# Fools and their Money Metaphors

This has always puzzled me: why do people with similar backgrounds and intellects vary so widely in their effectiveness in dealing with money? One guy goes to work straight out of college, saves strategically, quits and starts his own SAP consultancy in 5 years, and is worth a few million by age 30. Another gets an MBA, gets sucked into a high-class lifestyle of expensive suits and dinners, and ends up with a BMW and barely $50,000 saved by age 30. And yet another, for reasons obscure even to himself (ahem!) goes off into a PhD program, and emerges, blinking at the harsh sunlight, at age 30, with exactly$0. Last weekend, I finally began to understand. Here is the secret: depending on your direct experience of the money you manage, you think about it with different metaphors. Your metaphors, not your financial or mathematical acumen, determine the outcome of your dealings with money.

Money Mindsets

Let’s get two misconceptions out of the way. Money as a conceptual or theoretical construct (academic debates about fiat vs. gold-backed)  or as a technical definition (the M0, M1… stuff) is mostly irrelevant to managing money at any level from big bailouts to a kid with a weekly allowance.  So is advanced mathematics (in fact an interest in mathematics makes it harder to be interested in money, because money-math is among the dullest kind).  You don’t need more than basic arithmetic and some trivial algebra to “get” money mathematically. Even all the statistics and optimization doesn’t get you to truly interesting math.

What trips us up is money metaphors. I began to realize this when I noticed that I was relating very differently to the completely trivial amounts of money this blog makes, compared to my paycheck. The first clue that put me on the track of this idea was this bit from The Organization Man (I haven’t yet blogged about this part in my ongoing series about the book):

[Organization men] have little sense of capital. The benevolent economy has insulated them from having to manage large personal sums…

Whyte’s point was that those of us who have gotten our finances onto the ammortization autopilot thanks to paycheck deductions even for big sums like annual income taxes and house purchases, have simply never learned how to think about large quantities of money at a personal level. Thanks to the Nanny State and the Nanny Corporation, our financial horizon is the month, and through autopilot math, 80% of the cash flow that we are aware of in our lives passes by like clockwork: we watch it, but don’t actively manage it. The remaining 20%, we do manage consciously. This gives us the basic financial calibration point:

• High water mark: the largest amount of personal money you’ve ever dealt with

Middle class people in the US have a high-water mark of around $5000, whatever their actual income levels. This leads to two metaphors we are comfortable with: money as a clock (the limits between which we watch our bank accounts rise and fall predictably, like a pendulum) and money as renewable energy (like a cellphone battery). Here is the mental model of money this leads to, for an average middle class person in the United States (applicable, mutatis mutandis to the rest of the world): Note that everything we commonly associate with different amounts of money falls into the “renewable fuel” or “clockwork” bucket. Even if we are nominally dealing with much larger sums (say$350,000 as the value of a house), the “high water mark” of $5000 or so limits our imagination. At this level, for instance, we don’t take interest seriously (8% is$400 a year) since it maps to an apparently trivial sort of expense (a couple of nights at a nice hotel).

But if you take somebody operating with an entrepreneurial mindset in the same rough range, that person actively thinks about and works with money very differently. He or she thinks on a scale at which the clockwork and fuel metaphors break down, and other metaphors work better. The “paycheck” person above might be a 100K a year employee. For this person, $1 million is not an obscene amount. If he had the true capitalist mindset, and lived with Protestant Ethic frugality on just$40,000 a year, and invested the rest at 8%, then $1 million is what he’d have built up as start-up capital to strike out on his own in 10 years, age 32 (yeah, yeah, I know, nobody is talking 8% returns at the moment). So why is this path so rare? I’ve met many people with the right level of frugality (mostly immigrants), but they are still stuck in clock/battery metaphors. For the entrepreneurial mindset, the same money is viewed with metaphors of building material and “time to deadline.” Thinking of money as time to a deadline, or non-renewable fuel (for example, time to build up a certain capital position, or time to burn it down at a particular burn rate) or as building material (“this is what it would take to buy a McDonald’s franchise”), leads to a very different view of the same levels of money: Since I worked at a startup as the first employee for a year, I’ve had a ring-side seat to this mindset. But even that doesn’t get to the visceral reality of living this metaphor by managing money with this mindset. But curiously, even something as simple as a blog can put your mind in this gear. I feel a child-like sense of emotion and excitement when somebody uses the “buy me a cappuccino” link on posts to send me$3.00, yet I feel no excitement actually buying my daily coffee at Starbucks. The difference comes from earning as a capitalist, but spending as a paycheck-guy.

