Huberman Lab
Understand & Apply the Psychology of Money to Gain Greater Happiness | Morgan Housel
Mon, 02 Dec 2024
In this episode, my guest is Morgan Housel, an expert in private wealth generation and management and author of the bestselling book The Psychology of Money. We discuss how desiring, pursuing, saving, and spending money impact our psychology and perception of wealth. We explore why people tend to either overspend or oversave and examine the most common mistakes made in the pursuit of financial freedom. Additionally, we discuss how to best use money — and one’s relationship with it — as a tool to create psychological security, freedom, and a deeper sense of life purpose. We also delve into the impact of purchases, social media, and wealth signaling on our internal reward circuits, the dangers of using money as a gauge of career progress or self-worth, and the healthiest psychological stances to adopt while building wealth at any level. By the end of the episode, listeners will have gained numerous practical tools for making smarter financial decisions and should have a clearer understanding of the role money plays in their psychology, happiness, and life. Access the full show notes for this episode at hubermanlab.com. Pre-order Andrew's new book, Protocols: protocolsbook.com Thank you to our sponsors AG1: https://drinkag1.com/huberman Wealthfront**: https://wealthfront.com/huberman BetterHelp: https://betterhelp.com/huberman ROKA: https://roka.com/huberman Function: https://functionhealth.com/huberman **This experience may not be representative of the experience of other clients of Wealthfront, and there is no guarantee that all clients will have similar experiences. Cash Account is offered by Wealthfront Brokerage LLC, Member Finra/SIPC. Promo terms and FDIC coverage conditions apply. Same-day withdrawal or instant payment transfers may be limited by destination institutions, daily transaction caps, and by participating entities such as Wells Fargo, the RTP® Network, and FedNow® Service. New Cash Account deposits are subject to a 2-4 day holding period before becoming available for transfer. Timestamps 00:00:00 Morgan Housel 00:02:13 Sponsors: Wealthfront & BetterHelp 00:05:11 Spending Habits & Cynicism 00:08:44 Tool: Money & Future Regrets 00:16:07 Money Management Extremes; Credit & Hope 00:23:17 Money as a Tool, Happiness, Independence & Purpose 00:27:30 Sponsors: AG1 & ROKA 00:30:11 Unstructured Time; Independence, Identify & Money; Addiction 00:39:04 Longevity, Health & Money 00:47:42 Ambition, Social Media, Fame & Social Debt 00:53:37 Sponsor: Function 00:55:24 Resume Virtues vs. Eulogy Virtues 00:57:52 Compound Interest, Math vs. Behavior 01:01:42 Dopamine & Time, Marshmallow Test & Distraction 01:09:58 Motivation, Pleasure; Relationships 01:14:38 Freedom, Tool: Savings & Independence 01:19:06 Peak-End Rule, Autonomy & Independence; Elder vs. Elderly 01:24:07 Familial Wealth & Identity; Entrepreneurs 01:31:53 Life Purpose; Dogs; Social & Historical Comparison 01:39:58 Social Comparison & Geography, Angst 01:46:07 Carrot vs. Stick, Identity, Tool: Verb States & Energy 01:56:43 Envy & Spending Money; Wealth & Birth Rates 02:01:27 Tools: Parent Modeling; Resentment, Individual Goals 02:07:15 Purpose, Happiness & Money 02:13:05 Zero-Cost Support, YouTube, Spotify & Apple Follow & Reviews, Sponsors, YouTube Feedback, Protocols Book, Social Media, Neural Network Newsletter Disclaimer & Disclosures Learn more about your ad choices. Visit megaphone.fm/adchoices
Chapter 1: What does Morgan Housel say about the psychology of money?
Welcome to the Huberman Lab Podcast, where we discuss science and science-based tools for everyday life. I'm Andrew Huberman, and I'm a professor of neurobiology and ophthalmology at Stanford School of Medicine. My guest today is Morgan Housel. Morgan Housel is a partner at the Collaborative Fund and an expert in private wealth generation and management.
He is also the author of the spectacularly bestselling book, The Psychology of Money. And today we talk about the psychology of money. We talk about how money can change your psychology. We talk about how most people tend to lie at the extremes of either saving too much money or spending too much money.
