Sense and Cents-ability
Real Report by Georgie Loxton.
Words by Georgie Loxton, CFA, Founder, Liberty Wealth Partners.
The first public surgery with anaesthesia was in 1846. It was not until more than 20 years later when Joseph Lister extolled the virtues of cleanliness in surgery that the mortality rate for patients fell. Since then, surgical procedures have come along in leaps and bounds. Doctors now routinely replace entire organs and carry out more complex procedures every year.
Money, in contrast, is thought to have been around since 600 BC when King Alyattes of Lydia created the first official currency. That’s a long time ago – yet there is little evidence that we have learned much about money.
This thing that we touch daily is intertwined in everything that we do. It carries our hopes and fears, our most cherished dreams, our shame and regret. It weaves its way into our relationships. It frustrates and it confounds. It is fundamental to our survival, yet we are never really taught anything about it. We are sent out into the world with knowledge of trigonometry and the Greeks, but we are left floundering when it comes to our money. I have come to learn that it doesn’t matter how much or how little we have. Most people are never told how to manage their money well. In fact, most people are never told what it is even for.
Morgan Housel writes, “Through collective trial and error over the years we learned how to become better farmers, skilled plumbers and advanced chemists. But has trial and error taught us to become better with our personal finances? Are we less likely to bury ourselves in debt? More likely to save for a rainy day? Prepare for retirement? Have realistic views about what money does, and doesn’t do, to our happiness?” The news every day tells us the answers to those questions. It’s amazing when you stop to think about it. Money hasn’t got any easier for us today than it was hundreds of years ago.
The answers aren’t easy, because there is no single right answer. As someone once said, personal finance is much more personal than it is finance. Life doesn’t fit neatly onto a spreadsheet. Humans don’t behave according to the formula or the theory. Perhaps we should start by accepting we aren’t rational. As behavioural economist Dan Ariely states, we are predictably irrational. We can be taught the finance, but it is the personal bit that causes us trouble.
Our unique experiences of the world and the relationships we have dictate how we think about money. Someone who grew up in the Great Depression thought very differently about stocks and investing than someone who came of age in the 80s or 90s. Morgan Housel writes, “Everyone has their own unique experience with how the world works. And what you’ve experienced is more compelling than what you learn second-hand. So, all of us – you, me everyone – go through life anchored to a set of views about how money works that vary wildly from person to person.”
If you are sick, a doctor will usually lay out different treatment options. They can give you facts and statistics and probabilities but the path you choose will depend heavily on your life experiences and the relationships you have. So, it is with money. Whilst there are spreadsheets, and calculators and formulas, there are many different ways in which we can apply what we know. Maybe we have to accept that it will never quite make sense.
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