These are just two different “money mindsets” based on two different sets of metaphors. So what are the others out there, and what happens when you use them in the wrong contexts?

Thirteen Money Metaphors and their Uses and Misuses

1. Money as a clock: the predictable paycheck-in-auto-payments out oscillator is a good idea only for recurring necessary payments. Any money dynamics that don’t need to be on an auto-pilot should be taken off and managed actively.
2. Money as renewable fuel/rechargeable battery: this is only good for living expenses up to a middle class level. A misuse is to divide the national debt by the population to get a per capita debt. This may give the man on the street the illusion of comprehensibility, but trillions of dollars simply behave differently than thousands. At the trillions level, money is NOT renewable fuel, and it is dumb to let policy be informed by this metaphor.
3. Money as time-to-deadline/non-renewable fuel: good for small-time entrepreneurs, but really bad for countries. Applying startup “burn rate” thinking to the cost of the war in Iraq is probably a terrible idea.
4. Money as building/growth material: this is great for young businesses, but inefficient for older businesses. Kids consume calories and grow taller. Adults consume calories and grow fatter.
5. Money as freedom: beyond about $1 million, money represents freedom, since you could live very well off the interest alone if you were frugal. Good for lazy trust-fund kids and endowments that fund otherwise un-fundable causes. Bad for nearly everybody else. 6. Money as an organic creature: what if you get beyond the “endowment” mindset of money as something to live off, interest wise? At this point, your surplus is big enough that depreciation of cash assets is noticeable even to millionaires. This is money as rotting vegetables. If you don’t change your mindset and plant it in the open economy so it grows, you’ll mismanage money. But I am beginning to believe this is a TERRIBLE mindset for the middle class, and what keeps us trapped there. Mutual funds, like monthly payroll deductions, have made us much stupider financially, and lazy about thinking about money as capital/building material for specific projects. 7. Money as commodity: at a certain level, money becomes just another commodity like iron rods or size #9 bolts. It flows through your systems like a river, in large quantities, can be kept as inventory, depreciates, clogs up supply chains, and depending on the vagaries of the markets and interest rates, it may make sense to hold more or less of it. 8. Money as a lever: I can’t even begin to imagine the level of wealth where you get used to thinking of your money as a way to move more money. At the level we are familiar with (home equity) it tends to be a dicey business. But at a sufficiently high level, it is dumb NOT to think of it in terms of leverage. I suspect a lot of people use leverage mindsets when they play musical chairs with credit cards. Leverage is a bad metaphor to apply if you are using it to consume beyond your paycheck means, but a good one if you want to influence what money plants get fertilized. 9. Money as water: though this is about flows, sources and sinks, it is subtly different from the commodity/supply chain metaphor, since it has natural origins. Think in terms of dams, rainwater, artesian wells, money “frozen up” in old families as glaciers/polar ice caps, and so on. This is probably the best way to think about money culturally and socially. Paris Hilton lives on a glacier. 10. Money as power: I suspect that there is a point of wealth at which entrepreneurs who got started thinking about money as building material realize that they’ve now made enough money themselves that they should think of themselves as investors helping others worry about the building material metaphor. I strongly suspect though, that this is probably a bad metaphor for governance. This is why I think Thomas Friedman is being dumb in advising Obama to invest like a venture capitalist. 11. Money as a work of fiction: once you get to the level of government, with control over the printing presses, where the only checks and balances are the hopes and fears of the Chinese government, you MUST think of money as cultural fiction. It is what you want it to be. There is enough obscurity in the international web of debts, bonds, export-import controls and currency trading controls that the only meaningful way to engage money is that of the high-integrity, truth-seeking artist. 