Morgan Housel is one of my favorite writers and I reference his work all the time. He recently wrote a book, The Psychology of Money, which is fantastic. I would recommend it to everyone. In the shortest chapter of the book, he makes one of my favorite financial observations.
It’s a simple but profound point that I feel is important for everyone to understand, so I decided to dedicate an entire post to it.
He tells the story of when he was a young valet at a hotel and guests came in driving Lamborghinis, Rolls-Royces, and Ferraris. He was able to view and drive some of the nicest and most expensive cars around. It was his dream to eventually own one of these cars because he felt they sent such a strong signal to others that you made it — that you’re rich, that you’re smart, and that you’re important.
Although he’s talking about cars in this story, this same idea applies to plenty of other purchases. We’ve all bought things with the hope they will impress other people. It can be a house, clothes, jewelry, or even a vacation that we can’t wait to post on Instagram.
The irony is that we rarely, if ever, spare much thought for the people inside the car, or in the big house, or on the cool vacation.
Subconscious or not, when we see someone driving a nice car we rarely think, “Wow, the guy driving that car is so cool.” Instead, we think, “Wow, if I had that car people would think I’m cool.”
This is a paradox. People want their wealth or their possessions to signal to others that they should be liked and admired. But in reality, the people you’re trying to impress often bypass admiring you, not because wealth isn’t admirable, but because they use your wealth as a benchmark for their own desire to be liked and admired.
Housel writes that he’s sure the people driving the Ferraris must have felt admired by how much he would gawk at them every time they drove by. But did they know he was only gawking at the car and imagining himself in the driver’s seat? Did they buy the Ferrari thinking it would bring them admiration without realizing that he — and most likely others — who are impressed with the car didn’t even give the driver a moment’s thought?
“You probably wouldn’t worry about what people think of you if you could know how seldom they do.” ― Olin Miller
People are often too busy worrying about their own image to give much thought to yours.
The point here is not to stop buying nice things. If you like Ferraris and they bring you a large amount of happiness, then by all means buy a Ferrari. But only buy it because you want it, not because you think it will impress your friends. While most people seek to be respected and admired by others, using money to buy nice things will bring less of it than you might imagine.
As Carl Richards points out, money was designed to be a store of value and a medium of exchange. It was not designed to make us happy, or to bring us respect, or to do the myriad of other things we wish it would. We too often ask money to do things it was never intended to do.
In a letter to his son, Housel writes:
“You might think you want an expensive car, a fancy watch, and a huge house. But I’m telling you, you don’t. What you want is respect and admiration from other people, and you think having expensive stuff will bring it. It almost never does — especially from the people you want to respect and admire you.”
Thanks for reading!