394. Psychology Of Money

So-called smart people brag about their math skills by punching numbers to prove that money management is all about logic. So they seek the highest return and the best deals for every financial decision, and bash the decision that promises average return. But what many of them overlook is the emotional nature of money decisions. That is why, human psychology must be considered when we talk about money.

There is a book called “Psychology of Money” written by Morgan Housel. His argument is pretty simple: People who got successful with money often confess that they were “lucky”, not “smart”. Warren Buffett, one of the greatest investors, also confessed the same.

Another interesting finding was that most of them did not seek the highest return, but they sought to be “reasonably” successful. Not everything was calculated down to the tee, and not all financial decisions were mathematically superior to other choices available to them. They understood that personal values and contentment were more important than the highest return.

One argument we hear a lot from money experts is that if the debt is manageable and its interest is lower than the potential investment returns, then it is foolish to pay off the debt. Some even borrow money to invest. Though mathematically sound, such advice also overlooks the spiritual aspect of money.

Apostle Paul said that the love of money is the root of “all” evil. (1 Tim 6:10) It means that greed is always lurking behind every decision we make. That is why debt is not just a “minus” in our net worth. Scripture also tells us a borrower is a slave to a lender. (Prov 22:7) There is a spiritual reality in debt and many people don’t account for it in their financial decisions. Debt reveals greed, and lack of discipline, which may need to be removed first, even though it may not make the best financial sense, for them to move ahead.

Tithing also isn’t just about numbers. It should decrease one’s take-home pay numerically, but once someone is free from the grip of money, people also move ahead as they no longer make financial decisions solely based on logic and greed.

Paying off all debt as soon as possible would be a wise choice regardless of the math and for many, it should be the priority. The number one reason that prevents Christians from being radically generous is the ever-increasing standard of living and unpaid debt.