#42: The dumbest damn thing I’ve ever read in personal finance (part 1)

5th July, 2021

Welcome to the Idiot Money newsletter. The newsletter that reckons it’s time to move on.

This week: becoming wiser with money by understanding that choosing to live in a world where money excuses a lack of wisdom, character, and virtue is far from wise.

A first-class way to be dumb with money is to believe that having money means you aren’t dumb.

Winston Churchill famously quipped that the best argument against democracy was a five-minute conversation with the average voter.

Similarly, the best argument against the idea that wealth is a decent proxy for wisdom is a five-minute conversation with a wealthy person.

Yet few myths about money are quite so persistent, nor quite so consequentially catastrophic. The most costly dangers are the ones we don’t see, and most believers in the myth like to deny they believe in it at all.

And while with democracy – as Churchill would remind us – all the other ways are worse, the same is not true about how you choose to construct your money worldview.

Whither wisdom?

I distinctly remember growing up in a world where to insult the intelligence of a rich person would meet with a reply along the lines of ‘They must be doing something right…’ even if they’d merely been born into it.

Or ‘They can’t be completely stupid…’ even if they were, very obviously, right there and then, adding to a scarcely believable track record of doing things which, on any objective measure, were completely stupid.

The message was clear: whatever someone’s faults, having money offsets them.

We live in a world where money excuses a lack of wisdom, character, and virtue, and therefore one in which on some level we believe it must be a substitute for those things.

Someone making millions through immorality? Reward them with public honours and positions on boards so they may protect the system that got them there.

Someone making less than millions but more than peanuts in a job that’s mentally and physically destructive, both inside work hours and out? They’re ‘doing well for themselves’ and would thus be mad to quit.

Someone making dumb spending decisions? Doesn’t matter that it doesn’t make their life better, they can afford it.

And then there’s politics.

This belief so poisons minds that it can lead to otherwise semi-respectable people, having weighed up their options, to vote people into high office despite their chief ‘qualities’ being a knack for corruption, a contempt for those that would vote for them, and a creepy attachment to their nanny, despite being (culturally at least) 105 years old.

If the conflagration of consequences were limited to the governance of the most powerful countries on earth that would be pretty bad.

But it gets worse.

The ways we’re ruled over by others has nothing on the way we rule over ourselves.

Which brings us to the dumbest damn thing I’ve ever read in a personal-finance book.

The dumbness

In Daniel Crosby’s The Laws of Wealth he casually writes:

As of the writing of this book, the median wage in the US is $26,695 and the median household income is $50,500. Let us suppose for illustrative purposes, however, that you are four times as clever as average and have managed to secure a comfortable salary of $100,000 per annum.

(Incidentally, the second and third dumbest things I’ve ever read in personal finance come from the same book. More on them another day.)

I suspect if you challenged Mr Crosby on this, he’d deny that he believed there were a direct link between salary and intelligence, and maybe say something about word counts being more important than nuance, and that the point being made was something else entirely anyway. Maybe he’d say he meant ‘clever’ in the Dan Brown sense, i.e. ‘best at giving the people what they believe they want’.

Either way, it doesn’t really matter. Because there’s only one world in which such a comment can pass so easily into print, regardless of the excuses that defend it. And when it comes to living better with money, that world is not a helpful one. Yet we each continue to choose to construct it every damn day.

It’s not only America that believes cleverness = salary. An all-too-common refrain among those in the UK that have done nothing to ‘earn’ their wealth save being born or being in business in a lucky place at a lucky time, is that such inequality of opportunity is fine because intelligence is the only ingredient needed to stop being poor. This is heard from both those born into castles and those who, having hustled their way over the moat become hell-bent on hauling up the drawbridge once they’re in.

Opportunity wasted

Dumb becomes dangerous when we believe that while it may be wrong – an exaggeration here, an inevitable overlooking of nuance there – it’s mostly harmless.

This has nothing to do with the statistical correlation between IQ and income. Such a thing does exist, but it’s irrelevant here.

The most costly dangers are the ones we can’t see. We see the world through the lens of our language. And our lexicons can con us into living in a worse world than we could.

Bigger problems await us when we look at a failure to recognise the role of luck in making money, or that often the most intelligent people – because of their intelligence – are working on things that make no money, and see only an isolated laziness of thinking, rather than the building blocks of a world that’s optimised for wasting opportunities, rather than creating magic with them.

We’ll continue this story next week, including why what the rich won’t tell you tells you a lot about being rich.

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