What It Does and How It Works
When my wife, Janine, and I first went to see the house in which we now live, the thing that most excited her was the backyard. "Plenty of space for a garden," she said breathlessly. I could see her pleasure as she scanned the sizable expanse of the yard, no doubt already planning vegetables here and perennials there.
The prospect filled me with dread. Where she saw tomatoes on the vine and beds of peonies, I saw bills, expenses, maintenance costs. If I even acknowledge her pleasure, I thought to myself, she'll start planning this garden; and if she does that, I'll have to pay for it. And if that happened, a lot of money would flow away from me.
"What do you think, Spencer?" she asked me excitedly. "Isn't it just perfect?"
I barely grunted, then looked away. The truth is that I was terrified of spending money on a garden. I was even more terrified of sharing my fear with Janine. It was not something I had ever talked to her abouteven though she was and remains the person to whom I feel closest in all the world. So as I always and invariably did, I kept mum, and I simply let my fear simmer.
Irrational? This was sheer folly.
For one thing, we could well afford a garden. Of course, with a packet of seeds you can buy for pennies and a willingness to do a little manual labor, just about anyone can afford a garden. But in fact, our finances at the time would have enabled a professional garden design and help with the heavy-duty work of garden maintenance, so my fear certainly wasn't due to a lack of ready cash.
Nor would it have been rational to reject the garden for the sake of our long-term financial welfare. Quite the contrary. If this became our home and we one day decided to sell it, a garden in the backyard would significantly enhance its resale value.
In fact, by any measure I could possibly come up with, had I been thinking rationally, the garden was a plus. It would give pleasure to my wifesomething any husband normally seeks to do. It might provide us with the fresh vegetables I love. If I had allowed myself to think about it, I might have realized that a garden can be a place of relaxation, a place that can refresh the spiritin short, a "commodity" that might enrich my life.
I yield to few people when it comes to knowing about money. Trained in economics, with an advanced degree in business, certified as a financial planner, I advise some of the wealthiest and most astute investors in the United States. I make a lot of money for them. You don't have to take my word for it. Worth magazine has repeatedly named me to its list of the top 100 wealth advisors in the nation.
But standing in the backyard that day, tensing with resistance against the projected outflow of my cash, and seething with resentment at the person I loved most in the world, I was not behaving like a money expert. Rather, my behavior was being driven by money madness.
Fear of money going away from me was one part of the madness, and it was powerful enough to give the boot to all common sense, including financial judgment. Equally telling was my fear of sharing my feelings with my wife. Instead, as Janine and the real estate agent strolled the yard, talking about spring bulbs, summer herbs, and late-fall ornamental grasses, I allowed money madness to create a gulf across which my wife and I were simply not communicatingacross which, if truth be told, we never had communicated.
The High Price of Money Madness
Money madness is alive and well at home, in the office, on the factory floor, at play, in the bedroom.
And it has consequences.
I see money madness, and its consequences, in my friend Jack. Jack is not just a captain of industry, he is a brigadier-general. He's the second in command at a prestigious corporation, reporting directly to the supreme commander, the CEO, while an impressive staff of officers and hundreds of worker-troops are Jack's to direct. And so he does, issuing orders and deploying resources with all the confidence of a man in no doubt of his testosterone level or intellectual abilitylike Patton on the front lines of the battlefield. Yet when it comes to asking for a raise, money madness takes over, and General Jack crumbles.
Every year, when Jack meets with the CEO for his annual performance review, his personal money monster goes with him. The money monster makes Jack's palms sweaty, dials up his blood pressure, and lowers his normally stentorian speaking voice to a croaking whisper. Instead of asserting his value and declaring what he thinks he's worth, Jack waits for the CEO to tell him he's been a good boy and offer him the reward of a small raise, and Jack's money monster directs him to gush with gratitude for the gift and get out of there as fast as he can.
I see money madness in my neighborsI'll call them the Smithswho refuse ever to go into debt. The Smiths' money monster lets them spend only what they have and insists they never borrow, never be beholden to anyone. They're a strictly cash operation.
