54 pages • 1 hour read
Morgan HouselThe Psychology of Money
Nonfiction | Book | Adult | Published in 2020A modern alternative to SparkNotes and CliffsNotes, SuperSummary offers high-quality Study Guides with detailed chapter summaries and analysis of major themes, characters, and more.
Chapters 7-9Chapter Summaries & Analyses
Chapter 7 Summary: “Freedom”
While different things make people happy, Housel argues that everyone wants to have freedom and independence. Housel cites psychologist Angus Campbell, who found that happy people of very different educational, financial, and geographical backgrounds all had a good sense of control over their lives. Housel argues that the best aspect of accruing wealth is the freedom it can give you. For example, having savings may enable small things such as sick days, being able to leave a stressful job, or taking a longer job search to find the right position, or enjoying a more comfortable retirement. For Housel, this freedom is considerably more important than buying material things. He writes, “Using your money to buy time and options has a lifestyle benefit few luxury goods can compete with” (79, emphasis added).
Housel examines the paradox between Americans’ growing wealth and quality of life with the fact that most Americans report feeling more stress and worry than citizens from other countries. Housel claims, “Part of what’s happened here is that we’ve used our greater wealth to buy bigger and better stuff. But we’ve simultaneously given up more control over our time. At best, those things cancel each other out” (81, emphasis added). Housel also argues that since more people now perform intellectual and online work rather than working in hands-on professions, such as manufacturing and agriculture, it is more difficult to leave work behind and enjoy leisure time. The author concludes by reiterating, “Controlling your time is the highest dividend money pays” (84).
Chapter 8 Summary: “Man in the Car Paradox”
Housel explains his “Man in the Car” paradox as follows: When people see a fancy car, they think about how cool they would look driving that car, rather than feel impressed by the driver. While some people seek wealth to try to earn others’ admiration, most of us do not really admire or respect people based on their wealth. Housel admits that when he worked as a valet, he often admired the luxury cars people drove, but notes that he never paid attention to the drivers. Housel feels that the same paradox applies to any other status symbol such as clothes, jewelry, or houses. Housel recommends that people should behave with respect, kindness, and humility if they want to earn others’ admiration rather than trying to buy it with status symbols.
Chapter 9 Summary: “Wealth is What You Don’t See”
Housel explains that “wealth is what you don’t see” (89, emphasis added) since frugal people may have savings and assets while lavish spenders may live on the edge of bankruptcy. He recalls working as a valet and assuming that a customer who drove a Porsche was rich, only to see him later driving a Honda when his original car was repossessed since he could not pay off the loan. The author points out that it is simplistic to assess others’ wealth based on their possessions, since they may be deeply in debt to support their spending. According to Housel, real wealth is saved financial assets that one can use at a later time, not material things one has already purchased. He advises, “The only way to be wealthy is to not spend the money that you do have. It’s not just the only way to accumulate wealth; it’s the very definition of wealth” (90).
To explain his argument, Housel differentiates between being “rich” and being “wealthy.” Being rich means one has a high, steady income, which can afford luxury goods. In contrast, wealth is income that one has saved, which is valuable because it offers choices and flexibility in the future. Housel argues that most people want to be wealthy, but that it is difficult to learn wealthy people’s habits and skills because you cannot see the restraint that is required. Housel reminds the reader of the main point of this chapter: “The world is filled with people who look modest but are actually wealthy and people who look rich who live at the razor’s edge of insolvency” (92).
Chapters 7-9 Analysis
Housel passionately advances his theme about avoiding mindless materialism and prioritizing wealth to build toward freedom and independence instead. By making the distinction between being “rich” and being “wealthy,” Housel advocates having a more restrained relationship with money. Housel takes aim at the ego in his chapter “The Man in the Car Paradox” by arguing that no one is really impressed by status symbols, or admires people because of the things they own. He admits that he loves luxury cars himself but encourages the reader to examine their real motivations for making certain purchases. He highlights the fact that by spending money on items that will only depreciate in value, people lose out on the best value wealth offers, which are “options, flexibility, and growth to one day purchase more stuff that you could right now” (90).
Similarly, in “Wealth is What You Don’t See,” Housel strips luxury possessions of their mystique, instead focusing on how they can create a misleading veneer over dysfunctional financial situations. He explains, “We can’t see people’s bank accounts or brokerage statements [. . . ] Modern capitalism makes helping people ‘fake it till they make it’ a cherished industry” (89). This analysis helps Housel build his broader argument that people should not judge or envy others’ finances, since it is impossible to know the truth about how they are living. To support this perspective, Housel references his anecdote about Ronald Read, the janitor who saved millions over the course of his life. Housel reminds the reader that because of Read’s frugal, humble lifestyle and private nature, “he was no one’s financial role model while he was living because every penny of his wealth was hidden, even to those who knew him” (91). These discussions help Housel illustrate his pragmatic financial approach as he argues against materialism in favor of actually building wealth for the long term.