12. Money as blood: this is where all those haemmorage and tourniquet metaphors come from. Money as circulating stuff that, if pumping pressure gets low enough, causes structural collapses and death. Though most of us resent the idea of the government bailing out fat cats, pure Darwinist “let ’em pay the costs” opinions miss the fact that the world is not only like an ecosystem of many organisms, but also like a single connected living thing. You can cause a lot of pain or kill the whole thing if you are not careful. This is also the sort of metaphor switch that made Bill Gates switch from wealth creation to AIDS fighting. 13. Money as nonsense: we’ve all heard of those wartime economies with inflation at ridiculous levels like 1000%. This metaphor is related to the “fiction” metaphor: if you do the fiction part badly, you get nonsense. And then everybody has to scramble to buy gold or guns. There are probably many other metaphors. I haven’t even looked at the entire “leisure” side of metaphors — the mindsets behind yachts, Louis Vuitton purses and the emerald jewelry worn by Angelina Jolie at the Oscars (reportedly worth millions).Many people with excellent metaphors on the management side have awful ones on the leisure side. That’s how you get the tasteless McMansions, crude new-wealth social behaviors and so on. The metaphors you use determine your money personality, and how much you will be able to do with it. To get to the next level of money, you probably need to think with the metaphors appropriate to that level. Think too far above your league, and you’ll be reduced to daydreaming. Stick to your own level of metaphors, and you’ll never move anywhere. Change your leisure metaphor without changing your management metaphor, and you are in for frustration. So much for the armchair lecture. When it comes to practicing what I preach, I admit I still haven’t got my mind out of the “paycheck” level of metaphors. About Venkatesh Rao Venkat is the founder and editor-in-chief of ribbonfarm. Follow him on Twitter ### Comments 1. Viju Joseph says: An interesting perspective of social and lifestyle interaction and money.. Keep up the good work on your blog.. 2. Ashini says: Really interesting analysis! But, you’re right on the money (pun intended). Our experiences with money – especially early in life – influence our adult attitude and behavior with our finances. This impacts our relationships with others, in addition to career. 3. What you have mentioned as a entrepreneurial money metaphor is a very common practice in India..specially smaller towns..This is exactly how middleclass ppl used to make big purchases before loans became fashionable… 4. Nice. What about money as achievement? Like a trophy? 5. Fantastic read dude, well written too. Thanks for sharing the insights. 6. A great read, Venkatesh. Living in India as an American expat, I enjoyed thinking about your metaphors from two world views. Credit cards are very fashionable among my Indian friends, but are not treated as an excuse to live beyond one’s means. Fiscal discipline reigns supreme. On an unrelated note, I love that I was able to find this posting months after you wrote it because of Twitter. Cheers, ~C 7. Bill Sagert says: Are you really the “ahem” guy, age 30 with zero dollars in your pocket? If so, how do you reconcile your financial plight with an amazing breadth of knowledge about finance and money? I say this as an old retired guy who has heard a lot of BS over the years. You should take your mastery of metaphor and expand it into book length and get rich! • Guilty as charged, except worse. I am now 35, with a little bit more than$0 in the 401(k) :) But at least I know enough to know that you do NOT get rich off books unless you are J. K. Rowling.

Sadly, I haven’t yet figured out my true get-rich path.

• From someone who has written a book on Money(!), I recommend that you write an e-book as you have some great stuff to say that people would be willing to pay for. Thank you for your insights.
Marie-Claire

• Thanks, but money is a subject I don’t want to tackle seriously until I actually figure out how to make some :D. Almost any other subject you can BS through an entire book, but with money, your credibility can be measured in net worth dollars.

