{"id":59732,"date":"2022-02-12T10:08:21","date_gmt":"2022-02-12T14:08:21","guid":{"rendered":"https:\/\/www.shortform.com\/blog\/?p=59732"},"modified":"2022-02-18T12:08:08","modified_gmt":"2022-02-18T16:08:08","slug":"view-on-money","status":"publish","type":"post","link":"https:\/\/www.shortform.com\/blog\/view-on-money\/","title":{"rendered":"How We Develop Our Views on Money"},"content":{"rendered":"\n

How would you describe your relationship with money<\/a>? Why do so many people act in so many different ways when it comes to money? <\/p>\n\n\n\n

According to Morgan Housel in his book The Psychology of Money, <\/em>every person has a different relationship with money based on a few factors: what you live through, the financial climate, unemployment rates, etc. That’s why, no matter how much financial advice is out there, people will continue to act on what feels right to them.<\/p>\n\n\n\n

Here’s why subjective rationality plays a huge role in your views of money.<\/p>\n\n\n\n\n\n\n\n

Everybody Acts in Ways That Feel Rational to Them <\/strong><\/h2>\n\n\n\n

In a world that largely assumes that money acts on mathematical principles, why do we have such different views on money? Morgan Housel argues that it\u2019s because everybody acts in ways that feel rational to them<\/strong>\u2014but what seems rational to you isn\u2019t subjectively rational to me.\u00a0<\/p>\n\n\n\n

Housel argues that people develop drastically different ideas about what\u2019s rational because our personal experiences with money define how we approach it in life, but we all have vastly different economic experiences, so we all have different views on money.<\/strong><\/p>\n\n\n\n

Housel argues that it\u2019s not what you learn but what you live through<\/em> that most affects your relationship to money. We create mental models<\/a> of the financial world based on what we experience, and we act accordingly. Housel attributes this to the fact that real-life experiences leave an emotional impact that is impossible to replicate. In particular, Housel notes that while you can learn a lot of financial information from external sources, like textbooks, you cannot truly experience the anxiety <\/em>of a particular financial situation unless you have lived through it. <\/p>\n\n\n\n

(Shortform note: If what you live through most affects your relationship to money because of the emotional impact personal experience has, can fictional sources\u2014like a novel\u2014recreate the emotional impact of a particular financial situation? It\u2019s possible: Reading about something a character does stimulates the regions in your brain that control that action<\/a>, so you might feel what the character feels, too.)<\/p>\n\n\n\n

Early Adulthood Matters Most<\/strong><\/h3>\n\n\n\n

Housel contends that people base their decisions mostly on the financial climate in their early adulthood, instead of <\/em>on their goals or the specific features of investments available to them. He specifies three financial areas in which your personal experience\u2014and thus your views\u2014might consequently drastically differ from others:<\/p>\n\n\n\n