What is your Money Quotient?

Money is something all of us need to deal with, most of the times during our lifetime. Thus, it is imperative that we learn as to how to develop our Money Quotient (MQ) and ensure sustainable financial health. As a thinker once said, “Money is the opposite of weather. Nobody talks about it, but everybody does something about it”.

The Psychology of Money (by Morgan Housel) is a good start point for those keen to develop MQ. The author argues that “Doing well with money isn’t necessarily about what you know. It’s about how you behave. Any behaviour is hard to teach, even to really smart people.”

He asserts that “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? Have realistic views about what money does, and doesn’t do, to our happiness?”

He further says, “most of the reason why, I believe, is that we think about and are taught about money in ways that are too much like physics (with rules and laws) and not enough like psychology (with emotions and nature).” He finds this fascinating as well as important.

He quips that money is ‘one of the greatest shows on Earth’, stating that “Money is everywhere, it affects all of us, and confuses most of us. Everyone thinks about it a little differently. It offers lessons on things that apply to many areas of life like risk, confidence and happiness. Few topics offer a more powerful magnifying glass that helps explain why people behave the way they do.”

The fuzziness around money (rather people’s perception around and about money) is brought up very creatively by the author. In a particular instance he likens the learnings from the global financial crisis of 2008 to a worldly situation. He states that “engineers can determine the cause of a bridge collapse because there’s agreement that if a certain amount of force is applied to a certain area, that area will break.” However, while figuring out what happened during the global financial crisis he realised that no one could accurately explain what happened, or why it happened, let alone what should be done about it. “For every good explanation there was an equally convincing rebuttal.” He concurs that Physics isn’t controversial. It’s guided by laws. Finance is different. It’s guided by people’s behaviors. “And how I behave might make sense to me but look crazy to you.”

“To grasp why people bury themselves in debt you don’t need to study interest rates; you need to study the history of greed, insecurity, and optimism. To get why investors sell out at the bottom of a bear market you don’t need to study the math of expected future returns; you need to think about the agony of looking at your family and wondering, if your investments are imperiling their future.”

Sustainable Health – both physiological and financial – have the same underpinnings: personal commitment, discipline, belief system & values, among others. The key to develop one’s Money Quotient lies herein!!!