Good reads from around the Web.
Are you a prudent saver who regularly runs the numbers on your potential post-retirement income?
Or are you a Scrooge McDuck who has fallen in love with money for its own sake?
The title of a John Authors’ article in the FT this week – Is Greed Good? No, It’s Seriously Bad For Your Health [Search result] – implies that this isn’t an academic question.
Authors even cites research suggesting it’s not just your physical health that could suffer from an excessive love of money, but also your financial health.
He writes:
Psychologists now have a clear definition for love of money. It is not about any instrumental need for money to fulfill our other goals, which all of us have, but rather about a love or need of money for its own sake.
Using the Money Ethic Scale developed by Thomas Li-Ping Tang in 1992, State Street developed an Investor Love of Money Scale (ILOMS).
Researchers asked interviewees in 20 countries a series of questions designed to find out how important money was to their self-esteem.
They also tested how they would respond in a series of financial situations.
For example, they would ask if money was a symbol of success, if they talked about it a lot, or if they wanted to be rich.
The results were clear. The more someone had an emotional attachment to money, the more likely they were to make mistakes with money.
A series of behavioural biases that lead investors into predictable mistakes have been diagnosed over the years. Avarice exacerbates all those biases.
The article goes on to list investing vices, from over-trading to buying high and selling low.
Being in love with money could be counter-productive, in other words, even for intentional money-grabbers.
Money, money, money
It’s a nice morality tale and life is more complicated, but I do agree that concentrating on wealth can at least change you as a person.
I’ve seen a bit of that in myself.
When you first start saving and investing, the idea that you’re in love with money feels fanciful.
Unless you inherited the family pile – literally – you start with nothing (or these days likely less than nothing, after student loans).
You’re just trying to be sensible, at a time when money is scarce, too.
However as the years go by, your wealth grows and snowballs. At some point it becomes so much that when you’re adding the sums up you’re looking at quite a wodge.
And you wonder.
Of course, you probably rationalize this wodge away – as I believe you should. It’s for financial freedom or to keep the lights on in retirement. Your friends might not nurture their nest eggs to the same degree, but they face the same challenges and have likely stashed some of their cash, too.
Being conscious of these challenges and actively trying to confront them doesn’t seem like the same thing as being in love with money to me. The FT quote I highlighted above agrees.
Then again, I know that in my 20s I seriously didn’t care much about money.
I saved it because I am by nature a saver.
But I earned a relative pittance compared to my university peers and I rarely thought about it.
I considered gambling away ALL my life savings in a business venture in my-mid-20s – and I did put about half of them into one in my early 30s.
I can’t imagine taken such proportionate risks with my wealth barely a decade later. Have I fallen in love with money?
I don’t think so. Rather, I know I’ve gotten older and I believe there’s less time left to make good.
That said, unlike most Monevator readers I have probably fallen in love with active investing and with keeping score.
