You don’t pay for The Psychology Of Wealth for the practical lessons learned - you do it for the stories. Concise yet rich, memoirs of inspiration are woven throughout the book in a way that is sure to cause you to dream again - and to put your dreams to work. That said, I can’t recap the stories and better than Richards does himself, so allow me to summarize the actual content.
Dr. Richard’s chief thesis is that our feeling of wealth and prosperity has less to do with how much money we have and more to do with our view of ourselves. In other words, we feel rich not based on what our bank accounts say we’re worth, but what we say we’re worth. Thus, cultivating high self-esteem and self-confidence is the crux of improving our relationship with money. It’s both what makes us feel content with having little and what motivates us to work towards achieving great success. Related to this journey of respecting ourselves (and therefore experiencing prosperous lives) comes a handful of other insights:
For example, we simply cannot fall prey to a victim mindset - not because we aren’t victims necessarily, but because if we choose to identify that way, we rob ourselves of some measure of personal dignity. And keep in mind, dignity is our most prized possession in this process. For that reason, no matter the circumstances we’re dealing with or the injustices that come our way, if we grow embittered, ungrateful, resentful, or prejudiced, we will guarantee our failure to prosper.
Another theme is acknowledging the individuality of this pursuit. The image that each of us envisions of success and wealth will vary greatly based on the family, culture, and point in history that we grew up in, how much money we make, what other people expect of us, what we value, and what our dreams are. The Psychology Of Wealth challenges readers to search inside themselves for their goals and aspirations rather than accepting anyone else’s as their own.
Good Debt Versus Bad Debt
Another interesting point of view is Dr. Richard’s regarding debt. Traditionally, financial advisors characterize debt as either ‘good debt’ or ‘bad debt’ based on whether it’s spent on an appreciating asset or a depreciating asset, an investment in yourself or an expense as a consumer. However, quite effectively, The Psychology Of Wealth highlights that a more nuanced way of thinking is needed.
What if you bought a sewing machine with an installment loan in the 1800’s but used it to make clothes for your neighborhood - while also requiring just 7% of the time it would have, enabling you to spend time with your children? What if you financed a Model T in the 1900’s but in doing so you could take a higher paying and more fulfilling job on the other side of town? What if you swiped your credit card to take your family to Disney World on vacation, but your son was so inspired by the experience that one day he became a cartoonist for the corporation? (p. 19). What if you took a payday loan to knock off the last item on your mother’s bucket list before she passed away from cancer? Are these all bad debts?
On the other hand, even ‘good debt,’ if done without careful financial evaluation and planning, can be detrimental. How many borrowers today or in 2008 would in hindsight rather not have taken out their student loans or home mortgage? How many Americans have used ‘good debt’ to buy assets needed to start a business only to later file for bankruptcy? Are these all good debts?
Finally, whether or not a loan makes pure financial sense, there is still the more important question as it relates to the author’s premise: what is going to most enhance self-esteem? What will make you feel the most confident in your abilities? Loans afford consumers opportunities they otherwise wouldn’t have been able to, and psychologically, taking personal responsibility for your spending by making the payments associated with it can actually be quite liberating, bolstering independence and empowerment, rather than limiting or burdensome (p 128). Many prefer the experience of borrowing to that of restraining themselves from the opportunity at hand, and some even prefer it to receiving the opportunity as a gift from someone else. At the end of the day, if it makes you feel like a king, well, you’ll feel like a king.
We need a better method of differentiating good debts from bad debts than strictly what is purchased with the loan. Dr. Richards places the line at ‘conscious debt’ vs ‘unconscious debt.’ We get in trouble when we are unconsciously taking on loans - such as by attending university with no clear career plan in mind, or by charging our credit cards so often that we don’t know how much we spent or what we spent it on. Conversely, we set ourselves up for success when we take conscious, calculated risks that sometimes may even use debt to our benefit (and remember, some of those benefits may not be numerical). Instead of labeling debt as good or bad by evaluating what borrowers’ loan money is spent on, we ought to evaluate borrowers’ awareness of the loan’s implications and their level of commitment to paying it off.
All good things aside, the way Dr. Richards goes about answering his originally posed question was a little disappointing to me. By that I mean, this book is 100% anecdotal. It is not scientific, it is not ‘research’ - The Psychology Of Wealth is a compilation of incredible stories from heroic individuals who have succeeded against all odds, refusing to play the role of a victim despite having every opportunity. Dr. Richards then draws from those accounts to add in his own conclusions and life lessons. Make no mistake; these are powerfully moving stories. I cried reading this book. I just wish I had known going into it that this would read more like a motivational self-help book than a financial or psychological one.
Further, the reason he is seeking to answer this question also gave me pause. Richards published this book in 2012, while Americans were still enduring financial loss and fear caused by the Great Recession of 2008 and 2009. And as Richards admits, the financial crisis not only piqued his interest in this topic in the first place, but also gave him a sense of urgency to complete his work - likely due to our population’s increased interest in all things finance. In my opinion, it showed. I feel he could have done a more thorough job and produced better quality findings if he wasn’t rushing to publication in order to take advantage of presumably higher book sales.
Finally, The Psychology Of Wealth comes across as politically motivated. Richards openly shares his free-market worldview of consumer lending, going as far as to call regulation on exorbitant interest rates as discrimination against borrowers, yet fails to mention the poverty of financial education that exists in many communities seeking those loans. He champions individuals who made it out of tough environments, but never speaks to systemic issues that caused those environments to form (the classic ‘anyone can do it, therefore, everyone can do it’ type of thinking). And finally, he appeals to the great character and business acumen of Donald Trump on multiple occasions, while also insinuating that Democrats enable a victim mentality.
