“With money in your pocket, you are wise and you are handsome, and you sing well, too.” ~ Yiddish Proverb
Take this short, three-question, multiple choice quiz from the Atlantic Monthly…
- Suppose you had $100 in a savings account and the interest rate was 2 percent per year. After five years, how much do you think you would have in the account if you left the money to grow? A) more than $102; B) exactly $102; C) less than $102; D) do not know; refuse to answer.
- Do you think that the following statement is true or false? “Buying a single company stock usually provides a safer return than a stock mutual fund.” A) true; B) false; C) do not know; refuse to answer.
- Imagine that the interest rate on your savings account is 1 percent per year and inflation is 2 percent per year. After one year, would you be able to buy A) more than, B) exactly the same as, or C) less than today with the money in this account?; D) do not know; refuse to answer.
The correct answers are 1-A; 2-B; and 3-C.
How did you do? Did you respond correctly to all three questions? If you did, then you belong to a shockingly small global minority.
If you got all three correct and live in Russia, you have very little company – only 4% of the population got all three answers right; in Sweden only 21% were spot-on; in Japan, 27%. In the United States only 30% of the population got all three answers correct. What’s up with that?
How the brain develops structurally, how it’s affected by stress, and how it fails to learn how money works both personally and globally lies at the root of such dismal performance in my estimation.
Why Your Money Brain Loves to Eat the Marshmallow
One significant difference between the brains of the 10% who own 85% of the wealth in America and the other 90% of us is that when it comes to money, the 10% know the value and importance of something called “delay discounting.” Delay discounting is the tendency for far off outcomes to have less value than what’s pleasurable right now. Distant benefits affect the pleasure centers in our brain very differently than immediate ones do. One famous example of delay discounting is Walter Mischel’s marshmallow experiments at Bing Nursery School on the Stanford University campus. Kids were given the choice to eat one marshmallow immediately, or wait while the experimenter left the room; they would get to eat two marshmallows when he came back. All kinds of benefits accrued in later life to the kids who were able to exert strong impulse control and not immediately gobble up the single marshmallow.
With respect to money, the feel-good chemicals produced in the brain by buying things today, doesn’t feel anywhere near as good as saving that money and watching it grow through investments and compound interest year after year.
The Good Money News
The good news is that we know that neural plasticity can change the way those two different experiences feel in the body and brain. So, for example, we can begin learning and practicing doing simple things with small amounts of money that do manage to stimulate the pleasure centers in our brain and at the same time, contribute to our personal sense-reality of wealth and well-being. Whatever the brain pays increasing attention to tends to expand.
In my own case, I take 10% of every dollar I earn and invest it in something I consider to be a potential appreciating asset (something that will gain in value, as opposed to a depreciating asset which turns out to be what most of us spend our money on). Investing in appreciating assets can transform our spending from “hot” to “cool.” One thing I invest in is new books about neuroscience. Learning about how my brain works makes it both feel better and work better – buying neuroscience books pays me big dividends in the dopamine delivery process (dopamine is the predominant neurotransmitter most closely connected to pleasure). Not only does my knowledge increase, but so does my creativity, which is an additional great source of pleasure.
There are added pleasure benefits as well from this small financial investment: over the years I have managed to build out the pleasure centers in my brain through performing community service. That’s primarily what this blog and The Enchanted Loom are about: I’ve sufficiently changed my brain so that it derives great pleasure from being of service to the world. When it comes right down to it, much of life is about feeling good, and the good news is that money can be placed into creative service to sculpt the pleasure centers of the brain in precisely that fashion. Stay tuned to find out more about exactly how.