The Psychology of Money

Abhijay Arjunan
11 min readApr 6, 2022


Front Cover of the book ‘The Psychology of Money’. It showcases a top down horizontal cross-section of a human brain in black and white with the ridges made to look like a meandering maze hidden within the brain. On closer inspection the ridges and walls of the maze seem to made of several American currency bills.
Audio book cover for ‘The Psychology of Money’

Overall tone and topic of the book.

This was my first audio book and I must say, I’m a fan of the method but it depends on how demanding the book is. I got lucky with selecting this book.

Not too heavy on concepts over 252 pages, 19 chapters long using simple words except for terminologies, makes for a quick listen. That doesn’t necessarily mean that there aren’t pearls of wisdom in every chapter though.

Overall it possesses some pretty common sagely advice that most of us who’ve been reading about and searching for information regarding investing wouldn’t already be familiar with. Investing veterans, you won’t find any new information here that you haven’t already heard.

However, don’t write off the book just yet. While there isn’t any advice on where and what to invest in, there is plenty of advice on the psychology behind it. It being Money, wealth, moolah, and greed itself. Which is infinitely much more valuable than the latest insider tip and hottest stock.

“Doing well with money isn’t necessarily about what you know. It’s about how you behave. And behaviour can be hard to teach.”

Often our biggest barrier to financial savings and future financial security is ourselves. To be more precise, it’s our habits and mindset.

The author elaborates on these habits, mindsets and how different people think about money through 19 short stories. (based on historical events and real-life instances)

Morgan Housel does a good job at explaining why our thinking towards the common commodity (money) is so skewed. How we’re not exactly to blame for our lack of understanding of its workings and its value. And why saving and investing is just so damn hard. A few questions he addresses in this book are:-

  • The role luck and risk play in our financial decisions and life. And how upbringing and being born in different time-periods shapes a person’s attitude towards both.
  • Why compounding is considered the seventh wonder of the world but is seldom visited by many on their financial journey. What makes it so counterintuitive?
  • What’s the difference between getting wealthy and staying wealthy? Is owning a flashy car a marker for poverty or class and wealth?
  • The ultimate question: Why do people need and want so much money?
  • And on popular request : How do I become a millionaire?

Money as a tool is a fairly new concept, well…. relatively speaking; and like any other tool, it has evolved as our usage of it has. We’re not taught or trained how to utilise this tool as children or as young adults.

It’s just expected of us to learn how to use it effectively while figuring out what we’d like to pursue as a career and maintain a decent sociable lifestyle. That’s a tall order.

And as expected not many make the cut. However, you could make life easier by reading the tools instruction manual, learn how to use the tool. Make it work for you, instead of you working for it. (That’s what assets are)

The most common way of doing this is parking your money into a financial instrument or commodity which generates interest and increases in value over time. However, the here and now is very real and tomorrow seems far away let alone 3, 5, 10, 20 or even 30 years from now.

As the author highlights in the very beginning “doing well with money has very little to do with how smart you are and a lot to do with how you behave. And behaviour is hard to teach even to really smart people.”

About the author

Who is Morgan Housel and why should I, you or anyone for that matter listen to what he has to say on investing? What’s the authority behind this book? What were its initial intentions?

Morgan Housel at the time of writing this is a partner at the collaborative fund. Which is a venture capital fund providing seed and early-stage funding to technology companies. Before that, he was a columnist at The Motley Fool and a contributor at The Wall Street Journal.

Morgan Housel

As the saying goes ‘most books should be blog posts, most blog posts should be tweets, and most tweets should be deleted’. This book is no different it was initially inspired as a blog post on financial advice that Mr Housel had written for his newborn son to gain advice and wisdom from. He’s taken those very points from the post and dwelled deeper into them. With the help of examples and instances of what a healthy relationship with money looks like and what it can achieve for you in your life.

So, it’s safe to assume that the man’s got the chops.

WAIT, did you just say that everything mentioned in this book is in a blog post? Yes. Yes, it is. Then why should I or anyone for that matter buy the book? I’ll just read the blog and be done with it. BOOM! I’m now going to be a millionaire! Yeah, if only life were so simple buddy, if only.

