Psychology of Money - Financial Advice for Ordinary People

Source: Citic Publishing House

When I was in college, I worked as a valet at a luxury hotel in Los Angeles.

I had a regular customer, a technical manager. He’s a genius—by his twenties, he designed a core component of wireless routers and filed for a patent. He founded and sold several companies. You could say he’s very successful.

In my view, his relationship with money is a complicated mix of insecurity and childish foolishness.

He carried around a stack of nearly 10 centimeters thick in $100 bills. He would show these bills to everyone, regardless of whether they were interested. He also loudly flaunted his wealth, especially when drunk, often without any reason.

One day, he gave a few thousand dollars to a colleague and said, “Go to the jewelry store on the street and buy me some gold coins worth $1,000 each.”

An hour later, when he received the coins, he and his friends went to a dock overlooking the Pacific Ocean. They started tossing the coins like stones to skip on the water. They argued about who could throw the farthest, giggling all the while. Their actions were purely for fun.

A few days later, he broke a lamp in the hotel restaurant. The manager told him it was worth $500, and he needed to pay for it.

“You want me to pay $500?” he asked in disbelief, pulling out a thick wad of cash from his pocket and tossing it to the manager. “This is $5,000—disappear from my sight immediately. Don’t insult me with this kind of thing again.”

You might ask, how long can such behavior last? The answer is “not long.”

A few years later, I heard that he went bankrupt.

A key premise of this book is that financial success or failure isn’t strongly related to IQ but is closely tied to behavioral habits. And habits are hard to teach, even to high-IQ individuals.

A genius who cannot control their emotions may cause financial disaster, but conversely—ordinary people without professional financial education can, through good habits unrelated to IQ, ultimately become wealthy.

My favorite sentence from Wikipedia’s entry is this:

Ronald James Read, an American philanthropist, investor, security guard, and gas station attendant.

Ronald Read was born in rural Vermont. He was the first in his family to attend high school. Even more astonishing, he commuted by hitchhiking every day.

For those familiar with Ronald Read, there isn’t much to say about him. His life was quite ordinary.

Read worked as a mechanic at a gas station for 25 years and mopped floors at JCPenney for 17 years. At age 38, he bought a two-bedroom house for $12,000 and spent the rest of his life there. His wife died when he was 50, and he never remarried. A friend recalled that his greatest hobby was chopping firewood.

Read passed away in 2014 at age 92. At that moment, this ordinary rural security guard made headlines worldwide.

In 2014, a total of 2,813,503 Americans died. Fewer than 4,000 of them had net financial assets exceeding $8 million at the time of death, and Read was one of them.

In his will, this former security guard left $2 million to his stepchildren, and donated over $6 million to local hospitals and libraries.

Those familiar with Read were puzzled: where did he get so much money?

Eventually, people discovered that Read’s wealth had no secret source. He didn’t win a huge lottery or inherit a large estate. Read saved every penny he could, then bought blue-chip stocks, and waited patiently. Decades later, these tiny savings, compounded over time, snowballed into over $8 million.

His journey from a security guard to a philanthropist was that simple.

Just a few months before Ronald Read donated his estate to charity, a man named Richard also made headlines.

Richard Fuscone had everything Ronald Read lacked. Fuscone graduated from Harvard, earned an MBA, and worked in management at Merrill Lynch. He had a very successful career in finance, retired in his 40s, and became a philanthropist. David Komenesky, former CEO of Merrill, praised Fuscone for his “exceptional business insight, leadership, judgment, and integrity.” Crain’s Business Weekly named him one of the “40 Under 40” successful businesspeople. Yet, what happened next was just like the experience of the technical manager tossing coins—everything was destroyed.

Around 2005, Fuscone borrowed heavily to expand his nearly 1,700-square-meter mansion in Greenwich Village, Connecticut. The house had 11 bathrooms, two elevators, two swimming pools, and seven garages. Monthly maintenance alone cost $90,000.

Then, in 2008, the financial crisis struck.

This crisis affected nearly everyone, and Fuscone was no exception—his financial assets vanished. Massive debts and illiquid assets led to his bankruptcy. “I currently have no income,” he reportedly told the bankruptcy judge in 2008.

First, the mortgage on his Palm Beach house was foreclosed.

By 2014, his Greenwich mansion faced the same fate.

Five months before Ronald Read donated his wealth to charity, Fuscone’s house—described by guests as “an inspiring place to drink, sing, and dance on a transparent floor overlooking the indoor pool”—was auctioned off at 75% below the insurance company’s valuation.

