Page 27 - Psychology of Money - Timeless Lessons on Wealth, Greed, and Happiness-Harriman House Limited (2020)

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We live paycheck-to-paycheck and saving seems out of reach. Our prospects
for much higher wages seem out of reach. We can’t afford nice vacations,
new cars, health insurance, or homes in safe neighborhoods. We can’t put
our kids through college without crippling debt. Much of the stuff you
people who read finance books either have now, or have a good chance of
getting, we don’t. Buying a lottery ticket is the only time in our lives we can

hold a tangible dream of getting the good stuff that you already have and
take for granted. We are paying for a dream, and you may not understand
that because you are already living a dream. That’s why we buy more tickets
than you do.

You don’t have to agree with this reasoning. Buying lotto tickets when
you’re broke is still a bad idea. But I can kind of understand why lotto ticket
sales persist.

And that idea—“What you’re doing seems crazy but I kind of understand
why you’re doing it.”—uncovers the root of many of our financial decisions.

Few people make financial decisions purely with a spreadsheet. They make
them at the dinner table, or in a company meeting. Places where personal
history, your own unique view of the world, ego, pride, marketing, and odd
incentives are scrambled together into a narrative that works for you.

Another important point that helps explain why money decisions are so
difficult, and why there is so much misbehavior, is to recognize how new

this topic is.

Money has been around a long time. King Alyattes of Lydia, now part of

Turkey, is thought to have created the first official currency in 600 BC. But
the modern foundation of money decisions—saving and investing—is based
around concepts that are practically infants.