If you’re the kind of person that’s not afraid to talk about money, sooner or later you’ll encounter the phrase “She’s good with money”, or “He’s bad with money”.
It’s an interesting turn of phrase… one that implies some individuals have a greater ability to make money (or build wealth) than others. Living in today’s very unequal world, this appears to be the case.
On one hand we have billionaires with so much wealth they could literally spend one billion dollars a year and still not outlive their own fortunes. Then, on the other hand, there’s large numbers of people who simply don’t know where their next meal is coming from.
It would seem there is something to the idea that working with money is an ability, and through the use of this ability, individuals can create wealth — at times even great quantities of it.
Charlie Munger (one of the greatest investors in the world) once called this money ability a “money mind”.
As I’ve been teaching my kids math during our COVID-19 lockdown, I’ve begun to wonder if this money ability is a learned skill or some kind of special talent, given only to a few rare individuals that are financial “Mozarts”.
(Interestingly fact: Despite Mozart’s incredible musical genius, he did not have had a “money mind”. His lifestyle was continually plagued with debt.)
Now, I’m not a real teacher, I only play one on TV… but it’s a role I’ve adopted due to necessity. While pretending to be a teacher these last three months, I’ve learned a number of important things about my kids — like, they love math!
Yes, really! Not to brag, but they have advanced math skills for their age. They might even be better at math than I was at the same age… and I was certainly no slouch in the math department.
But does a talent for math actually make people “good with money”?
Does Math Ability Matter?
A certain level of math ability is without a doubt useful in understanding personal finance, but you don’t need to be a math genius to understand most money concepts. A math-aptitude at the high school level is perfectly sufficient to understand the vast majority of personal finance concepts (unless you desire to understand more advanced topics like the Black-Scholes formula for option pricing).
As a parent however, I have to admit that my kids math ability could very well be caused by my own inherent biases. I believe math is important, and I therefore unconsciously emphasize the study of math while we home-school. I might even unconsciously praise my kids more for completing math assignments, over other subjects (like reading). What appears to be a ‘talent’ could very well be me (the teacher) putting extra emphasis into math without even realizing it.
Because of my own inherent biases, I don’t believe it’s correct to say that because my kids are good at math they’ll somehow be good with money. That’s wishful thinking at best!
What is useful, is getting kids started early. Kids that learn math and investing concepts at an early age have a leg-up on young people who learn these ideas at a later date. Due to the wonders of compound interest, those who start earliest, do better.
It’s a simple fact — Time matters in the money compounding game.
While I’ll admit many natural talents can exist due to unique genetics, the argument for superior genetics assisting in wealth creation is extremely questionable. Why? Money doesn’t exist in the natural world. It’s entirely possible to survive, have offspring, and pass on your genes without being wealthy.
The closest equivalent in the natural world would be resource management needed to survive drought or famine conditions — like a squirrel gathering nuts to survive the winter. What isn’t evident in the natural world is the need to pile up more than one season’s worth of resources like humans do. Can you imagine a squirrel that gathers 30 years of nuts in one ridiculous pile? This level of wealth creation seems to be an entirely human invention.
A Learned Ability
For the reasons mention, I believe the money mind is primarily a learned ability, NOT a talent. You don’t pop out of the womb knowing how to calculate compound interest, or read a fund prospectus. It’s a skill we develop and learn over time — either from school, books, friends, mentors, your family, or even local culture.
A number of ideas and skills need to come together in order to create this “money ability”:
- Math Proficiency — The individual must be proficient enough in math to understand and calculate percentages, the eventual outcomes of compound interest, and other math basics (addition, subtraction, multiplication, division).
- Frugality — A willingness to control spending in order to achieve savings that can be compounded over time.
- Individualism — Rather than keeping up with “the Joneses”, individuals with the “money ability” have the strength and individualism to forge their own path through life (which is often out-of-step with the rest of the world).
- Economics — A basic knowledge of economics is useful for understanding ideas like supply and demand or price elasticity. This common understanding of economic concepts can be very useful when investing.
- Self Teaching — It’s a sad fact that financial education is sorely lacking schools today. If someone really wants to become “good with money”, knowing how to teach yourself is of paramount importance!
Notice I didn’t say ‘a high income’? That’s because a large income is not required! We’ve all heard stories of janitors and librarians who die giving away vast sums of money to charity, right? Well, those individuals had a strong “money mind” without having a high income. It’s entirely possible to build great levels of wealth without a large income.
Some people manage to pick-up these skills early-on in life and achieve great prosperity, while others will struggle an entire lifetime without the necessary skills to truly create wealth.
You might be saying to yourself “but it sounds so darn simple!” Well, it’s not rocket science! Absolutely anyone can learn these concepts, if they have the desire to learn and better themselves.
Cultivating Your Money Mind
Just like any other learned skill, a “money mind” has to be cultivated. You don’t start out being an expert on your first day! It takes dedication, considerable practice, and continual study to reach a decent level of money competence.
Even then, the subject of money, investing, and personal finance is so broad that you could spend an entire lifetime specializing in one small area — like taxes, stock investing, or even frugality. In fact, many money bloggers do end-up specializing in one particular financial “field” or another.
Don’t get me wrong, being a generalist is perfectly OK too, but as you further develop your “money ability” you might just find yourself becoming a specialist!
Like most areas of study, we do a great deal of learning from those who came before us. On my Books page, you’ll find a number of recommended books that can get you started on your own journey. There’s also some very good investing blogs out there loaded with financial information. I recently recommended my top ten investing blogs, which is a great place to get started.
Not everyone is a “book learner” though, I get that. If talking with other people is your boat, I recommend finding an investing club. Better Investing maintains a search page to help people find investing clubs. Most U.S. states have many investing clubs, and more than likely you can find one in your region.
Mentors are also a very good option, but much harder to find than a book or a club. If you manage to find a mentor, they can be an invaluable resource to developing your money ability!
A Culture Of Money
As many readers know, one of the main reasons why I write this blog is because of my kids. It’s my hope that one day my kids will be able to read this blog and develop some “money ability” of their own. I like to believe that one day they’ll achieve financial independence even earlier than I did!
It’s not something I can force onto my kids however. You can lead a horse to water, but you can’t make ’em drink! The key, is creating a family with a good money culture — Being open about money, setting good money examples, and having family that’s not afraid to talk to kids about money!
Not everyone has an interest in money at a young age however. Warren Buffett may have bought his first stock at age 11, but that doesn’t mean you have to. You can start developing your “money mind” much later and still realize considerable financial success.
Sometimes it simply takes a few decades for a person to mature, or even to see the need to develop a “money mind”. There’s absolutely nothing wrong with getting starting a little later in developing your “money mind”!
It’s all about the journey, not the final financial destination.
What do you think? Is money ability a talent or a learned skill? Let me know your thoughts in the comments!