The Psychology of Money – Book Review

Money – when taught – is usually put across as a “maths-based” subject. Yet knowing about money is not just about being able to add and subtract. It is also about knowing how it impacts your mindset, beliefs and behaviour. In his hugely accessible book, Morgan Housel explores how to manage money in a way which leads to lasting happiness – using 19 compelling short stories to show us how to create wealth rather than become controlled by materialism.

When you see a sports car drive past, which thoughts spring to mind? For the person driving, they might hope that you think: “Gosh, that person is rich!” Yet this rarely happens. Instead, we tend to think about ourselves: “If I had a car like that, then I’d be rich and successful.” Using such examples, Morgan Housel shows in The Psychology of Money how we can feel led to buy things which we do not really need, and which often fail to deliver the result we hoped for. Yet how do we identify the ways in which money influences are behaviour and live wiser, happier lives? This book offers some compelling answers.

Housel drives forward the importance of creating wealth – and shows how even those on a lower income can do this. In Warren Buffet’s words, wealth creates options, flexibility and freedom. There is happiness to be had by living within your means. Wealth, however, is often something unseen; taking the form of investments in the stock market where your holdings gradually grow in value over many years. To illustrate, Housel offers a fascinating story.

Ronald Read was a janitor and gas station attendant born in the 1920s. He lived an unnoticeable lifestyle until he died in his 90s, leaving an $8m dollar estate to the local hospital and to his stepchildren. He achieved it by investing for the long term and living within his means, finding ways to live happily without buying lavish items which he did not feel he needed.

Plenty of people in history seemed to have plenty but wanted more – leading to ruin. Housel helps the reader to see that capitalism, for all its benefits, creates a never-ending comparison game where many of us feel the need to “keep up with the Joneses”. Yet this comparison game, ultimately, can never be won. Indeed, the way to win it is to not play it at all.

Overall, this is a great book for those looking to bring greater control, clarity and happiness to how they regard and manage money. As the author so brilliantly puts it, true wealth is freedom. The highest form of it is the ability to do what you want, when you want, for as long as you want and with who you want. This book will show you how to move closer to that vision of wealth in your own life.