The Psychology Of Money In Practice

Last week, I was in Las Vegas and Phoenix for a mix of business and pleasure.  I had several interactions that provided real-life, end-game examples of what I wrote about in my last blog entry about the book The Psychology of Money, and now I have to share them.....

Vegas is a great venue to observe how people spend money.  More than anywhere on earth, it's a place to stay in your lane when it comes to money, because the opportunities to spend are relentless.

For those who could afford it, the Vegas strip has expensive, even exclusive places to stay, eat, shop, and gamble. For others, the strip has options for more modest lodging, fast food, convenience stores, and yes, gambling.

I saw people staying at $1,000 per night hotel rooms, and I saw people staying at $100 a night rooms.  I saw people dining at celebrity chef restaurants where no prices are posted, and I saw people eating at food courts. I saw people carrying Gucci and Tiffany shopping bags, and I saw people carrying CVS shopping bags.  I saw people playing $100 minimum blackjack, and I saw people playing penny video slot machines.

The psychology of money matters a lot in Vegas.  If a person has a disciplined spending psyche (or is very wealthy), Vegas is a fun and amazing place.  If a person doesn't have a fiscally responsible psyche, Vegas will chew them up and spit them out.

Phoenix provided a more specific example of the psychology of money.  Late winter golf has always been expensive there, with most courses charging well over $100 per 18-hole round.  Above-average resort courses charge far more, some exceeding $500 per round.  Regardless, all golf courses there are packed with players at this time of the year, so prices are much higher than normal.

My attitude has always been one of being willing to pay these higher prices.  By this time of year, I haven't played for a few months, so I haven't spent anything on golf for a long time.  I'm perfectly willing to spend up that savings on winter resort golf.

Meanwhile, other golfers I know who travel or winter there -- people with a materially similar or greater net worth -- won't spend that for golf.  They don't want to pay more than would at other times and places during the year, so they either don't play, or they only play on the lowest-priced (worst conditioned) courses.

In summary, my mindset is, it's more than I want to spend on golf, but I'm willing to do it.  The others' mindset is, it's more than they want to spend, and they aren't willing to do it.

These opposing views are another manifestation of the psychology of money.  Being able to afford / not afford things is one subset.  Being willing to buy / not buy them is another.

The Psychology Of Money

I recently purchased a book called The Psychology of Money.  Not just one book, but dozens of them, which I gave to clients.

It isn't the best finance book I've read, nor is it close to being the best behavioral book I've read.  But it is one of the better behavioral finance books I've read.

I'd summarize it this way -- The Psychology of Money explores the different ways people think about money, and how personal experiences with family, friends, and neighbors will often influence their financial behavior – for better or worse.

Put differently, if a person is around others who are (un)disciplined with money, they're more likely to be the same way.  That may not be a revelation, but it should also make one think about how the same philosophy can be applied to other things.

If you're consistently around people of a certain political view, you're more likely to share it.  Same for religion.  Same for social issues.

This makes it pretty simple to understand the formations of group-thinking a/k/a cultish behavior.  The lack of exposure to other views leave one to believe there are no alternatives.

I'm old enough to remember when the internet was supposed to solve all of this.  It made the world smaller and accessible, so presumably humans (with internet access) would be able to see humanity in a broader context.

Unfortunately, that idea has come crashing down under the weight of unregulated social media apps.  Now people just follow other people online who think the same way.  And let's face it, some of this people are ignorant and malevolent, increasing the likelihood their followers will be that or worse.

Which brings me back to the broader lesson of The Psychology of Money.  You learn what you live, which may or may not be a good thing.