The Money Mind: Is It A Natural Talent Or A Learned Skill?
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!
I think good handling of money might be a little bit of both. If you’re raised to understand it more like your kids are or our daughter, Faith, is, I think you’ll have a better chance of doing well with it later. However, it’s up to each person to then be able to apply those lessons later in life. If the temptations of fancy cars and big houses win out, you’ll probably struggle until you can wake up from it.
I was good with math in school and raised with an understanding that saving was good but that was about it. Then I got to college and fell in love with credit cards and through myself into $30k of consumer debt. One day though in my early 20s, I stared at the number and decided this wasn’t going to be the rest of my life. I worked my way out of debt, kept saving, learned about investing, and now I’m early retired.
So that’s a success story, but I think it could have gone either way. Guess I’m just babbling, but I’d venture to bet that both Faith and your kids are going to be rockstars when it comes to money later in life! 🙂
I hope they will! Thanks Jim! 🙂
I think there is some natural ability to defer gratification (thinking of Mischel’s marshmallows), but a lot of money ability is learned. For most of the time humans have been around, we haven’t needed money ability, and our DNA has developed to match. Most people who have good money skills either pick them up from observation or develop them after hitting rock bottom. Perhaps over time money ability will become more hard-wired, but we’ve got a couple of hundred thousands years of evolution to overcome first!
Thanks Paul!
First and foremost, you need an inherent passion for making money work for you. Not just getting rich per se, because everyone has that passion, but a passion for today’s hard work making tomorrow easier and better – for being on a journey toward being financially comfortable. It’s like being a runner that knows they will not win medals, but enjoys being healthy. I don’t know how you teach it or lead people to it, but it was just common sense to me.
If people knew my situation though, they would think I’m crazy though for living so far below my ‘means’. That’s why I keep to myself about this stuff for the most part, but I’d love to know how to get more people on this FI journey. To continue my analogy, jogging every day really isn’t that bad folks!
Money is definitely a learned skill. However, I believe you must have a good base of abilities that come from “within”. For example, teaching someone who loves living the high life to start practicing frugality and not keeping up with the Joneses is going to be a big feat. Much more than just teaching math proficiency and basic economic principles.
Indeed! Thanks Backpack Finance!
I agree that it’s a learned skill. But since I’m fascinated by the behavioral traits that drive money decisions, I do think that certain childhood experiences or even big life experiences as an adult can create behaviors that heavily affect money decisions. And in many cases those behaviors can be very hard to break. Just as someone can become addicted to gambling or eating, they can also become addicted to shopping etc.
Definitely, our different experiences can vastly shape how our lives turn out!
I agree with you in that a money mind, like many things, is something that you can heavily influence by showing what you prioritize… just like what you were doing with math. While everyone may start off at different set points, this is definitely an area where nurture plays a huge role.
It’s kind of like sports too – everyone starts off at different levels of ability (coordination, speed, etc.) but the more practice you put in, the better you’ll get. You may not reach the peaks of a professional athlete but you can definitely be the best amongst your friends at something with enough practice.
Great way to think about it Jim!
This post reminded me of my youth. My father believed math skills were essential. I remember learning multiplication tables, fractions, decimals and even binary numbers before they were introduced to me in school. Also, I recall making out the checks to pay the utility bills at age 9 or 10. It was one of my chores. I couldn’t sign the check but I had to fill out the check and put the entry into the check register.
My parents grew up in poverty so they were frugal in adulthood. They never taught me frugality explicitly but through their actions and criticisms, I learned frugality. I was mentioning to my friend that on a recent trip to the supermarket, I bought chicken breasts marked down 30%. She chortled that I was planning on buying pork for a meal I was planning. (My supermarket only allows two meat purchases per visit so the two discounted chicken packages used up my limit). I told her that the pleasure I got from buying the discounted chicken exceeded the pleasure I would have derived from buying the pork full price and subsequent prepared meal. She couldn’t understand. Her feeling was that I had enough money to buy lobster if I wanted to so why deny myself any dish based on pecuniary considerations? I couldn’t really articulate my attitudes on the matter. I ended up buying the pork a few days later so there was a delayed gratification but it didn’t feel like I delayed gratification because I was gratified to get the discounted chicken.
Another phenomena. My late father used to like to get up early in the morning. He would walk around empty parking lots. He specifically chose parking lots because they were large, paved, open areas that are good for walking. His secondary reason was that he found a lot of spare change on the ground from people who dropped them while getting into and out of their cars. When I would visit my father, I would wake up and prepare breakfast for us while he was walking. When he got home, he would be excited to tell me if he found a large amount of change (more than $1). I didn’t think a lot about it although my only concern was that it could be unsanitary to pick up metal coins off the ground. After he died, I found two large mason jars full of spare change. I suspect the coins were what he picked up off the ground.
