Book Review: The Psychology of Money: Timeless lessons on wealth, greed and happiness by Morgan Housel

The introduction laid out the book’s premise well – personal money experiences form your opinions and actions with it. A few scenarios highlighted by the author clarified something for me. Housel detailed experiences such as those who lived during the Great Depression – losing it all in the stock market. Contrasted with those raised in Australia – not having experienced a recession in 30 years. Or whether you were born into affluent, middle class or poverty situation. Those born in the 1950’s – reached their late teens and twenties and the stock market did nothing for a couple decades – forming their perception of the market. Compared to the person born in the 1970s, who experienced the roaring bull market of the 90s during their formative years with money. Reasoning through scenarios like this, helps me understand others thoughts and actions with money.

A few quotes from the introduction:

  • Explanation of a person’s willingness to bear risk, “Not intelligence, or education, or sophistication. Just the dumb luck of when and where you were born.”
  • Sharing how a janitor saved consistently over his lifetime and lived simply to amass $8 million at the time of his death, “…financial success is not a hard science. It’s a soft skill, where how you behave is more important than what you know.”

Following the introduction, Housel outlines his investment philosophy through these 20 lessons. Each one focuses on a different psychological trend he believes exists. He supports these tenets with data, charts, anecdotes and history – adding his personal experiences and insights.

Below are a few points that resonated with me in quotes and my thoughts:

Never Enough-

  • Response from popular Catch-22 author (Joseph Heller) when informed that a hedge fund manager made more in one day than he made over this lifetime of this award-winning book, “Yes, but I have something he will never have… enough.” This is so true in my experience; satisfaction yields huge improvements in quality of life. Keeping us from chasing higher incomes to meet ever-rising personal consumption demands. I’ve read many stories about professional athletes filing bankruptcy post-career – everything they consumed was never enough.

Confounding Compounding-

  • “$81.5 billion of Warren Buffett’s $84.5 billion net worth came after his 65th birthday. Our minds are not built to handle such absurdities.” I would agree that people’s minds aren’t built to handle such absurdities, but would add an *most people’s minds. There is a sub-set of the population that gets compounding intuitively (maybe 2%). And I feel strongly that it is our responsibility to advocate its powers to others.

Tails, You Win-

  • For the statisticians, the tails reference makes sense. The key point, “There is an old pilot quip that their jobs are hours and hours of boredom punctuated by moments of sheer terror. It’s the same in investing. Your success as an investor will be determined by how you respond to punctuated moments of terror, not the years spent on cruise control.” Housel highlighted the 2008 Great Recession – if you lost your nerve and sold out here, it cost you big. I did freak out and sold to cash early in the downturn, but waited way too long to get back in. I’m fortunate to have learned this lesson in my early 20s.


  • “Gerontologist Karl Pillemar interviewed a thousand elderly Americans looking for the most important lessons they learned from decades of life experience…. Your kids don’t want your money (or what your money buys) anywhere near as much as they want you. Specifically, they want you with them, Pillemer writes.” Enough said, this is the primary driver of my pursuit of FI.

Save Money-

  • “Past a certain level of income people fall into three groups: Those who save, those who don’t think they can save, and those who don’t think they need to save.” – I’m reminded of the Yoda quote, “There is no try, do or do not.”

Surprise! –

  • From investor Bill Bonner, “Few things stay the same for very long, which means we can’t treat historians as prophets.”
  • “The 401k is 42 years old. The Roth IRA is younger, created in the 1990s. So personal financial advice and analysis about how Americans save for retirement today is not directly comparable to what made sense just a generation ago. We have new options. Things changed.” Eye-opening when I consider how recent it is for the general public to have this accessibility to the market. Brokerage platforms like Robin Hood have revolutionized the brokerage industry by eliminating commissions and gamifying investing. What effect will this access have on the markets? The rules are constantly shifting and the past does not perfectly predict the future.

The Seduction of Pessimism-

  • “But pessimism holds a special place in our hearts. Pessimism isn’t just more common than optimism. It also sounds smarter.” This is so true and it’s the reason that pessimists are often the loudest and most followed in the media. Permabears will be right eventually. However, the opportunity cost of following that advice over the long-haul will cost you far more than being right that one time.


  • “If there’s a part of our household financial plan I’m proud of it’s that we got the goalpost of lifestyle desires to stop moving at a young age.” I have observed over the years friends and acquaintances continually trading up on everything: homes, cars, travel, clothes, food, etc. This pattern keeps you stuck on the treadmill longer and longer. Housel included a chart on “Median square feet of a new American home”. It showed an increase from around 1500 sq. feet to 2250 sq. feet from 1970 to today – that’s a 50% increase. In my experience this extra space gets filled with more stuff, because we can’t have empty rooms – perpetuating the consumption lifestyle, around and around we go.

The book was such a quick read for me – less than a week. Attributed to Housel’s concise writing style and subject matter. I flew through the pages. A key takeaway for me – I read this so fast that to extract these nuggets I had to go back and skim through with sticky notes. For future book reviews, I will keep a stash of sticky notes handy for the initial read and digest more slowly – chew my food.

The epilogue of the book changed gears and focused on the rise of consumer spending and debt over the last century. I enjoyed all the facts and data. I think this material could be expanded to another book entirely.

Overall, I enjoyed the book and would recommend it. Housel’s focus on each of these different angles of personal finance psychology with the data to support each reminded me of Freakonomics – a big compliment because I loved that book. Housel backs his tenets up with data. Because there are 20 and the overall topic is personal finance, many of them blend together with a casual read.

This is a great book for personal finance and data nerds like me. Writing style is clear and concise and blends the author’s personal experiences with the tenets and supporting data well. It would not be the in top 3 first books I would give to someone just beginning their personal finance journey. This is an intermediate level book.

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