Man In The Car Paradox — The Psychology of Money by Morgan Housel

This has been a very entertaining book to read. It’s one of those books you don’t keep on your shelf, but on your bedside table. The exert below hit home for me the most, throwing me into hours worth of reflection –

‘The man in the car paradox — when you see someone driving a nice car, you rarely think, “Wow, that guy driving that car is cool”. Instead, you think, “wow, if I had that car people would think I’m cool”. Subconscious or not, this is how people think. The paradox here is: people tend to want wealth to signal to others that they should be liked or admired. But in reality, those other people often bypass admiring you, not because they don’t think wealth is admirable, but because they use your wealth as a benchmark for their own desire to be liked and admired.’ — Morgan Housel

This made me think back to a thing Gary Vaynerchuk talks about regularly — how people work jobs they hate in order to buy things they don’t need to impress people that they don’t even like.

Earlier this year I sat a course in sociology, which is the study of society and its moving parts. Throughout this course, we pretty much did a full-scale sociological analysis on the single topic of happiness. This was extremely difficult because what the hell is happiness? It’s so hard to come up with a definition of happiness that every person agrees on, and this is evident because the definition of happiness differs between cultures. One area of analysis was economics and happiness and how they intersect. I had to write a 2,500-word essay arguing why the GDP (gross domestic product) of a nation is a poor measure for finding out the happiness levels of people within an entire nation. One of the arguments I used related to a study in the US that found out that the income threshold in which people’s happiness levels no longer increased with increases in income was $75,000. Once a person earns $75k, any increases in income will not make you happier. Of course, in the case of someone in the circumstances of poverty, any increase in income will improve happiness. But $75k seems to be where it stops.

Now, it would be nice to earn as much as you possibly can, but not at the expense of your happiness and health. This brings me to another lesson from this book — to learn when enough is enough. Everyone’s “enough” will be different, but find yours and don’t get greedy because that’s when you will start doing things you don’t want to do, thinking that it will eventually lead you to more happiness but it never does because you get stuck in a continuous loop of ‘chasing the dragon.’

So many money lessons to be learned from this book, lessons that have nothing to do with the hottest investment strategy or the next big prediction of 2022 for crypto or the stock market. These are money lessons with a basis in things like human psychology, philosophy and sociology. These behavioural tendencies around money impact the quality and quantity of the relationship we have with money.