The Money Obsession: Why do you always feel you’re “not quite there yet”
By: Alok Chitnis
Tags: Saving Money, Personal Finance, Money Mindset, Budgeting, Money

What does it mean to have money? Why are the overwhelming majority of people worried about not having enough money when they retire? Why do most people feel they do not have enough money (even with a million dollars in the bank)? All these questions point to a very interesting topic that has always fascinated me — what is money for us? These are my insights on that final question.

Financial decision making has no biological or evolutionary need. Do you think our great ancestors, the early Homo Sapiens, worried about astute financial planning for their family? However savvy and intelligent we think we are, money management is not inherent to us — think about it — we have no evolutionary reason to do so, it is not specialized or evolved part of the brain, and we do not spend most of our energy during the day thinking about money management!

The invention of money, in the traditional sense, was never intended to be complex. It is an IOU (read: I owe you) — the promise of future goods and services. It all started when an intelligent person, in our brief evolutionary history, encompassed every consumable means of exchange into a piece of paper and convinced his counterpart that the piece of paper had the same value of the consumable. We call this Representative Money — it represents some value which the government regulates (the modern form of currency is fiat currency, but it is still an IOU). The concept of Representative Money intrigued people because it eased the need to carry around heavy bags of copper and gold. People could carry pieces of paper instead — how convenient. This psychological change sowed the seeds of a false perception of money. Perception always leads to biases.

Photo by Sam Truong Dan on Unsplash

People started to form conjectures about the true value of money, the intrinsic value of which is still zero. Banknotes started to govern all other means of transactions, even goodwill! People now determined that the IOU had a greater value than all the tangible consumable they attached it to. For example, what would happen if a few IOUs held as much value as your 10 most precious cows? It would tempt you to find innovative ways to get more IOUs for yourself. This forms the psychology of money, which causes people to worry about pieces of paper. I feel we should treat money as we designed it to be, which is a simple means of exchange with no intrinsic value only an appropriate representative value. Nothing more, nothing less.

Based on my research, one in every four purchases, on average, made by an individual, regardless of their level of income, are impulsive purchases that are unnecessary and avoidable. I call this psychological behavior as the “4th Purchase”. If you take this into perspective, middle-income earners (who make up the majority of our society) would end up spending a lot more, on a percentage of total earnings, because of this deceptive psychological behavior. The act of spending money is situational and unique to an individual. Hence, a generic approach to money management would neither yield material nor long-term benefits. We should instead look at how we ‘behave’ when we make a purchase, how does it make us ‘feel’ then, and how do we feel about that purchase after some time has passed. We all know we should not spend that much money and time shopping online. There is nothing innate about this behavior, it is rooted in the modern culture of consumption, driven by money. Money is a necessary consequence of the society we live in today, but it does not have to drive us crazy with anxiety, stress, and hair loss!

Let’s do an experiment, take a minute to look at the person next to you (or just imagine one). Can you tell me whether that person has more money than you? Can you tell if that person is managing their money properly, or budgeting their expenses? Can you tell me if that person is ‘happy’ with their financial life? The answer would be no. The probability that you have more money than that person is the same as the probability that you have less money than that person. In essence, wealth is always subjective and relative and changes with time. Someone might have more money than you today, tomorrow they might have less, but the day after might have more money again.

Money is man-made, but it shapes our current consumerist society in such a way that we think about money as some natural resource, perhaps scarcer than water. People forget we can always print more money, thus we can always “make” or “earn” more money. We place money on such a high pedestal that we use it to deplete other “real” and “scarce” resources, just because we want more money. Money is a medium of exchange and we should treat it as a result and not a driver — Let’s keep it that way!

Aalok