Sure, you could read the various individual blog posts. However, a blog is not nearly as comprehensive as a book. A book gives the author the benefit of time and space to get his ideas across. It’s a neat collection of the most relevant information tied together in a digestible and progressive format. Not to mention the human retention factor.

Most of us forget most of what we read and study and that’s all right. So assuming that your retention is about 25% and that’s a stretch, but okay, you seem like a smart person. You are reading my posts after all.

Then if we assume that the relevant blog posts from the above link are 20 pages in number. Your retention is about 5 pages. But if we hold the retention level the same for a 219-page book then you remember about 54.75 pages. Let’s say a book is hard to keep up with and we slash your retention in half down to 12.5%. You still hypothetically retain around 27.375 pages. So a book is always infinitely much better. It’s still your choice at the end of the day though.

Anyway, why this book? And why now?

I’m a 25-year-old undergraduate with a failed business, currently in the midst of a career shift preparing for multiple exams for further studies while simultaneously feeling like I should give starting a business another go. I’m in search of a career, in search of my future and filled with ideas and restrained optimism in a developing country. While on the cusp of a global industrial revolution, technological advances and unfathomable intellectual exchanges the likes of which no human has ever seen before. Need I say more?

No, but seriously it’s cause I’m 25 with only one source of income and I’d like to change that.

That’s all.

Which Chapter did I like the most?

  • No one’s crazy
  1. {spoiler}
    We all think we understand how the world works but we’ve all only experienced a tiny sliver of it. We’ve all had different experiences with money and have grown up in varying environments and circumstances. People are as varied as their experiences and their stories are, this is why we cannot agree on how to utilise and spend money. For example, the children of bankers approach risk from a much different angle than the children who grew up during a recession. Studying history could make you feel like you understand it and could have even foreseen things. But as they say, hindsight is always 20/20. And that’s exactly what history is-hindsight. It serves us well to remember that people are mostly rational and make decisions based on the information they had with them at the time. Very few people make decisions looking at a spreadsheet. Most pivotal decisions are made at dinner tables and company meetings while staring into the faces of near and dear ones. The faces of people who count on you and your decisions for their income and livelihood. Most pivotal decisions are taken in such places of personal importance where ego, pride, struggle and story mush together into a narrative that makes sense to us, to them. This is why it is humbling to remember that everyone is trying their best out there. No one is crazy.
  • Man in the car paradox.
  1. {spoiler}
    When you see an expensive luxury car on the road. How often do you see who’s behind the wheel? We judge wealth on these external materialistic markers. When in actuality these markers are a sign of poverty. You cannot know how much money the luxury car owner possess but you do know exactly how much they are poorer now by just googling the cost of the vehicle. Never before did I see things this way.
  2. There are so many more eye-opening moments that if I mentioned them all it would just be plagiarism. Which is exactly how I got through my undergraduate. Thank you… Wikipedia. So yeah, for more, buy the book.

Most moving/ Mind blowing chapter.

