People are born to be stupid with money.

Unfortunately, we’re biologically programmed to be bad with money. Once you have accepted this fact, managing money and getting richer is a lot more straightforward. Often the best thing you can do is use technology to overcome your natural and instinctive biases and take the human out of it.

Money in some form has only been around about 40,000 years and recognisable coinage about 3,000 years. In evolutionary terms, this is nothing. Our minds and bodies have not had time to adapt to the environment of money despite its central cultural importance in our lives.

That means when we think about money — and then act—we are really repurposing behaviours that have evolved over millions of years which have nothing to do with money at all. This gives rise to some very peculiar and not very helpful behaviour that can make us less financially resilient.

Here is a powerful yet simple example from “Mind Over Money: The Psychology of Money and How to Use It Better” by Claudia Hammond. When people are given money—or something that represents money—dopamine is released in their brains. Dopamine is a neurotransmitter which in the words of Web MD “plays a role in how we feel pleasure. It’s a big part of our uniquely human ability to think and plan. It helps us strive, focus, and find things interesting.”

You’ve most likely heard of Dopamine due to its role in drug addiction; the Betty Ford clinic provides much research if it's of interest here.

So, you may not be shocked to learn that being given money makes us feel good and that shares the same chemical process in our bodies as anything else that makes us feel good. Here is the real kicker though. What Hammond found is that when people were promised money without a physical token, there was no such effect. It required something—anything at all: a shell, a button, a piece of metal — for us to feel that dopamine rush, even though economically, logically, and rationally the reward of money now vs money deferred is the same.

This explains why it's so hard to get people to save for retirement. It’s a promise of money in the future — it, therefore, has no dopamine associated with it at all, so why bother, right? It takes a lot of effort and prodding by governments to ensure that we do it all.

Some examples from Hammonds book should give us all pause. Consider for example these deep-seated unconscious biases:

• We value different formats of money differently e.g. the same amount of money in coins, paper money, checks, gift vouchers and bank account balances are all valued differently.
• The more grubby and used the note/coin the faster we spend it.
• We perceive larger format notes and coins as more valuable regardless of denomination (might this explain why we view heavy “metal” credit cards as being more affluent?).
• When paying with a card instead of cash, we tend to make more impulsive purchases.
• Saving money is perceived relative to the overall amount, so saving $10 on a $20 purchase is perceived as greater than saving $10 on a $1000 purchase.
• We put more effort into saving trivial amounts on small purchases than large amounts on large purchases.

In short, a $ is never just a $ — we each view value subjectively and qualitatively differently dependent on circumstances. Given this, is it any surprise we are so poorly equipped to manage money effectively?

There are other things that normal people do with money. For example:

• They never change their bank — the average tenure of a primary bank account is 16 years. 96 million Americans have never changed their bank account and it's costing them billions collectively in lost interest not to mention the opportunity cost.
• They leave money in low-interest checking and savings accounts — on average a person earning $160K+ a year has $42K in a checking account. The typical Top-10 Bank account pays 0.01% APY on checking and 0.02% on savings. >80% of deposits are held by Top-10 Banks.
• They indulge in vanity “metal” credit cards — $550 a year for a Chase Sapphire Reserve card that delivers below-average cash returns?
• They don’t invest — only 55% of Americans own stock — a number that has actually been falling in the last 10 years (it was 62% a decade ago).
• They don’t dollar-cost average efficiently — i.e. spread out regular investments to avoid market-timing risk.
• They pay too much in investment fees.

Individually, these things may not matter materially — especially to those earning good salaries every month. But compound interest is a very powerful thing indeed — and critically it works both ways.

Save and invest a little every day over a long time and it adds up spectacularly. Invest $3.50 a day from age 26 and by retirement, you could have amassed a portfolio worth over $500K.

Lose a little every day though and your total lifetime earnings become substantially lower over time. That may not matter if you are one of the lucky few who suffer no ill fortune or unexpected life changes over that time and retire on a company pension after your 40-odd-year career. But what if calamity does happen or if you want to pursue something outside a traditional career choice at some time (like starting your own company)? When that happens, that $500K becomes very useful indeed — it provides additional financial resilience to survive and thrive through life's turmoil.

Saving and investing like this is really hard though unless we use tools and technology to automate it. The default is the opposite reaction and we all collectively lose hundreds of billions of dollars that could and should be in our collective wallets.

Being stupid with money is, unfortunately, a response to modern life. Our ancestors did not have to evolve natural defences from misleading advertising and sketchy acquisition offers from financial services companies.

They were too busy surviving the more pressing environmental and immediate threats — like bears.

So, at least as far as money is concerned, it’s good to be different.

It means you have the capacity to think critically about how you manage your money and defend against the formidable resources of the combined financial services industry who are very keen to separate you from it for their own interests. It gives you the power to change the future.

With financial resilience comes great potential and it gives you back control regardless of what might happen.

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