8. Mauli says:

Interesting approach to money. I think the same view could be taken for time. In the case of “Money as time-to-deadline” you already touch on it. So it doesn’t involve only money to buy other peoples time, it is also the money you make in your own time (you already mention it in your post “Time and Money”). I would even hazard the guess, that people good at the “Money as time-to-deadline” approach, are also good in managing their own time, and vice versa.

9. Nishan Sothilingam says:

This is on of the best damned posts I’ve read in a long time. Thank you.

10. Ho-Sheng Hsiao says:

Sometime in mid-2009, I attended a real estate investment seminar. The guy talking was trained as a preacher, so he spent most his time shifting people’s attitudes and metaphors about money.

At one point he said, “and as everyone knows, TIME is … ”

The whole crowd shouted, “MONEY!!”

The Preacher leisurely took a sip of water and waited until people started fidgeting, wondering …

“You guys say that because that’s what you are trained to think. Time isn’t money. Time is EVERYTHING.”

– Time is non-renewable
– Money is renewable
– Trading a non-renewable resource for a renewable resource is a bum deal.

He later had us play Cashflow 101 and didn’t tell anyone how to play. Just let us fumble around. It illustrated many things, including one for me. I -thought- I knew how to play. No one ever asked the guy and the other circulating staff how to play. I didn’t because I thought I knew everything. (What was interesting was that the newbies didn’t think to ask either). Then he introduced the debt-leveraging method. No one was able to get out the second time. It got me thinking. I couldn’t wrap my head around this method. My mind kept running like a rat in a cage trying to figure it out. During the break, I went to the hotel lobby area, dazed, letting the thoughts spin furiously. Until it dawned on me.

There was an implicit shift to the metaphor you call “money-as-a-deadline”, but what I’d call “sudden death”. Like what happens when you play a round of Super Smash Brothers too long. The strategy, the way to control the timing, the numbers all fell into place.

The debt-leveraging -requires- you to think in terms of deadlines. You can be lazy about it if you accumulate savings and calculate burn rate; but with a debt obligation, there is no other sane way to think about it other than burn rate. (Yeah, sometime if/when we play on the web, I’ll show you what I mean).

Once my head got wrapped around it, it became easier to apply it from the tiny scale to (at least in simulation) large scale. On the small scale of things, I look at startup costs a lot differently now. Did you know Intuit now offers Quickbooks Pro as a $30/mth subscription with a 30-day-free trial? Or that Rackspace offers Windows 2008 R8 at roughly$60/mth, which is about enough to let a distributed bookkeeper login without having to dedicate my own computer in the office? With the initial expenses, I can calculate burn rate before getting the first customer. On the reverse side, calculating Return On Investment in terms of time rate is more sane in this case. Instead of saying, “this asset will give me 200% ROI”, it’s more useful to think of “this asset has an ROI in 6 months”, meaning that in 6 months, I make back my original investment off of its income … and I can go out and find *another* investment. Meaning at at the end of 12 months, I acquired 3 assets — the first one, the second one after I’ve made back the initial investment, and the third one after the first one makes back the investment again. In the video game ADOM, it’s called a “wish engine” …

On the large scale, this stuff works when we talk about something like Railroad Tycoon 3. (Which incidentally, is a good enough simulation to validate certain historical theories on the impact of the robber barons in the Gilded Age).

With debt-as-leverage, your initial *cash* investment is lower, meaning you accelerate the tempo of acquisitions with your cash.

So that’s another money metaphor, one I copied from Kiyosaki’s playbook: money as the loyal dog you play fetch with.

Or if you play Cashflow 101: money as your Ninja Clone that replaces you in the Rat Race ;-)

That brings up the tangential idea: people’s metaphor on *debt* also affects how well they use it. The Preacher said several interesting things. The first is how knowledge of how fractional reserve banking means emotionally to you at a personal level: your mortgage, your car loan, your credit card is actually your money (secured by income tax). The second is that you’re not responsible for the total amount of the debt; you’re responsible for the -installment payments- (hence, sudden-death, and an exit plan).

