If Personal Finance Intimidates You, This Book Should Help

If you’ve never heard of Ronald Read, you’ll be forgiven. Though Read had a net worth of more than $8 million at the time of his quiet death in 2014 at the age of 92, he was hardly headline news. His life was so unassuming and everyday that few, if any, would have guessed at his staggering financial success.

Especially not if they knew his daily business.

After being the first of his family to graduate from high school and daily hitchhiking his way to campus for college, Read repaired automobiles at a small gas station for the better part of 30 years. He then swept floors as a custodian at J.C. Penney for another 17. His friends remember his main hobby as chopping firewood.

It’s hardly the kind of profile befitting of Forbes magazine, but as Morgan Housel counsels us in his witty tome “The Psychology of Money,” often, “wealth is what you don’t see.”

Read’s secret to success was less the product of “Wall Street wisdom” and more the stuff of Depression-era values. His success was the product of patience and prudence.

Housel begins his exceptionally insightful bestseller by contrasting Read’s approach to life and finance with his polar opposite: a Harvard-educated Merrill Lynch executive who, in the same year as Read’s death, foreclosed on the last of his three luxury mansions after having gone embarrassingly bankrupt.

The latter’s life was characterized by greed, the former’s by good old-fashioned values and not overreaching. Read invested his humble earnings in stocks, sat back, and let fate take its course. His high-wheeling counterpart, however, lived life on the edge and was always gunning for more—never content.

Money, as the book’s title suggests, is as much about psychology as it is strategy. It behooves us to consider how we think about money, both consciously and unconsciously. In doing so, we will find that our beliefs about money, inextricably, are tied to our values.

Housel, thus, has a tall order in store for him, but he delivers on the title’s promise remarkably well. His delightful book, which reads with the narrative fluidity and charm of a Malcolm Gladwell piece, is full of memorable characters, startling statistics, and insights that nobody else seems to have unearthed despite the material’s availability.

Housel brings to his study a reporter’s eye for what’s important (Gladwell, notably, similarly began as a journalist), having written about finance for years at The Wall Street Journal and elsewhere. He also has a gift for storytelling. Each of the book’s 20 chapters is constructed in narrative format, telling a micro tale that adds to a larger, emerging picture of financial far-sightedness.

What sets Housel’s work apart from the surplus of how-to finance books is its focus on how we tend to think about money. If you’re looking for advice on which stocks to pick, or whether to pony up for a fixed annuity, you’ll want to look elsewhere (though, that’s not to deny that some very sound advice emerges by the book’s end). Hence, the inclusion of “psychology” in the book’s title.

In this case, the psychology at play is very much a matter of perspective. That is, it considers the attitudes with which we look at stocks, bonds, inflation, and the whole act of saving. And these habits of mind, Housel explains with refreshing alacrity, are often the product of life circumstances—something quite limited, typically.

For example, Housel shows how, very likely, our views of investing in stocks are shaped by when we were born and when we spent our formative years, rather than by our research and analysis.

Were you born in 1950, you probably would espouse a rosy picture of investing in equities—having witnessed the market soar up and up during your formative years of age 13 to 28. If you were born in 1970 and spent your teen-to-young-adult years seeing a flatlined stock market, you would, understandably, be more likely averse to equities investing. Bonds would probably be your thing.

And the same circumstantial forces, Housel shows, profoundly shape our views of inflation (or, more specifically, how real of a concern it is to us as individuals).

All of which should be a bit sobering for those of us aspiring to make rational decisions concerning something as consequential as our hard-earned cash.

This ties into a larger point that Housel makes throughout the book and masterfully returns to at its end—namely, that we all are prone to overconfidence in matters of money; we are very likely not to recognize the limitations of our knowledge or notions. We fall for “appealing fictions,” as he calls them, with alarming ease. We often want something to be true to the degree that we ignore the clues or inklings—or facts, even—that might lead us to take a step back and reconsider our opinions: for example, playing the lottery, going in on get-rich-quick schemes, or simply not thinking about retirement savings until it’s too late.

But when it comes to a family’s finances, all of this can have disastrous consequences or, at least, greatly limit our potential for financial freedom and the benefits it brings—which Housel extols often and with sound reasons.

Housel is both refreshingly modest in his advice and humble in his self-assessments.

One point that he makes, and that resonated with this reader, is that sometimes we might not always make the most rational decision financially, but that’s OK if we’re at least making a reasonable one. Housel illustrates this with the decision that he and his wife made to purchase their home with cash rather than a low-interest mortgage, which would have allowed for greater investing over the ensuing 30 years or so. While it was a decision that’s hard to justify purely in terms of cold spreadsheet numbers, it was the decision that the couple felt best about. In the end, it’s worth a lot to be at peace with your decision and to sleep well at night. Amen to that.

Similarly, wise counsel comes in the form of avoiding extreme financial behavior. (At times, financial boot camp-like behavior might seem justifiable if, for instance, you suddenly realize at age 50 that you need to start saving for retirement.) Overly proactive measures are, of course, laudable, but Housel advises more of a “golden mean.”

The most successful course of action is going to be that which is sustainable in the long term. And the more extreme one’s financial conduct, even if on the frugal end of the spectrum, the less likely it is to be maintainable. Burnout is all too real of a risk.

Many other nuggets of financial wisdom are to be found throughout Housel’s treatise: that wealth has more to do with savings than income; that you need to plan on things not going according to plan; that some things are just not worth risking financially; that you can’t count on the (financial) past to repeat itself. And so on.

Housel’s book, thus, joins gems such as John Bogle’s “Enough” in being as much a book of financial wisdom as it is strategy. It makes for a terrific big-picture complement to the more nitty-gritty, how-to money books such as Dave Ramsey’s “Total Money Makeover.” Happily, the two jibe nicely.

This is the kind of book that you wish you had read decades ago. It’s something you would be delighted to give to a thoughtful high school grad, college student, or just about anyone.

My one bit of advice: The sooner they read it, the better.