And we talk about how most people get it completely wrong when it comes to framing in our minds what money is, what its real value is, and its ability to generate happiness within us. And no, I am not going to tell you, and Morgan is not going to tell you, that beyond a certain dollar amount, you don't increase your happiness.
Because as we all know, money cannot buy happiness, but it can buffer stress. We acknowledge that from the outset. And then Morgan goes on to explain that really what we're seeking when we talk about seeking wealth or money, is freedom. Freedom is really about independence. And that if we are constantly in pursuit of wealth, well, then we are not truly free or independent.
So today's discussion is as much about being happy, being free, feeling independent, feeling free of stress as it is about this thing that we call money. So in other words, Morgan explains not just how to generate and manage monetary wealth. He explains that, but he also explains how to organize your life in and around this thing that we call career, the pursuit of wealth and happiness.
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Chapter 2: How do spending habits affect our happiness?
And I can think of few topics as important as today's topic. I read Morgan's book, The Psychology of Money, and I loved it. I also loved today's discussion because I'm certain that after it's done, you will realize that you've probably been thinking about wealth and money incorrectly in a number of ways, and you've probably been pursuing it incorrectly in a number of ways.
But by asking yourself certain probe questions that Morgan raises today and answering those questions, you can arrive in a place where your relationship to money and your pursuit of it really clearly matches your particular goals. Before we begin, I'd like to emphasize that this podcast is separate from my teaching and research roles at Stanford.
It is, however, part of my desire and effort to bring zero cost to consumer information about science and science related tools to the general public. In keeping with that theme, I'd like to thank the sponsors of today's podcast. Our first sponsor is Wealthfront. I've been using Wealthfront for nearly a decade as my high yield cash account and I absolutely love it.
Personally, I'm sometimes hesitant to invest money given the risks involved. So I often prefer to keep it in my Wealthfront cash account where I'm able to earn 4.25% annual percentage yield on my deposits and you can as well. With Wealthfront, you can earn 4.25% APY on your cash through partner banks until you're ready to either spend that money or invest it.
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This has been a paid testimonial of Wealthfront. Wealthfront brokerage isn't a bank. The APY is subject to change. For more information, see the episode description. Today's episode is also brought to us by BetterHelp. BetterHelp offers professional therapy with a licensed therapist carried out entirely online. Now, I've been doing weekly therapy for well over 30 years.
Initially, I didn't have a choice. It was a condition of being allowed to stay in school. But pretty soon I realized that therapy is an extremely important component to overall health. Now, there are essentially three things that great therapy provides. First of all, it provides good rapport with somebody that you can trust and talk to about any and all issues you want to.
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Chapter 3: What role does credit play in our financial decisions?
he had hope because he could tell himself, one day I'm going to have money and all these problems will go away. And then when he was rich and depressed, he was still depressed and he lost all his hope because he had more money than he could ever spend. So he could not tell himself, if only I had more money, these problems would go away.
And so for a lot of people, the availability of credit is giving them, I think, a false sense of hope that's keeping them on this hamster wheel of, if only I had this bigger house, this nicer car, all these problems that I wake up with every morning would go away. and it keeps you on that path.
Which I think if you actually don't have access to that much money, you're more likely to wake up and say, what is this hole? I need to fix it in a different way. It's health, it's relationships, it's purpose, whatever it might be, rather than trying to put a bandaid of credit over it.
So interesting. I sometimes think about the phrase, money can't buy happiness. And my immediate impulse is to respond with, well, somebody with a lot of money probably said that. Not because I think money can buy happiness, but Money can buffer stress. I have friends who've had children recently who have night nurses. They're looking a lot
more rested than the ones that don't because they can't afford them. And on and on. If you have a medical issue, right? I mean, there's this whole world within hospitals that we won't talk about in this episode, but there's this whole world about wealth and how one is actually even treated as a person in a hospital.
There's a lot of knowledge behind the scenes about people's income level when they come into a hospital. People are going to go wide-eyed when they hear this. They'll get shuttled to different rooms, different conditions that allow them to sleep better, recover better. Health outcomes depend on this. I mean, and on and on.