Good stuff. This is the kind of article I’ll shop around to friends who are right on that edge of realizing how much being a W-2 employee is stacked against you.

• This reminds me I need to spend some time backlinking/trailblazing some unorganized themes on this blog. I have a few more on money…

The discovery of money

Ancient Rivers of Money

Time and Money: Separated at Birth?

Looks like you’ve got a lot to say on this subject. I am JUST starting to grope around and get a “feel” for money. I think you are bringing up a point here that I hadn’t thought of, this whole money as deadline idea is not part of the normal time-money evil twin equation. Once you bring extinction/death into it, you’re talking entropy time rather than clock time: irreversible and hitting a maximum (== 0).

• Ho-Sheng Hsiao says:

Cool. “Ancient Rivers of Money” was next in the queue, but thanks for bringing up the other two.

You got it with the extinction/death. “Entropy time”, indeed. I was vaguely exposed to it when I read the chapter, “Begin With the End In Mind” in Seven Habits years ago (something my mentor at that time had us read). It’s that existential crisis that the Buddhists have figured out — there’s actually a pop book with solid fundamentals (at least with Buddhist principles) on the subject, “Mindfulness and Money: The Buddhist Path to Abundance”.

11. Raunak Agarwal says:

Cool article. This is perhaps the most important factor that determines how much money you make. I often get people commenting on how Marwaris have business in their blood or something like that – I think this is probably what they are implying.

12. Dan says:

Great article and great blog!

Over the past few years, what’s been slowly cohering is a macro/microcosmic theory of human mind focused on its two tendencies – flexible internalization of external reality, where the mind learns to organize itself using internal models of external constructs as mental control mechanisms) and externalization of its internal constructs in the form of social, technological artifacts and inventions. Note the same relationship between a computer and a network of computers or between a part and a whole at nearly any level of software/hardware/computer. Any number of languages and protocols were invented for one level of communication only to be co-opted to be used at another. Most of these concepts are novel – consider http://en.wikipedia.org/wiki/Conway's_Law for this applied at another level – but the idea that this is what makes us essentially human is both long-held wisdom well-understood by ancients (this is what I think was meant by God making man in his own image) and not always remembered by those who study human behavior.

Within this macro/microcosmic sense, the construct in the human brain that money closely corresponds to money is dopamine. We’ve somehow invented a communincation tool that mirrors a chemical mechanism that we didn’t even know was there. The connection between money and dopamine has been known (one triggers the other) and I’m sure many have by now independently drawn conclusions regarding dopamine being a good metaphor for money.

To me, though, the more interesting thing about the two, especially if we’re interested in the future of money is the degree of virtualization that has occurred to both. Because dopamine’s physical presence is a huge weakness in a cognitively flexible human brain where entities that dopamine needs to reward are largely virtual. Thus neuro-cognitive constructs around dopamine allow association between dopamine and those entities (whether behavior clusters or higher-level software), which can be processed without the physical presence of dopamine, though dopamine remains essential as the backing currency. This is partially why we have such poor understanding of how dopamine works in specific instances, even though we have strong general understanding of why and how it’s supposed to work. Money in the modern economy works largely the same way – its physical movements (and existence) are necessary for the virtualized infrastructure to work, but without being able to see the virtual, encoded in the 1’s and 0’s, it’s impossible to understand what’s going on by looking at it physically.

• Dan Weese says:

The currency of the body is adenosine triphosphate, not dopamine. Since the invention of money, it has never been improved upon in a single aspect.