  • The seduction of pessimism.
  1. Very relevant for the Indian mentality. You absolutely must read his definition of an optimist. It is so logically sound that it would make your pseudo-existentialist thinker friends dumbstruck. And at a loss for words.
    Also, existentialism is about justifying and deriving meaning out of life by defining it for yourself. Essentially you give your life its meaning. Stop using it to justify your laziness, dickwad.
  • Room for Error
  1. {spoiler}
    The world is governed by odds, not certainties. The odds of the train being on time of you waking up on time, of traffic being easy on the way to work. We all account for these odds not being favourable when travelling. If we don’t on those days we are gambling with time. Every city has its own buffer travel time. The city where I live, Bangalore has a buffer time of 40 min to an hour. This ensures you reach on time to wherever you want or need to be. You could call this buffer time a margin for error. The point of a margin or error is so that you render a forecast unnecessary. You don’t need to constantly check traffic density on google maps towards work every morning if you know that it’s going to take you an hour in traffic to get there.
    Similarly looking at the favourable odds we tend to not notice the gigantic downsides to them. Housel terms this as ‘optimism bias in risk taking’ and refers to it as a cousin to ‘room for error’. Equating it to “Russian roulette should statistically work syndrome”. Think about it in Russian roulette, the odds are technically in your favour. However, the downside is so great that it doesn’t make any sense to play at all.
  • Wealth is what you don’t see.
  1. {spoiler}
    Similar to the man in the luxury car scenario. The difference between being wealthy and being rich is being comfortable with living within one’s means whereas the other is simply an income statement. If you followed all the lottery ticket winners in the United States then roughly 70 per cent of them will either spend or lose all of their winnings within 5 years. It doesn’t matter whether they win $500 million or $1 million. Life after winning the lottery may not stay glamorous forever. Money does not equal wealth.
    Wealth is the vacation you never took, the lavish meals and parties you never threw, the luxury brands and vehicles you never purchased, the unreasonably large house you didn’t buy, the ability to say no now. So that you may say, yes to everything later. Wealth is what you don’t see.

New words and sayings that I learnt.

Felicity: /fɪˈlɪsɪti/


  1. intense happiness.
  2. the ability to find appropriate expression for one’s thoughts.

Derived from the Latin word Felicitas meaning luck, good fortune. It’s a common feminine name.

Are the contents relevant to me and my surroundings?

Yes, very much so as I mentioned earlier I’m 25 and beginning on my path to becoming financially independent. This book might not help with capitalising on opportunities or financial instruments. However, it does a fantastic job at making the entire subject of financial health much less a herculean task than it seems to be. A good book for anyone willing to read and enter into the financial side of literature. A necessary stepping stone towards financial literacy.

My favourite quote in this book and why I loved it.

You already know it, it’s the one I mentioned earlier on optimism. I’m going to directly quote the book here.

“Real optimists don’t believe that everything would be great, that’s complacency. Optimism is a belief that the odds of a good outcome are in your favour over time even when there will be setbacks along the way. The simple idea that most people wake up in the morning trying to make things a little better and more productive than wake up looking to cause trouble is the foundation of optimism. It’s not complicated, it’s not guaranteed either. It’s just the most reasonable bet for most people, most of the time.”

I used to be a keen pessimist. I’d look at everything in the world sideways and think that optimists were bumbling happy go lucky fools whose luck would run out one day. That’s mostly how most pessimists view optimists. I’ve however matured and am now a mostly optimistic sceptic. Embodying the saying ‘to hope for the best and prepare for the worst.’ For what would we be without hope but vessels of wants and needs.

Who would I recommend this book for?

Everyone and anyone in their 20’s beginning their financial journey. It’s not too concept heavy, isn’t riddled with terms and definitions that need to be googled. Light, easy to digest and follow, and reasonable in its wisdom and expectations. There are many relevant, real-life examples and stories that drive the points made home. A great first read for financial literature.

Do I wish I had read this book sooner or later?

Earlier, maybe but as I said hindsight is always 20–20. Seeing that it was released in 2020 I’d say I was right on time.

Will, I read more by this author? Reread this book? If yes, which book would I pick up by next or why would I re-read this one?

I might re-listen to a few parts of this book in the near future. There just are so many good quotes and facts. I won’t be reading his other books -

  • Everyone Believes It; Most Will Be Wrong Morgan Housel
  • 50 Years in the Making

As they are not about subjects that I’d like to know more about.

So invest like an optimist but save like a pessimist. Work with your nature and not against it. Recognise your biases and plan with them in mind. Don’t try to fight it, instead plan around it. And remember, no one’s crazy.

Behavior is the centre of many different fields. A lot of important things in life fall under the umbrella of, “What is your relationship with greed and fear? Are you able to take a long-term mindset? How gullible are you? Who do you trust, and where do you get your information?” That’s all investing is.

Bubbles are not the result of high evaluations but the result of shortened timelines.



Abhijay Arjunan

I use Medium as a sounding board for the various ideas and observations I come across. And to occasionally vent about my long list of pending DIY projects.