Ronald Read was patient, while Richard Fuscone was greedy—that’s the fundamental reason for the vast difference in their education and financial experience.

The reason I mention these stories isn’t to suggest we should all learn from Ronald Read or avoid the mistakes of Richard Fuscone—though that’s also true.

The most fascinating thing about these stories is that they only happen in the realm of investing and finance.

In what other field can someone with no college education, no training, no background, and no social connections overwhelmingly defeat someone with the best education, professional training, and a powerful network?

I can’t think of any.

It’s hard to imagine that if Ronald Read underwent heart surgery, he would perform better than a well-trained Harvard Medical School graduate; or that if he designed a skyscraper, his design would surpass experienced architects; or that a security guard could outperform top nuclear engineers in nuclear physics.

Yet, such things happen in investing and finance.

Regarding these two extreme cases—Ronald Read and Richard Fuscone—people offer two explanations: one is that financial outcomes often depend on luck, not intelligence or effort. To some extent, this is correct, and I will discuss it further later. The other, which I believe is more common, is that financial success isn’t a hard science but a soft skill—how you do it matters more than how much you know.

I call this soft skill “Money Psychology.” The purpose of this book is to tell stories that show soft skills are more important than technical knowledge in finance. I will help everyone— from Ronald Read to Richard Fuscone, and everyone in between—make better financial decisions.

I’ve come to realize that these soft skills are often underestimated.

Much of financial knowledge is based on mathematics. You input data into formulas, and the formulas tell you what to do. Mainstream thinking says you should follow them.

This is true in personal finance. People tell you to save six months’ worth of expenses and to set aside 10% of your income.

It’s also true in investing. We know the historical correlation between interest rates and valuations.

It’s true in corporate finance too. CFOs can precisely estimate the cost of capital.

I’m not saying these are right or wrong—I just want to tell you that knowing what to do doesn’t mean your mind will automatically operate based on your knowledge when you act.

Two things influence everyone—whether you’re interested or not: health and money.

Healthcare is a great achievement of modern science, and today, global life expectancy is rising. Scientific discoveries repeatedly overturn old beliefs about how the human body works, making almost everyone healthier.

But in areas related to money—investing, personal finance, business planning—the situation is quite different.

Over the past 20 years, the financial industry has attracted the smartest people from top universities worldwide. Ten years ago, financial engineering was the hottest major at Princeton’s School of Engineering. But is there evidence that all this has made people better investors?

So far, I haven’t found any.

Over thousands of years, human society has improved as a whole—becoming better farmers, more skilled electricians, and more advanced chemists through collective trial and error. But has this process made us better at managing money? Are we less likely to go into debt? Are we more aware of saving early for retirement? Do we have a more realistic understanding of the relationship between money and happiness?

I haven’t found strong evidence for these either.

I believe the main reason is that our way of thinking and learning about finance resembles studying physics (with many laws and principles), rather than psychology (focused on emotions and subtle changes).

For me, this is the most important and fascinating part.

Money is everywhere. It influences everyone and often confuses many. People have different ideas about managing money. Knowledge and experience about money can be applied to other areas—risk, confidence, happiness. Few things act like a powerful magnifying glass, helping you understand why people behave certain ways. In fact, human behavior related to money is one of the greatest performances on Earth.

My understanding of Money Psychology has gradually formed over the past decade, as I’ve written about related topics. I started writing about finance in early 2008, just before the financial crisis and during the darkest period of the last 80 years of economic downturn.

To understand what’s happening, I first needed to clarify the situation. But after the crisis, the first lesson I learned was that no one can accurately explain what happened or why, let alone how to respond. Every seemingly reasonable explanation is met with equally convincing counterarguments.

Engineers can identify why a bridge collapses because when the stress exceeds a critical threshold, it breaks—that’s an accepted fact. Physical phenomena are not controversial because they follow physical laws. Financial phenomena, however, are different—they are determined by human behavior. What makes sense to me might be hard for you to understand.

The deeper I study financial crises and the more I write about them, the more I realize that understanding crises from psychological and historical perspectives—rather than purely financial—may help us better grasp them.

To understand why people go into debt, you shouldn’t just study bank interest rates; you should study the history of human greed, insecurity, and optimism. To understand why investors sell stocks at the bottom of a bear market, you shouldn’t just analyze expected future returns mathematically; you should consider the torment of an investor facing their family, worrying whether their investment decisions threaten their loved ones’ future.