But they'll also never quite be able to buy a house in which all three kids could have separate bedrooms, and from which the Smiths might some day realize retirement incomesimply because saving up that kind of cash could take a lifetime. Instead, they will limit their lifestyle, remaining in their somewhat cramped rental home, where the kids take turns sleeping in the living room, and they will miss out on the opportunity to make an important investment and build financial equity in a house. All for the sake of a belief in the virtue of being debt-free.
The Joneses, by contrast, have made it their life's purpose to do everything for their kids, mortgaging their own present security for their children's future. Despite a consistently rising income, their money monster keeps them overspending endlessly. Result? While the Joneses sweat blood to give their children every advantage, what they're really giving the kids is a model of stress, self-neglect, and poor money managementa legacy that could haunt the younger Joneses for years to come.
I see money madness in my friend Sandy, who bought her house, and overpaid for it, for the fireplace in the living room. She dutifully looked at the other rooms in the house, but the decision had already been madea function of emotion, not of objective decision-making. Had Sandy really analyzed what the house would cost for repair and maintenance, or assessed whether it might make more financial sense to rent than to buy, she would have seen that it would be a financial struggle for her to own the house, as indeed it has proven to be.
But she didn't do such an analysis. Instead, she saw herself on a cold winter's night, the snow piled high outside, soft music playing, her glass of wine catching the reflection of the fire's flames as she savored the warmth within. Her own personal money monster had drawn the vision for her and kept her focused on it. It was irrational, but it was irresistiblemadness at a high price.
Money Madness Comes Between People
Money madness isn't just in us, it's between us. There's a famous story about two womencall them Susan and Sarahwho had been the closest of friends for 20 years.1 For 20 years, they confided in one another, complained to one another about their husbands, worried about their children, shared secrets. Then one day Susan finally "confessed" to Sarah that she didn't exactly work at the art museum, she was on its board of directors and was one of its major contributors, donating to it some of the vast wealth from her trust fund.
It left Sarah not just curious about what else she didn't know about Susan but also wondering who this woman was she'd been telling her innermost secrets to for 20 years. She felt not just distanced but betrayed, and a friendship of 20 years' duration soured irrevocably.
Families can be torn apart by money madness. Mine was. My father's partner in the shoe store he owned was his sister's husband, whom he came to suspect of pilfering from the store cash register. Because my father's money madness was that he couldn't talk about moneya trait I would learn at his kneehe allowed himself to become estranged from his sister rather than solve the issue. Soon, the two families did not speak at all. It wasn't until 37 years later, when all the principals were dead and after I had cured my own money madness, that I was able to hire a private detective and reunite with my first cousins.
I've seen money madness sunder business relationships and ruin business deals. I've seen it undermine sales and anger customers. When I first started out as a financial advisor, I was so reluctant to discuss money that I put off stating my fee till the very end of my sales pitch, then low-balled it so I could get the job. Sometimes it backfired, with a prospective client figuring that if I was promising to deliver all those services for that low fee, I probably didn't know what I was doing.
Money madness is a notorious barrier to intimacy between lovers, spouses, partners. Husbands like me don't let on about the family financeswe just stew over what the garden might cost. Wives tell husbands their new dress cost half its real price. Couples conceal bank accounts or credit cards from one another, thus living separate and secret lives and fostering a kind of liewhile living together. Trust is eroded, communication deteriorates. If you don't know your partner's sense of values, style of dealing with money, definition of abundance, vision of the financial future, can you honestly say you know your partner?
It's Not Irrational When We Do It
Here's the real lunacy about Sandy, who bought the house because she fell in love with the fireplace: She's a mortgage broker. She knew her behavior was irrational even as she was doing it.
That is perhaps the single most distinctive characteristic of money madness: It is behavior we know is totally irrational, except when we do it.
I knew my behavior was irrational that day in the backyard as I listened to my wife grow increasingly excited over plans for her garden. If clients had been looking at the property and had asked me to offer a financial assessment, I would have extolled the idea of the garden both for its potential enjoyment and for the dollar value it would add. But this wasn't happening to clients or friends; it was happening to me, and the rational me wasn't there to tell the irrational me to cool it.