So money can't buy happiness, but it certainly can buffer stress and it can drive outcomes. So how should we frame that, especially if we are on the – or in the pursuit of acquiring more money, more wealth? Because a lot of people are.
Money absolutely can buy happiness. It's often though an indirect path. And what I mean by that is, will a big fancy house make you happier? And the answer is probably yes. But the reason it might is because it'll make it easier to host friends and family. And that's what's actually making you happy. It's those extra connections with those people. Does going on a nice vacation make you happy?
An expensive vacation? Yes. Because you're going to form memories with your kids, with your spouse, with your friends while you're there. That's what's making you happy. So you can't say that money doesn't make people happy. It does. It obviously does. The other thing that's important is what really makes people happy in their core is some sense of purpose.
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Chapter 4: How can we use money to find purpose in life?
Even though he didn't need more money. Absolutely. This is interesting because people who do achieve a high degree of wealth at a young age seem to keep going. And we could make all sorts of assumptions about why it is that they do that, expectations from others that their ego –
Literally their sense of self in some way or perhaps entirely is tied to the sense that they're still in pursuit, that it's somehow a failure to opt out at that point. I mean we can speculate all day, but what this guy Felix said really rings true. It seems like once people reach a number – and for everyone it's going to be different. It's not going to be a billion dollars for everybody.
Once they have enough resources for themselves and the people they need to take care of, maybe a bit more as a buffer – It makes no sense to continue on that path.
Well, I think there are a lot of people. I think you're one of them and I'm one of them who enjoy what they do. And if you and I got to a point where we're completely financially independent, all the money we'll need for the rest of our life, I would still be a writer. You would still do your research because we enjoy it.
Yeah, absolutely. I love learning.
It's not just, right. And I think if actually, if you are the kind of person who says, once I hit my number, I'm done, you probably don't love your work at all. Almost by definition, you don't. I think what's dangerous though, is when the money itself is part of your identity. I like being a writer. I like the process of writing.
But if I were to say, I have to keep writing books because I need to make more money. I just, I have to have a higher net worth, particularly if I'm past the point of taking care of my family. Then at that point, I think money is actually like a liability. It's a financial asset and a psychological liability. It's taking control over what you're doing in life.
If you're saying, I have to have more of it. I mean, if there's anything in life where you're like, I have to have more. And even when I get more, my satiation point goes higher and higher. What is that? It's an addiction. And it's controlling you at that point. So there are a lot of people for whom money is a financial asset and a psychological liability.
And I think that's actually true for some of the richest people in society. that the more like it grows exponentially over time, the richer you become, the more addicted to having more grows on you.
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Chapter 5: What are the dangers of comparing wealth with others?
And it is true that when you start to layer in all the basics of do's and don'ts, all the behaviors, and then you start to augment that with a few extra things, you get the sense of more vigor that sort of suggests they may live longer, but we still don't know. We still don't know.
With the exception of exercise that we absolutely know can enrich mitochondrial density, give people more energy and vigor, et cetera, most of this is still a big question mark.
See, I can see a very wealthy person using their money if you are very sick and you have a rare cancer to throw the kitchen sink at it.
Oh, every excellent doctor.
Those million dollar therapies and whatnot, absolutely. I think it's a different animal if you are already pretty healthy to say, I'm going to throw my money at trying to become immortal or close to it, whatever it might be. That's a different thing.
I totally agree. And I think what we're talking about here is, you said it Fairly quickly, but I think I want to highlight it because I think it's really important that even people who have billions of dollars still have a sense of yearning for something that's missing or that they don't have. And in some cases, that's the sustaining factor to their well-being.
You say it's also good to be in pursuit.
Maybe that's with dopamine too, right? We always want more. It's the pursuit of more. And if you're wealthy enough to have everything, you still have a part of your brain that's like, yeah, but I want more. I want more. I want more.
And if you've exhausted the physical part of the world, that material part of the world, and let's leave aside the billionaires, even the average ordinary American family that owns a modest house, owns a car that functions well, owns nice clothes, will send their kids to a state school. By a lot of historical definitions, they have everything.
