2. We Are All Clever ( The Psychology Of Money )

No one's crazy, the nature and behaviour of each person is different, and the way one person thinks also vastly varies from another. Something good in my opinion, may be bad in yours, and that's which you like so much may never be liked by me; which means our perceptions are different from one another. And we often judge the world and the People based on our perceptions. Apart from this, people have different experiences, and we form our perception about that particular thing based on that experience. The way people have different perceptions about different things. In the same way, people have different perceptions about money.

 

If a poor man earns 10,000 rupees a month, it will be a big thing for him, while some spend rupees 10000 on shopping alone. The truth is that we learn far more from our experiences than we learn from books. Only the person who has incurred huge losses in the stock market can experience this loss, and he alone can learn something from that experience. Regarding this, economist Michael Batnick, says the lesson of Life must be experienced before being understood. In 2006, two economists Ulrike Malmendier and Stefan Nagel of the National Bureau of economic research conducted a survey on consumer finances. The purpose of this survey was to find out how the average American used his money. Theoretically, it was believed that the conclusion from the survey would be that, most Americans plan their investments according to their financial goals, and whichever investment option was available to them, they must be investing accordingly. But this survey put forth an interesting finding.

 

 In the survey, it was found that most Americans did not invest as per their financial goals, rather most Americans invested based on the experience in their lives. That is whatever experience they had from childhood to adulthood was the basis on which their Investments were made. If you have faced dearest or expensiveness and burns childhood, then you will never invest your money in bonds. If you have seen the stock market rise, then, you'll surely invest your money in the stock market, while if you have seen people incorrect losses in the stock market, then you would never like to invest in the stock market. The author says, the bar or willingness to take risks that we have in us is achieved only when our personal experiences, and this bar or willingness is not a result of our education or intelligence. But these are derived solely from our experiences.

 

For example, let us suppose that your father, lend some money to your relatives when you were a child, and that money is yet to be returned. Then you might think that one must not lend money to one's relatives or friends. In the same way if your father had taken a loan and he could not repay the loan and he experienced a financial crisis, due to the non-payment of that loan, then this will lead you to think that one must not take loans. It means that we make financial decisions based on our experiences, the author says, whatever decisions we make regarding our money. We justify it with the information at hand. And we mould that decision according to our unique mental model. It means whatever financial decision a person makes is sensible to him, then he thinks that, the financial decision he is taking now is best for him. He will tell you about his financial experience, to give the rationale behind his current decision. Such people are mostly misinformed or they have incomplete information or they have been misled.

 

For example, let’s talk about a lottery ticket. These lottery tickets are mostly purchased by poor people. And the time of purchasing the ticket. They feel that they have made a very good decision, because they must have seen someone getting rich by purchasing lottery tickets. Their mental model Works, in a way that lets them believe that one can become rich through a lottery or earning money through some shady activity and not through hard work. The result is that these people purchase lottery tickets or take a shortcut.

 

Our Behaviour towards money is filled with crazy and childish idiosyncrasies. Something that seems crazy to you, maybe you very sensible for me. In reality, none of us is stupid in matters of money. All of us are clever. The only difference is that we make use of money based on the experiences in our life. That is why in matters of money, we must never think of someone to be stupid or crazy. We must understand that, whatever one is doing is based on the experiences of his life.

 

Thank you, and have great day.