that long ago that inside my own head was, how do I get into a good college and get good grades? And now a lot of what I think about is my own kids' education, my own kids' path into that. You just shift it from yourself onto other people.

I mean, it's a heavy topic of what happens if you don't ever have that. Obviously there's lots of people who never have kids that live very good, great, happy lives. There's millions of those people. But I think every parent will empathize with the idea that shifting the light from yourself onto other people is the highest highs and the lowest lows. It can give you indescribable joy and meaning and purpose, but also indescribable anxiety and fear and worry all at the same time.

You know, this is maybe a slightly different question and topic than you asked, but to me, it's such a complicated equation of why people are having fewer kids now than they used to. But one element of it that I think probably doesn't get enough attention — I tweeted this the other day — I think every societal problem right now is downstream of housing affordability. And it is so common among young people that you want to check a series of boxes in life. And one of those boxes that a lot of people want to check before they get married and have kids is, do I own a house? And it's huge. And to the extent that you can't do that...

We have someone in our own town — I'll try not to give away too much information on who it might be — but she's 28 years old. She has a great job. Her husband has a great job. They're recently married. They're wonderful, wonderful people. And in Seattle, a cheap, tiny starter house costs two million bucks. And so they're like, 'Well, forget about it. There's no way they can afford a house.' And so they have explicitly made the decision to not have kids indefinitely. And it's just like — in any other era they would have two or three kids and be wonderful parents and pillars of a society. And they want kids. It's their decision to have kids, but they feel like because housing is where it is, they just can't. They're just stalled at that level of progress.

And I think that's a real issue. And when people talk about housing policy, it's not housing policy, it's family policy. It trickles down to so many different things from there that plays a huge role in that.

This is obviously a very personal and individual decision. I think there's no right way to do this. I'll give you some personal insight that I have. I actually don't know what he would be — I think he's my dad's second cousin, I think that's who he is. Some semi-distant relative who is similar to you, and he's very financially successful. He's probably in his 60s, has no kids, made quite a bit of money. And so what he has done is he's gone to virtually everyone that he knows, friends and family, and he's said, 'Hey, let me give you $25,000 for you to give to charities of your choice. Do whatever you want with it within your own town. There's no strings attached to this. Here's $25,000. My only ask is that you give it to a charity, a foundation of your choice.' And it's the coolest thing.

So he's given that to my parents and they've donated within their individual town. It's the coolest thing that they do. And for someone who doesn't have heirs of his own, direct heirs, but has made a lot of money, I know it has given him incredible satisfaction to do it. And he could have just given the money away himself. But by tying in other people who are his friends and family into it, I think it's given him a deeper, richer sense of legacy than if he had done it himself. There are obviously many different ways to do that, but that's a recent thing that pops into my head of someone who did it in a unique and creative way.