Now during shelter-in-place restrictions, I go walking for exercise in the afternoons. I go to a shopping mall near me because the large parking lot ie empty all day long. I don’t walk with my head down but when I see a coin on the ground…I pick it up. It’s like I have become my father.
Additionally, my parents were definitely not “keeping up with the Jones” types because they believed the Jones were up to their eyeballs in debt. Statistics have shown they were correct in their assumption.
Finally, my father gave me a tutorial on the way the stock market and mutual funds worked when I was in high school. ETFs weren’t around then. He also explained the concept of compounding interest. In college, I got a economics minor because I found the classes interesting.
W.r.t. “Self Teaching” – I would call it intellectual curiosity combined with a desire for self-improvement (which you wrote in a different paragraph). You don’t have to teach yourself because there are many resources for people who want to “become good with money.” There are books, videos, seminars, community college courses, websites, print publications, etc. I moved from index mutual funds to index ETFs through this process of “self teaching.”
Having a money mind has a lot to do with how you’re brought up. It also has a lot to do with all the experience you’ve gone through as a person. Like any skills once you learned it you’ll never forget it and will get better as it as you get more training. It certainly is important for parents to teach their kids about t by ese valuable money skills.
Absolutely! Thanks Tawcan!
Hey Mr. Tako – Very long time reader. This is my first comment. Excellent post. I am glad, I have a money mind because it simply makes life easier. It is also very ironic, once one achieves a certain threshold, one can buy pretty much everything and the future is no longer borrowed.
Thanks for the comment Karl! Always good to get comments from “new” readers! 🙂
I definitely think it’s a learned skill as you suggested in the “cultivating” section.
Most of that comes from lots of practice, like having a “Frugality Muscle”. You’ve got to work it out, keep it in tip-top shape, ready to fend off all those cheap sale gremlins that come along.
I think developing “the money mind” is what the most important part of the often-cited “cut out the $5/day Starbucks habit” trick really is. The cup of coffee and $5 are sort of irrelevant, rather, it’s getting practice for your “money mind” to make those bigger decisions that you do so rarely–like buying a house or car.
Think that aligns with your takeaway?
Absolutely! The mind is like a muscle. If you train it, the mind can do amazing things… and training is all about repetition! 🙂
Now drop and give me 10 sets of “no Starbucks”!
You have to have an inherent desire (usually based on something like growing up poor maybe). It’s a raw skill that continues to become refined as you learn more.
My Grandpa has had 7 years of formal education. My Grandma had 4. (They grew up in very poor families during WW2, so that was as good as they got at that time).
My mother on the other hand is has an engineering degree, so you know, lots of math there.
Their money situation is exactly the opposite of what you would expect based on their schooling levels and math skills, my grandparents are very money savvy and they have managed to get a reasonable pile, far more than they will spend in this lifetime, starting out as orphans in a very poor country.
My mother has recently retired and took another job because she figured out that her pension would not be enough.
My generation (me, my sister, my cousin), we are very very money oriented, even though our parents aren’t. If good money management was genetic, it skipped a generation.
My theory is that we got the Great Recession right at the beginning of our working life and my grandparents got the war about the same time. That warped us in a certain way. My parents and their siblings on the other hand got ok things when they got started and their crisis arrived much later, when they had already established their mental paths regarding the abundance of money. They never got deep into debt, but they spent most of their money month to month.
I started earning babysitting money at 12 and investing that money at 14. While I had already learned to save my money, it wasn’t until my freshman year algebra class that I learned how that money could grow through investing. Once I learned about compound interest and saw huge numbers flash across my calculator screen, I was hooked. I asked my dad if I could invest (he always encouraged me to save, so I knew he’d let me invest). He said, “Yes, as long as you don’t think you’re going to spend this money on a car.” I agreed to those terms. I used a portion of those investments to buy my home.
I don’t have kids, but we’re teaching my niece how investments work. She’s already hooked at 13, though she doesn’t work. I also teach all the young people at work the importance of saving and investing. Some get it, some don’t. Many are more interested in spending on a lavish lifestyle. Oh well. Can’t win ’em all. At least you’re teaching your kids!
P.S. Reading is a great skill too. That’s how I’ve absorbed so much knowledge throughout my life. If you can read, you learn just about anything. 😉