If you can look past the occasional political jab, though, Dr. Richards has a lot to offer. Here are some highlights:
“It was Leticia’s sense of her own intrinsic worth that propelled her to achieve her goals. If she had accepted other people’s expectations, she wouldn’t have even tried” (p. 9).
“Success does not require a great deal of money; what it requires is a belief in one’s inherent worth and a willingness to make a conscious investment in oneself - even if that means taking a certain amount of risk. To achieve anything worthwhile requires that we take some chances and be willing to move out of our comfort zone” (p. 9).
“Studies show that there is a strong link between self-worth and a sense of achievement. To build self-esteem, human beings must face and meet challenges. It isn’t enough for your parents or others to simply tell you that you’re good, strong, or smart. You must experience your own ability to accomplish something difficult or creative. You must experience firsthand your own competence and your ability to make something happen, to move things ahead. In other words, you must show yourself what you can do. By setting goals for yourself and achieving them, by being willing to take some failure on the chin and keep going - by taking some intelligent risks - you can build a sense of self-worth” (p. 58).
“Interestingly, Marcus and Tony have something else in common besides their happy outcomes: both had to learn to let go of expectations for their lives that didn’t belong to them … We must be willing to let go of the old judgments, opinions, and worn-out attitudes that limit us… When we let go of our old expectations and self-image, we make room for a new and expanded expression of our true selves and values. We can create a life in which we can prosper by staying conscious of who we are and what we really want” (pp. 70-71).
“Far too often, money has a disproportionate influence on our sense of self-worth. People frequently believe that if they could somehow acquire more money or more assets, they would feel wealthy … Although it may seem paradoxical, beliefs like these hold us back from prosperity and prevent us from achieving our highest potential” (p. 77).
On The Relative Nature Of Wealth
“You may have been born into a family or household whose outlook on wealth and money transcends the conventional perspective on prosperity … If so, your birthright is much more valuable than any amount of money” (pp. 17-18).
“What is important to one individual is frivolous to another. The sheer diversity of human beings - of our circumstances, backgrounds, needs, and desires - makes a single approach to finances and a single definition of wealth not only out of reach but meaningless. One person’s indulgence is another’s essential component of a good life - and neither is right nor wrong. The diversity simply reflects the impact of individual perspectives on the meaning of prosperity and how each of us relates to money. We must define what wealth means to us, based on where we are, where we’ve come from, and where we want to go” (p. 19).
“The contrast between my grandparents’ good life and many Americans’ lives today illustrates an interesting phenomenon - namely, that our definition of wealth is constantly changing… The lifestyle and possessions that we take for granted today as almost the birthright of a twenty-first century American would have been unthinkable even for a land baron of the nineteenth century. We can also predict with some certainty that the items that we consider luxuries today will be viewed as ordinary conveniences tomorrow … The common denominator, however, remains the same: a deep desire to make a better life” (p. 29).
“One way to identify your dreams and ambitions is to ask yourself: ‘What is my image of a prosperous life? How do I want to design my prototype of wealth and prosperity?’ … To avoid selling yourself short, it is important that you periodically try stretching your goals a little bit” (p. 63).
“Value is also not an absolute. Even the value of money itself doesn’t lie in the amount we have; it lies in what we do with it to bring pleasure, meaning, and significance to our lives. True value can be determined only by each of us based on our individual circumstances. Ultimately, you are the only person who can determine whether something has enriched your experience or your life” (p. 117).
On Our Pursuit Of Success
“What circumstances in my life am I dissatisfied with (and may gripe about) but do little to change? … Too often, we place the responsibility for our situation elsewhere and don’t change the things that are clearly within our control” (p. 99).
“Often, we don’t follow our dreams simply because we haven’t thought about them. We don’t take the time to build or create the life we want, let along the time to appreciate the gifts we have” (p. 171).
“What keeps us from realizing our personal dreams of fulfillment and success? From my observation, it’s primarily fear and inertia. Fear of failure and of the unknown is human and universal. What we do in the face of that fear either keeps us locked in one life phase or propels us to a more fulfilling life. Inertia can result from an overattachment to our comfort zone. Many of us won’t stray far beyond that zone unless we are forced to, either by events or by some threat to our well-being. The avoidance of pain or discomfort will often push us forward, but as life strategies go, pain avoidance is less than ideal” (p. 181).
“Extreme self-restriction and a fearful elimination of all risk taking can severely limit our ability to move forward in life. Not only will financial austerity and avoidance of all investment and debt keep us stuck in our individual lives, but it could have a negative effect on the economy at large. The responsible flow of credit - and the social trust that it requires and engenders - is essential to the commerce of life. Neither of the extremes - heedlessness or inflexible financial abstinence - is likely to lead to prosperity” (p. 143).
“Genuine wealth has a sense of service at its core. As prosperity increases, a balanced life calls for one’s service to also increase. In other words, to stay in harmony and balance, the greater the inflow, the greater the outflow must be … achieving financial wealth is a hollow success unless it’s a shared success” (p. 168).
“It’s not the pursuit of wealth that brings value and meaning to life; it’s the pursuit of meaning and value that brings wealth” (p. 188).
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