One of my favorite stories about money involves Max Bazerman, a professor at the Harvard Business School. Bazerman regularly auctions off a real $20 bill at the start of his Negotiation and Decisionmaking course. The $20 bill typically brings in more than $100, in my mind a perfect demonstration of how ego and emotion operate to highjack our limbic system when it comes to dealing with money. Bazerman’s exercise shows exactly how anxiety and distorting emotions truly are the enemies of intelligence. People in business and in interpersonal dealings often abandon their “right mind” when it comes to money, for who in their right mind would pay more than $100 for a $20 bill? (Unless, of course, it’s one of these hand-drawn bills by J.S.G. Boggs or a Fundred Dollar Bill!).
Our thinking about money tends to bring into play more of these 100+ brain biases than possibly any other topic. Biases like the Irrational Escalation of Commitment, Negativity Bias and the Normalcy Bias. With the latter, we end up refusing to plan for or insure against something that’s never happened before, like a job loss or a hurricane in California or an earthquake in Iowa. Irrational Escalation of Commitment, meanwhile, shows up in misguided efforts to “keep up with the Joneses” – buying things simply to try and influence what the neighbors think. The Irrational Escalation of Commitment is also powerfully evidenced in Max Bazerman’s $20 bill auction. In for a penny, in for a pound, as the saying goes. Crazy. Irrational.
Intent on protecting us from mayhem and disaster, the Negativity Bias tends to be the default for many of our brains. The problem here is when we fail to recognize it as a bias. Yes, there are neurologically damaged, destructive people in the world who harm themselves and those around them (Watch a little network news to confirm this reality). But there are many, many more healthy, helpful, productive positive people in the world. Making regular contact with them helps us begin to neutralize the Negativity Bias.
Riding our Financial Flow
The flow of money into and out of our lives is a central reality of modern life (although these days its more likely to be a number digitally printed in the bank statement or investment account showing up on our computer screen). We need to provide kids much better teaching and learning about the skillful use of money much earlier. One fact kids should learn is that when it comes to money, many people become emotionally disturbed and are unable to think straight.
To help straighten their thinking, one of my favorite money resources is Michael Phillips’ classic treatise: The Seven Laws of Money. It’s an easy-to-read introduction to the less obvious, creative qualities of money. Phillips speaks more to the right brain than the left. Briefly, the Seven Laws are: 1. Do it! Money will come when you are doing the right thing; 2. Money has its own rules: records, budgets, savings, borrowing; 3. Money is a dream – a fantasy as alluring as the Pied Piper. Money is very much a state of mind; 4. Money is a nightmare (Of the people we punish, the people we have to take out of society and imprison, 80% or more are people who are unable to deal skillfully with money); 5. You can never give money away; 6. You can never really receive money as a gift. Money is either borrowed or lent or possibly invested; 7. There are worlds without money. They are the worlds of art, poetry, music, dance, sex, etc. the essentials of human life (and social neuroscience! :-))
The Sharp-Fanged Faces of Finance
So, how can we take those laws along with others and best help our children address financial insanity when it tries to rear its many sharp-fanged faces in their lives? In the old days, it used to be addressed at least a little bit by high school classes in “home economics.” But no longer. One suggestion might be to model skillful money management along the microcredit lines developed by Nobel Peace Prize Winner Muhammad Yunus. Start kids out with a small loan/allowance. Their job is to grow that allowance and pay parents back the initial loan, making them eligible for borrowing and paying back twice the original amount. Children can be creatively guided in how they earn and grow their money – growing their financial brains at the same time – but the main idea is to give them lots of practice in skillfully managing money of their own. Even the richest 400 people in the world need to be challenged by the likes of Bill Gates and Warren Buffet to become skillful in the social use of their own money, so there’s hope for our kids if we begin encouraging them early enough.