What’s piqued my interest this week?
Attitudes and behaviour towards money are learnt in childhood by observing your parents. On a structural level, the dopaminergic mesolimbic ‘reward’ pathway develops through your childhood and adolescence (1). This is the time when your brain is most sensitive to it’s reward system, and is setting down the pathways for a lifetimes use (2). The way I explain behavioural modelling to patients is to think of it as a parallel to learning your first language. As a toddler you observe your parents using sounds as language, try it out, see what works, gradually accumulating your understanding without consciously being aware of the process. Other behavioural processes also follow this unconscious accumulation process, including financial attitude. If you model your child’s behaviour at this time (consciously and unconsciously) you lay down the pathways for a lifetime of reward processing.
Hundreds of websites and blogs have signed onto this, offering to teach us the ways we can consciously train our children to be better financially. This doesn’t have to be as intense as paying your child through an investment account, or making them buy fractional shares in Netflix as some would recommend (3). The piggy bank, pocket money, weekend job development path will work just fine (4). I clearly remember learning the value of money calculating how many penny sweets I could buy with my 50p pocket money. The pre-frontal and frontal cortex projections of these pathways continue to develop into your teens and early 20s, forming your conscious awareness of pleasurable responses as you grow into adulthood.
The unconscious processes are far harder to model, alter or change. These are the deep cortex projections close to the archaic midbrain structures, projections which develop during early childhood through modelling. These are learnt through observation of those around you. This is why teaching your child to be a spendthrift can only go so far if your own approach is spending all you have to keep up with the Joneses. This is also why, in my opinion, people such as Little Miss Fire struggle with her Shop Floor Mentality (5). If you have grown up in an environment of thrift as a necessity of poverty the rewards from saving, investing and watching wealth grow are not hard-wired in your cortex. There is no unconscious drive for these goals. The Stanford Marshmallow experiment on delayed gratification is a case in point example, and potentially a way of teaching your child the benefits of patience (6).
Which is where I bring things full circle. Many rich people are innately frugal; look at Warren Buffett (7, 8). These winners derive their pleasure from the process not the outcome. MrsShrink is innately frugal as she was brought up in an environment where frugality was a necessity. She observed her mother being able to afford the things they wanted by saving wherever possible. I secretly suspect she is much more likely to become FI than I because of this innate drive, but will be hampered by her mistrust of investment vehicles. She has no desire and gains no pleasure from making non-frugal choices. Consciously training thought processes to be the same way is far harder.
Have a great week,
N.B. There won’t be a Full English Accompaniment next week as I’m on holiday AFK.
- UK inflation rises 0.1% to 2.5% (9)
- Tesla ‘to be probed by regulators’ over privatisation plan (10)
- And sees it’s stock fall as Musk admits it’s pretty hard to challenge a massive industry (11)
- House of Fraser owed millions to major chains (12)
- New Zealand bans the sales of homes to foreigners (13)
- Fears grow as house prices fall at their fastest rate since 2007/8 (14)
- Mining in the UK sees a resurgence (15) – I find the mining industry fascinating and will do a piece on this at some point in the future
- The Fire Starter runs the maths on an electric car (16)
- BBC – Why are people not saving? (17)
- UKVI – Is Ted Baker a perfect dividend stock? (18)
- IG market analyst – Is investment in renewable energy drying up (19)
- Larry Swedroe – Determining ESG’s nature (20)
- Firevlondon – a high-value investor adjusts his portfolio (21)
- Firevlondon – a high-value investor’s July returns (22)
- Ermine at Simple Living in Somerset, being Ermine (23)
- A new blog to me, Eagles Fear to Perch (24)
- Monevator’s weekend reading (25)
- And a piece from this week on the intricacies of risk and reward (26)
- Wephway at Deliberate Living reconsiders savings rates (27)
- Weenie challenges our phone addiction (28)
- MMM – The 20 dollar swim (29)
- Monevator linked this fantastic article on cognitive bias from The Atlantic (30) – I’ll be doing a few pieces of cognitive bias in the future, but a great starter for 10.
What I’m reading:
An exam textbook
Religio Medici by Sir Thomas Browne – the theological and psychological reflections of a C17th doctor
Enchiridion by Epictetus – Bedside reading for a bad day
- Walker et al. Adolescence and Reward: Making Sense of Neural and Behavioral Changes Amid the Chaos. The Journal of Neuroscience (2017)
- Galvan, A. Adolescent Development of the Reward System. Frontiers In Human Neuroscience (2010)