I love Voltaire’s quote: “History never repeats itself, but it often rhymes.” This is especially true for our financial behaviors.

Basic Information

Book Title: The Psychology of Money (Revised Edition)

English Title: The Psychology of Money

Author: Morgan Housel

Translator: Julia

Price: 58.8 RMB

Publication Date: April 2026

Format: 32mo

Pages: 312

Print Sheets: 9.75

ISBN: 978–7–5217–8503–6

Summary

Money is a crucial topic everyone must deal with in life.

The essence of financial management isn’t about studying finance itself, but about understanding how people relate to money.

The key to wealth and preserving wealth isn’t just knowing financial knowledge, but overcoming human weaknesses and understanding the true nature of money.

In The Psychology of Money (Revised Edition), Morgan Housel shares 22 simple yet profound lessons on wealth with a humorous and accessible style, sharply dissecting the underlying logic of the financial world. The book addresses practical questions like “How to make money” and deeper needs like “How to relate to money.” In uncertain times, it inspires ordinary people to make wiser financial decisions and gain the gift of time.

In this new edition, the author has significantly expanded the content.

If you’re new to personal finance, you’ll receive a straightforward, lifelong-beneficial financial lesson. If you’re an experienced investor, this book will help you fill gaps, return to basics, and safeguard your hard-earned wealth.

Author Bio

Morgan Housel

Partner at The Collaborative Fund, bestselling author, columnist for The Wall Street Journal. Winner of the Sidney Award from The New York Times, twice awarded the Best Business Writing Award by the American Society of Business Editors and Writers, and twice shortlisted for the Gerald LeBoeuf Award for Outstanding Business and Financial Journalism.

Author of The Art of Money and Behavioral Finance, which sparked discussions on money, human nature, and happiness. The Psychology of Money was selected as “Douban 2023 Business & Management Book of the Year,” with over 10 million copies sold worldwide.

Contents

Preface: The Greatest Show on Earth

1. No One Truly Loses Their Mind About Money

Your personal experience with money,

may only be a tiny fraction of all related experiences,

but it could determine 80% of how you understand the world’s operation.

2. Luck and Risk

Nothing is as good as it seems,

and nothing is as bad as it seems.

3. Never Satisfied

The hardest financial skill to master

is teaching greed to know when to stop.

4. The Secret of Compound Interest

Out of Warren Buffett’s $84.5 billion net worth,

$81.5 billion was earned after age 65.

Our thinking is hard to grasp such “absurd” phenomena.

5. Wealth Building and Wealth Preservation

The key to wise investing

is not always making the optimal decision,

but consistently avoiding major mistakes.

6. Minor Events Decide Major Outcomes

Even if you make mistakes half the time,

you can still amass huge wealth.

The tail effect determines everything.

7. Freedom

Time freedom

is the greatest dividend money can give you.

8. The Paradox of Luxury Cars

No one cares as much about your wealth as you do.

9. Wealth Is Invisible

Showcasing wealth

is the fastest way to become poor.

10. Saving Money

The only factor you can control,

which largely determines a few crucial aspects of your life.

How wonderful is that.

11. Roughly Right Is Better Than Perfectly Rational

Pursuing approximate reasonableness

often yields better results than chasing absolute rationality.

12. Unexpected Events Drive Change

History studies change,

but ironically, people often use it to predict the future.

13. Tolerance for Error

The most critical part of any plan

is to prepare for the plan not going as expected.

14. No One Is Fixed

Long-term planning is difficult

because goals and desires change over time.

15. There Is No Free Lunch

Everything has a cost,

but not all costs are explicitly priced.

16. “You Should Buy This Stock”

Beware of financial advice from those with different rules of the game.

17. The Temptation of Pessimism

Optimism is like a smooth-talking salesman,

while pessimism is like a sincere friend warning you.

18. There’s Always a Good Story

The more you want something to be true,

the more likely you are to believe exaggerated stories.

19. Firm Beliefs, but Flexible Holding

Times change—and keep changing.

To be a better investor, you need three qualities.

20. The Power of Persistence

If you want the biggest investment returns of your life,

the smartest strategy isn’t maximizing annual returns,

but focusing on consistent, decent long-term gains.

21. 14 Tips for Wise Investing

Concise and practical.

22. Simple Financial Plans

How I personally apply money psychology.

Appendix: A Brief History of American Consumer Mindset Formation

Acknowledgments

References

Sample Chapters