Book Review: "The Psychology of Money- The Postscript"

Book Review: "The Psychology of Money- The Postscript"

May 22, 2023

After sharing all 20 of his lessons surrounding "The Psychology of Money," author Morgan Housel then gives readers "A Brief History of Why the U.S. Consumer Thinks the Way They Do."  Starting at the end of World War II, I found it fascinating to see how the culture and expectations surrounding money in the United States came to be what it is today.

1. August, 1945. World War II Ends
16 Million Americans served in World War II, so there was a lot of uncertainty when they all came back and left the military. While they were gone, housing construction came to a halt and a lot of new jobs that were created during the war suddenly disappeared.

2. Low interest rates and the intentional birth of the American consumer.
In order to avoid a Recession, the Federal Reserve kept interest rates extremely low, making it easier for people to borrow and spend more money. Politicians, businessmen, and labor leaders all encouraged spending in order to stimulate the economy. Consumer debt also became much more accessible and interest on all debt was tax deductible at the time.

3. Pent-up demand for stuff fed by a credit boom and a hidden 1930s productivity boom led to an economic boom.
Out of necessity, businesses in the Great Depression made massive leaps in productivity. Then the 1950’s saw lots of new inventions that were able to be manufactured in factories that were previously being used to manufacture weapons during the war.

4. Gains are shared more equally than ever before.
Upper and lower class Americans all saw their wages increase in the 1950s. Women and minorities also started to find more opportunities. People started to live more equally and the gap between the rich and poor began to shrink between 1945 and 1980.

5. Debt rose tremendously. But so did incomes, so the impact wasn’t a big deal.
Household debt was low to begin with after World War II, and while it increased 5x from 1947 to 1957, wage growth also grew at such levels that the effect wasn’t severe. This was mostly driven by home ownership, which was around 45% for the first four decades of the 1900’s and increased to 62% by 1970. So the economy is booming, financial prosperity is being felt by all classes, and people are no longer afraid of debt do to it becoming a part of American culture.

6. Things start cracking.
The economy finally started to see some headwinds in the 1970 and went through a Recession that saw increased inflation and high unemployment. The gap between upper and lower classes started to widen again, but the problem was that people still believed in equality of lifestyle. Expectations change slower than the facts, and people still expected their lifestyle to be relatively similar to their peers.

7. The boom resumes, but it’s different than before.
The economy took off again in the 1980’s, but the equal growth that was spread among all classes from the 1940’s to the 1970’s was a thing of the past. The Atlantic wrote: “Between 1993 and 2012, the top 1% saw their incomes grow 86.1%, while the bottom 99% saw just 6.6% growth.”

8. The big stretch.
This is when the ultra-rich started to break away from middle and lower class Americans, but there lifestyle was heavily promoted through marketing and then the internet. The only way for the middle and lower class to keep up was to finance their lifestyle through borrowing, which meant big mortgages, car loans, credit card debt, and student loans.

9. Once a paradigm is in place it is very hard to turn it around.
After things seemingly culminated in the 2008 Financial Crisis, a lot of debt was shed. However, the response to the events of 2008 may have had some unintended consequences. The Federal Reserve and the US government did things like backstop corporate debt and cut taxes, but this mostly helped the rich. Furthermore, with prices of college skyrocketing, it added to the cycle of the rich staying rich. People with higher incomes can afford to send their kids to the best colleges, who then graduate, get the best jobs, have higher incomes, and send their kids to those same colleges.

10. The Tea Party, Occupy Wall Street, Brexit, and Donald Trump each represent a group shouting, “Stop the ride, I want off.”


These are all different movements but each has had similar roots in people expecting equality of opportunity and lifestyle, but eventually realizing that is not how modern American society operates. This history of the American consumer is not meant to be completely pessimistic, as unemployment is at historic lows, wages are actually growing for low-income workers faster than the rich, and college costs have essentially stopped growing since grants were factored in. The main takeaway should be that our expectations move slower than reality, and that can have a major impact on the culture of a nation.