The psychology of money and work REVIEWS BY NEAL LIPSCHUTZ

Twenty years ago, personal finance writer Andrew Tobias produced a best-selling book with a boastful title. It was called The Only Investment Guide You'll Ever Need. Rather than scare away the competition with that all-encompassing name, the book's huge success may have helped spark what's become a growth industry unto itself: the avalanche of books intended to provide care and feeding to the emboldened individual investor.

In 1978, very few people actively controlled their own investments, from automated payroll savings to retirement accounts. In 1978, there was no CNBC, no Internet stock trading, not even any Internet stocks to trade. In 1978, the mutual fund industry was a fraction of its current size. Given the enormous change that's engulfed the world of personal finance, Mr. Tobias decided it was time to return to his original theme. So we have The Only Investment Guide You'll Ever Need: Expanded and Updated Throughout. As for the compelling title, Mr. Tobias says it was his publisher's idea, and he agreed in a weak moment. He notes that there are other good investment guides around (and many poor ones), but accurately adds: ". . . reading three good investment guides instead of one will surely not triple, and probably not even improve, your investment results."

So how does Mr. Tobias's one-stop shopping site for investors hold up? Quite well. The author is a knowledgeable guide and a gifted writer. The book is a pleasure to read, which is important since so many people regard reading about investment options as an unpleasant if important chore. He covers most of the waterfront, and he is forthright in his opinions. For example, he doesn't think much of investing in commodities or gold. On commodities, he writes: "It is a fact that 90% or more of the people who play the commodities game get burned. I submit that you have now read all that you need ever read about commodities." On gold he offers, "Gold itself pays no interest and costs money to insure. It is a hedge against inflation, all right, and a handy way to buy passage to Liechtenstein, or wherever it is we're all supposed to flee to when the much ballyhooed collapse finally materializes. But if you're looking for an inflation hedge, you might do better with stocks or real estate."

Mr. Tobias is particularly strong in an area many people wouldn't consider the province of an investment guide: frugality. Simply stated, spending less of your income is a great savings and investment strategy. Given effective tax rates, keeping an after-tax dollar in your pocket rather than in some merchant's cash register is probably the equivalent of going out and earning two dollars before taxes. The author advises buying in bulk and hard bargaining on big purchases. He takes the reader through the pros and cons of most investment options in an engaging, common sense manner.

Every investor is different, of course. Mr. Tobias, for one, describes himself as "rather chickenhearted." People should take on levels of risk that are not only appropriate for their income, goals, and stage of life, but also in line with their psychological ability to withstand risk. In other words, you want your investments to allow you to sleep at night.


Despite our differences, there are some psychological foibles most of us share when it comes to thinking about money. That's the subject of a fascinating new book, Why Smart People Make Big Money Mistakes -- and How to Correct Them by Gary Belsky and Thomas Gilovich. The authors (Belsky is a journalist who wrote for Money magazine for seven years; Gilovich is a professor of psychology at Cornell University) take us into the world of "psychoeconomic theory," which explains how widespread human behavior patterns have an adverse impact on our pocketbooks.

Take the concept of "mental accounting," which deals with how we categorize money and treat it differently depending on its source. For example, we more easily fritter away money that was won at the racetrack the night before than we would rashly spend the contents of our hard-earned paychecks. Like other ideas of "psychoeconomic theory," the various aspects of "mental accounting" are presented here through hypothetical scenarios in which readers can participate. This fun approach makes the issues at hand easy to identify with and clear. The bottom line solution to the "mental accounting" problem is this: Make sure you treat each dollar in your possession equally, no matter whence it came.

This popularization of the work of psychologists hits on many interesting issues, including the fact that losses hurt more than gains please. That makes a lot of people more "risk averse" in their investment decisions than rational investigation would likely lead them to be. And then there's the sobering fact that most of us are not as smart or as savvy as we imagine. The authors write: ". . . for almost as long as psychologists have been exploring human nature, they have been amassing evidence that people tend to overestimate their own abilities, knowledge, and skills . . . in financial matters the tendency to place too much stock in what you know, or what you think you know, can cost you dearly." For most of these interesting tendencies, knowledge that they exist can help you fight them. The authors of this well-researched and clearly written book also offer seecific remedies for the financial aspects of these psychological peccadilloes.


Psychology doesn't abandon us once we put away the bills or monthly investment statements; it accompanies us to work (and everywhere else, for that matter). The ability to cooperate, collaborate, and even inspire our colleagues is a crucial factor in our own personal success as well as in the prosperity of our employer. In 1995, Daniel Goleman wrote a bestseller called Emotional Intelligence, which challenged the dominance of the IQ in measuring smarts. Now he's taken those concepts to work in Working with Emotional Intelligence.

Goleman received a doctorate from Harvard University and spent a dozen years covering behavioral and brain sciences for the New York Times. His essential message is an upbeat one: Those qualities that in an earlier time might have been labeled "character" or made one considered a "good person" are also the qualities that should help us get ahead at work.

There's more good news. Your fate isn't determined by some stagnant measure of your intelligence; you can improve on your "emotional intelligence" at any stage of life. In today's work world, hierarchies have been flattened and the success of team work often depends on people's ability to get along. "Emotional intelligence" has never been more important.

In readable detail, based on research and corporate profiles, Goleman lays out the personal competencies of "emotional intelligence," which include self-awareness, self-regulation, and motivation, as well as social competencies, such as empathy and social skills. (Each category has more specific sub-categories.) This is an important and helpful book.


The changes in the American workplace in the past couple of decades haven't all taken place within our heads. One seismic change has been the vastly expanded role of women in the work force, both in terms of number and influence. That change is the subject of Powerchicks: How Women Will Dominate America by Matt Towery. For a book about the growing strength of women in business, entertainment, and politics, as well as their dominant place as consumers and voters, the title strikes one as a tad irreverent. Mr. Towery, a former Georgia state legislator, says, however, that many influential women "have willingly and proudly accepted the new term." As for why a man wrote this book, the author cites an old newspaper adage, to wit, "You don't have to die to be qualified to write obituaries."

Mr. Towery has produced a glowing testament to women in a host of industries who have made it to the top or near top. Through numerous interviews, they tell of their motivations and of obstacles overcome. Among the many interesting points made are that corporate inflexibility might partly be behind the surge in female entrepreneurship and the description of a social phenomena he calls the "female bachelor." This describes high-income, high-status single women with lots of disposable income who don't feel pressured to marry.


The Feeling Is Mutual

Mutual funds are a popular subject for new books. Among them are: The 100 Best Mutual Funds to Own in America (Third Edition) by Gene Walden; But Which Mutual Funds? by Steven T. Goldberg; and the New York Institute of Finance Guide to Mutual Funds 1999 by Kirk Kazanjian.

On having enough money to pack it in, there's Investing for Retirement by Deirdre Martin and Plan Smart, Retire Rich by George Brenner, Steven Abramson, Steven Rabinaw, Barry Rabinovich, and Stanfield Hill.


Neal Lipschutz is managing editor of Dow Jones News Service.

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