No One’s Crazy
Everyone has a unique idea of how the world works. This worldview is influenced by a unique set of circumstances, values, and external influences.
“Your personal experiences with money make up maybe 0.00000000001% of what’s happened in the world, but maybe 80% of how you think the world works.”
“No amount of studying or open-mindedness can genuinely recreate the power of fear and uncertainty.”
“We all think we know how the world works. But we’ve all only experienced a tiny sliver of it.”
If you were born in 1950, the stock market was flat during your teens and 20s (adjusted for inflation).
If you were born in 1970, the S&P 500 increased 1000% during your teens and 20s (adjusted for inflation).
Which generation is more likely to have a bullish view of the stock market?
“Their view of money was formed in different worlds. And when that’s the case, a view about money that one group of people think is outrageous can make perfect sense to another.”
Consider people most likely to purchase lottery tickets in the U.S.: low-income households who spend, on average $400/year. Number seems crazy to people in higher income households. But some might justify the purchase by saying they are paying for hope and a dream. Without being in their shoes, it’s hard to fully appreciate why they behave the way they do.
Modern financial planning is relatively new. For instance, individual retirement accounts are a recent phenomenon. 401k were created in 1978. Roth IRA was created in 1998. Index funds were developed in the 1970s.
As Housel says, many of the poor financial decisions stem from our collective inexperience: “there is not decades of accumulated experience…we’re winging it.”