I also knew I was behaving irrationally by not talking openly to Janine about money. I talked to her about absolutely everything else. I had told her everything there was to know about meexcept our assets, my income, our debts, or the money in the family coffers. Three years into our marriage, and I still couldn't discuss those financial basics with my wife.
Yet I always tell my clients that it's essential they talk to their spouses about all financial matters. I've seen what happens when couples don't discuss an investment, or a projected major purchase, or a decision to sell a stock or a property. It isn't just the relationship that suffers; so does the portfolio.
And I knew this. Knew it all implicitlyexcept when it was happening to me. That was the irrationality. I could be absolutely objective on the subject of the value of gardens and on the need for financial intimacy between spouses, except where my own garden and my own marriage were concerned. That's when objectivity went out the window, rationality didn't stand a chance, and my money madness moved right in and took over.
If I could have seen myself objectively, I probably would have been appalled at my behavior: a grown man, a conscientious breadwinner, a responsible member of the community keeping secrets like a Cold War conspirator. If someone I cared about behaved as I did, I would have done everything in my power to stop him or her. It was only when I was behaving that way that I was unable to see how irrational, unwise, and downright unprofitable the behavior was.
What the Money Monster Whispers . . .
Back in the days of the high-tech bubble, my client Bill calmly put 90 percent of his portfolio into a single Internet stock. Certainly, Bill kneweveryone knowsthat it is foolish to invest all your wealth in a single stock. That's proverbial wisdomDon't put all your eggs in one basketeven though the value of that one basket had quintupled in a single year and was expected to keep on rising. In fact, had Bill been advising a friend, he would have offered the eggs-and-basket wisdom along with his congratulations.
But as his concentrated portfolio grew in value from $1 million to $2 million to $15 million and more, passing through levels of wealth that once would have seemed to Bill stratospheric but that now seemed sort of normal, he could not say to himself what he would have said to a friend: "Diversify. Allocate your holdings among various assets and distribute your risk." That inability to hear for himself the advice he would have given to another was his money madness. And when the tech bubble burst and the market tanked, Bill's stock went belly-up, and 90 percent of his original wealth was gone.
For most of us, the numbers are smaller, but the principle is the same: The behavior you'd warn a friend to stop, you can't even see in yourself. Someone you care about who is strapped for cash to begin with wants to spend a weekend in Las Vegas, and you sit her down and remind her there are other ways to take a mini-vacation. But you'll dip into savings to invest in a get-rich-quick scheme a friend says is a "sure thing."
A pal with a two-star salary starts to pick up the tab at a five-star restaurant. You know that will mean a sacrifice in another arena of the pal's life, so you stop him before he can complete the gesture. But you stand at the store counter determined to take home that overpriced high-def television because you want it and it's your due.
That's the money monster at work. In the case of the friend's sure-thing investment, the money monster is the fantasy of having your life change overnight, of being catapulted effortlessly into a realm that is light-years away from your current humdrum existence. You feel it as a sheer physical rushblood coursing through your veins, heartbeat speeding up.
In the case of the TV, the money monster is that almost indignant sense of meritthe affirming feeling that you're worthy, that your virtuous actions and difficult life experiences have given you a right to the TV, that you're entitled to it.
In both cases, an infinitesimal grain of truth injects a note of cruelty into the equation. Yes, it is possible that an investment can so increase in value that your money might double, triple, even quintuple, although probably not overnight. That is indeed possiblein the abstract sense that anything is possible. And certainly you deserve a 42-inch screenin that same abstract sense that everyone deserves a 42-inch screen. If the universe were pure and rational, both those things would be true.
But that anything is possible and that everybody is deserving, though fine notions, don't really come into play here. The reality of stock market investing is that even a successful investment won't change your life overnight, and an investment tip that promises to do so is very likely an unsound proposition. And everybody knows it.
The reality of consumer spending is that it is a matter of what you can afford, not of inherent or constitutional rights. Everybody knows that, too.