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Chapter 6: How does dopamine influence our relationship with money?
Chapter 7: What is the importance of unstructured time?
Yeah.
So I think social media gives us not just the sense of what's out there, but it gives us very salient examples of people that went from completely unknown to extremely known. Just this last year, there's the, you know, the so-called Hawk to a girl, you know, it's interviewed outside a bar. So she now has a very popular podcast. She has sponsors. She's known.
Literally became one of the most famous people in the country. Right. And has a financial stream now of income through her podcast.
And so this raises the sort of idea in people's minds or the possibility, however remote, that if somebody puts a camera in front of you, by virtue of one thing that you say, you could suddenly be an internationally known person and potentially go from quote unquote rags to riches. Right.
If you look at the studies, when you ask teenagers, what is your preferred career? What do you want to be when you grow up? It used to be astronaut. It used to be doctor. It used to be entrepreneur. Now it's influencer by far is what people want to be. It seems like the quickest path to fame and wealth. And for a lot of people, it is. My sister-in-law is a kindergarten teacher.
She has a girl in her class who has over a million followers on YouTube as a kindergartner. Like that didn't exist when you and I were kids or it was so rare. But now like enough people know stories like that, even if there are a few of them, enough people know stories to give you the sense of hope of like, well, if they could do it, I could do it too.
Well, I'll tell everyone out there that if you think that fame is what you want, fame restricts your freedom. It does not increase your freedom.
There's a great quote from Duval where he says, what you want to be is rich and anonymous. That's the sweet spot that you want to be. The opposite, you are poor and famous. And that's the hardest spot to be in.
But if you can be rich and anonymous, because I think there's a really important concept with money that I call social debt, which is when the money that you have influences, it changes how other people think of you and even maybe how you think about yourself. And you can measure your asset. It's not actually debt.
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Chapter 8: How can we make smarter financial decisions?
or there's some feature of that profession that keeps them, you know, looped in in a way that feels satisfying the people, et cetera. Most people are kind of thinking like, all right, how do I work to make a living? And then, you know, like what's the exit ramp?
People think a lot about exit ramps and sometimes it's a dollar amount, but also it's the idea that maybe, you know, go work on their real love, which might be like gardening. They want to, you hear about these sort of hobby interests, right? I'll go, I'll write poetry or I'll, you know, go, you know, ceramics or something like that. The things that they truly enjoy doing.
How should people optimize along those musts versus want tos versus sort of aspirational goals?
Two things come to mind here. One is like if... Most people understand inherently the dangers of communism or something. If the government's telling you what to do, when to do it, what to say, that's a bad thing. It's going to erode society. But a lot of those people work at a job where their boss tells them what time to come in, what to wear, what to say, how to act, whatnot.
So they really understand it fundamentally at one level, but they're actually doing some version. Now, companies have to manage their employees, whatnot. It's not a knock against that. But I think what's really true for independents and people, if they eventually move on, to writing poetry and playing in their garden, whatever it might be, is that you leave on your own terms.
That whatever your exit from your career was, was because you wanted to do it on your own terms. So the thing in psychology called the peak end rule, where to simplify it, minimalize it, a lot of how you remember any endeavor that you did in life, a career, a vacation, whatever it is, is how you felt at the very end. And for a lot of people, if you have a great career,
You enjoyed your career, you helped people, you made money, your colleagues appreciated you, but then you got fired or your boss came to you and said, you're too old to keep doing this. That's bad. You'll never recover from that. And you compare that to the people who quit on their own terms. They said, look, I'm proud of my career, but that's enough.
I'm going to take a step back and pass the baton to another generation. Those are the people who, even if they didn't really enjoy their career that much, will look back at it fondly because it gets back to freedom and autonomy and control. Do you leave on your own terms or are you forced out on somebody else's schedule? Yeah.
And so I think maximum, wherever you go in life, whatever you're doing, even if you're not an entrepreneur, maximizing for independence and autonomy and doing it on your own terms, on your own calendar is absolutely vital in anything you're doing. I mean, most people are not necessarily, particularly as they get older, are not necessarily scared of death.
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