This is the first in a series of emails and posts that deal with our relationship to money. Most of this is based on the work of Morgan Housel, the author of The Psychology of Money.
I’ve read that Jack Welch, the former CEO of General Electric was asked what he was thinking after suffering a massive heart attack where death was likely. He replied that he didn’t spend enough money.
Sounds odd for someone worth $720 million, right?
He explained it by saying when he was young he didn’t have two nickels to rub together and he was cheap personally. If he bought wine, it was cheap. After the heart attack, he swore he would never buy a bottle of wine that was less than $100.
That is what he took away from that life-changing heart attack.
You and I are products of our background, our childhood, and our parent’s attitudes around money. Our actions can defy logic. Our actions are personal and emotional, and can be odd when viewed from the outside.
How you spend money speaks to what you find valuable, who you want to be with, what you spend your time on, why you do the type of work you do, and how you want to be perceived by other people (even if they don’t care or notice you).
There is no rule book on how to spend money. In most situations, our parents and teachers have not provided instructions or guidance, and besides, everyone is different.
Here is item #1 that Morgan and I both noticed about how people spend money.
1. Your family background and past experiences heavily influence your spending preferences.
There was a Washington Post headline from June 1927 – the Roaring ‘20s, that said, “The more you were snubbed while poor, the more you enjoy displaying your wealth.”
This still explains, almost 100 years later, one aspect of how we spend money.
Following the lockdowns during Covid people appeared to spend money in a way that was labeled “revenge spending” based on the pent-up demand.
This is easy to see with wealthy adults who grew up poor, like Jack Welch. He chose to be cheap until he had a life-changing event.
Some wealthy people were teased or bullied for being poor. They buy things to show off and their revenge spending can be permanent.
A large share of the people who were shunned when they were young and poor and later created wealth buy the fanciest cars, flashy jewelry, and biggest homes. What they are trying to do is heal the wounds from their childhood. They want to show the world they’ve made it.
Look around and find out if the spending you see is to fulfill an ego or psychological need, even if “wound” is not the right word.
What do you think you will see? How about you?
To Your Prosperity,