Every time I hear one of these Brain Metaphors, especially ones involving computers, I flinch. Every new technology seems to be subsumed into a Brain Metaphor, going back through the telephone all the way back to roads. I work with machine intelligence, writing systems which implement policy decisions. I come out of a neuroscience background: the computer and the brain are wildly different, both in form and function. The only part of the brain which remotely resembles the brain is the cerebellum. The rest of it resembles nothing so much as an untidy implementation of a Swiss Army knife. Vision is implemented upside down and backwards, with grotesque shortcuts in processing (the optic chiasma) so we can make instantaneous decisions, leading to all sorts of interesting optical illusions in the process. Any lawyer will tell you your worst witness is an eyewitness.

We’re coming to terms with dopamine and its role in neurochemistry. It’s more a feedstock for the later creation of both adrenaline and norepinephrine. A better metaphor for dopamine is the gas pedal in your car.

• Dan says:

“Since the invention of money, it has never been improved upon in a single aspect.”

Earlier forms of money couldn’t be transfered instantly across the globe in large quantities and/or assigned to virtual entities. You may ascribe these improvements to external inventions (improvements in accounting, communication/information technology/infrastructure), but at that point we’re talking semantics.

“The currency of the body is adenosine triphosphate, not dopamine.”

Arguably correct, but the mind =/= the body. I’m afraid that you’re largely talking about hardware, when I’m telling a info-socio-cognitive story. Without the latter, money loses its meaning entirely in human society as well. ATP and food carry fixed, physical value. Dopamine and money carry contextual meaning that is largely unrelated to their physical characteristics.

Regarding your other criticism, some exceptions aside, when people compare the mind with the computer for insight regarding either, they are comparing whole systems, and/or especially software/firmware and organization thereof, not just hardware. Computer hardware in particular is fundamentally uninteresting because its actual architecture is known to be nearly entirely replaceable without any change in system behavior. Upside-down/backward-ness, grotesque short-cuts that lead to flawed behavior under some situations are all well-known characteristics of large, complex computer software.

And as for us understanding dopamine at the level of neurochemistry, that may be true but neurochemistry is a poor level of abstraction for understanding and reasoning about human behavior, much the same way that electronics engineering is a poor level of abstraction for understanding behavior of modern computer systems.

• Dan Weese says:

Oh I dunno, you’re probably right about the semantics, but letters of credit go right back into antiquity, as far back as the Sumerians. It may not have been instantaneous but it sure as hell was backed by real money. Every aspect of the modern economy arises from what the Sumerians were doing all those centuries ago: receipts, contracts, lending at interest, and yes, virtual entities: the Sumerians understood corporations, banks and contract law. The wretched observant Muslims have even found interesting ways around their proscription on interest payments. You’re right, it is semantics, but you did say dopamine was analogous to currency.

Mind/Body debates are as squishy as Brain Metaphors. Squishy is interesting, though. I secretly believe the Mind part of the debate is bunk. Here’s why: okay, where does the brain end? Not at the os magnum. It continues into the spinal cord. From there it heads out into rest of your body. The only semi-autonomous part of your body which seems to go the other way is the heart, which has its own regulatory mechanism.

Most sensations never make it to the brain: you burn your finger and pull it away, none of that reached the brain. It got as far as your spinal cord and you acted on reflex. Sure, you perceive pain and act on it, yelling in pain and dealing with the burn, but the sensation and reflex turnaround which pulled your hand away from the flame did not happen inside your skull.

It gets even odder when you consider the sympathetic and parasympathetic nervous systems. Yes, you have two. Well, actually three, the enteric controls your digestive system. You might think the hardware uninteresting, that’s a value judgement you can make at your own discretion, but if there is a distinction between the Mind and the Body, it escapes me. It’s a silly old artifact of Platonic thought which ought to be discarded.

Neurochemistry isn’t abstraction, heh. Human behaviour is not as complex as all that: how our species does put on airs about itself. You haven’t lived until you’ve seen a Lesser Bird of Paradise hanging upside down from a tree, his wings spread and screeching over his lek. Now that’s something worth explaining.

13. Way cool! Some very valid points! I appreciate you writing this
write-up and also the rest of the website is also very good.