Money Phenotype
Money Phenotype
Yesterday I talked about money archetypes. There are few basic money personalities that are commonly found in the financial independence community. When I talk about the money maker and the penny pincher I am referring to deeply ingrained behaviors that in some respects are just plain human nature. The question thus becomes, are our financial behaviors preordained or a result of an amalgamation of what we learned over time? This is your typical nature vs nurture discussion. The result of whatever admixture makes up us, is our money phenotype.
Phenotype: Whereas the “genotype” is the genetic makeup of an organism, the phenotype is how genetic and environmental influences come together to create an organism’s physical appearance and behavior. … Variation in phenotype is an important element in evolution.
Can we evolve? Can we get better at handling our finances, or are we doomed to follow the dictates of our genetic material.
Nature
We all know them. Maybe they are friends or relatives. A hapless neighbor or a struggling coworker. We see their money mistakes as clear as day, and yet time and again we are not able to help them correct. They can regurgitate the right steps and understand the financial mechanics, and yet somehow it all falls apart.
They spend too much, save too little, and tend to make a mess out of any well-intentioned investment.
And we sigh, and say they are bad with such things, and generally frown at such behavior. Until we find that they are just like their crazy uncle or spendthrift grandparent. They walk the same, talk the same. Money even burns the same hole in their pocket.
Which all makes sense except that they never lived with these relatives. They never shared a home or learned from such fiscally inept behavior. In fact, their parents may have been much more frugal and wise. Their money phenotype seems completely unaffected by environment, and completely ruled by wayward genetics. Passed down in the worst sort of way.
Nurture
Yet, we also know of many who are completely the opposite. Loose of coin at an early age, it seems like no bit of financial information will ever stick. Just when it looks like they will be a complete disaster, they respond to good financial modeling from their parents. Or discover Dave Ramsey and cut up all their credit cards.
It was as if their money DNA has been stripped and cleaned by the right nurturing hand. The money phenotype has transformed like a chameleon revealing an inner financial independence enthusiast.
Something clicked.
Why It Matters
If we are to understand ourselves, if we are to help others, we have to be able to parse out what makes up our money phenotype. What levers can be pulled to either enhance or decimate our innate genetics? How the right coaching can model good behavior that not only makes intellectual sense, but sticks.
Especially if you are a parent. While my son is a money maker, my daughter is a penny pincher. How do I teach my son to be more frugal and my daughter to be more adventurous?
Final Thoughts
We each have a money phenotype which is an expression of our genetic makeup altered by environmental phenomenon. Nature verse nurture. In order to build within ourselves and others healthy financial habits, it is necessary to attempt to alter this phenotype.
We want to enhance the good and minimize the bad.
This is no easy task.
It makes sense that such polarizing figures as Dave Ramsey and Mr. Money Mustache have come to the fore of the financial independence movement.
It takes quite a personality to alter DNA.
Great post. I’ve been studying some population statistics. It turns out 51M people (16%) have an IQ less than 85. I’m not dissing the dignity of these people just stating a fact. It also turns out life success is dependent on a factor called the G factor. The Army determined a person with an IQ of 85 could not be in the service because there was no job they could perform reliably. Again not to diss, but in the military lives and success depends on the machine working reliably. It turns out 51M (16%) have an IQ greater than 115. These people could if they want survive grad school or professional school successfully. The other 67% live in between. Those are the population stats. The G factor is genetic but multivariate meaning it’s not one gene but several, and the G factor is dimensional, meaning it’s boiled down from a number of more specific traits not just raw brain power. Several genes have multiple phenotypic expressions since phenotype is the actual expression of several possibilities. So the net expression becomes complex and it’s not just risky or thrifty, black and white. But it is all still genetic expression. Circumstance plays a part as well and can overwhelm and inform the genetics but it doesn’t change the genetics. There are over time as likely as many farm hands as smart as Einstein they just never had the chance to express their potential.
My impression is what you need to do as a parent is develop a bounded playground where your kids can explore their natural genetic predilections. The boundaries guide the progress but there are plenty of opportunities for any trait to manifest it’s power. That’s what I did with my kids. The G factor is a huge determinate of where they will end up. If they had a fairy god mother that could grant them 3 sd wealth or 3 sd G factor, choose G factor. In this American society wealth will automatically follow.
The question is how much of the G factor is genotype and how much is phenotypic expression? How much can we toggle in-between?
From what I’ve read it’s pretty much expression and not very amenable to external control. An example is Head Start it made a small difference for a couple years then the effect completely faded
So how do we explain people who get into a huge amount of debt and then all of the sudden read a blog and find religion? Did the phenotype change?
No, there are 2 centers reward and risk aversion reward can turn off risk but risk aversion dominates normally. Credit card debt is reward turning off risk aversion. Debt itself pegs out risk aversion. So you keep spending more because risk aversion is driving you crazy and spending feels good. If you “get religion” that starts to deal with pegged out risk aversion and risk aversion comes down to a more normal range. That also feels good, not in a spending kind of way but in a wisdom kind of way. So the phenotype did not change but a system of risk and reward rebalanced. The normal risk aversion:reward ratio is 4:1 These studies were done with functional MRI which allowed to see what parts of the brain were lighting up.
In another recent study it was found alcoholism is probably phenotypic. Alcohol affects GABA and there is a protein that pumps GABA back into the neuron The protein is phenotypically expressed as in some individual’s genes produce more effective protein than another individual’s genes. So weak pump proteins seem to be related to the development of Alcoholism at a phenotypic level. If you don’t drink and have weak pump protein, GABA doesn’t get out of balance as a weak pump in the face of no noxious external chemistry is good enough. I’m sure there are a display of phenotypic expression in the reward/risk aversion arena as well.
I think FIRE types are equally susceptible. Having a little plan and a bank account feels good. It’s like spending in reverse. You put in 10K the market goes up and you have 15K. Feels good. You do it again bingo 30K and so on feels even better so growing net worth becomes your “spending equivalent” Risk is often ignored by FIRE types, eg 95% in stocks. The reward feels good and risk aversion is turned off. That is why FIRE blogs are all about accumulation and why Bogelhead works. Bogel is a fair portfolio management tool. It automatically tends to manage risk so if you follow it things will likely work out, so people never learn to manage their risk and are over confident in their skill set. The phenotype sets the tone, the range of possibilities, but the system the phenotype creates is what interacts with the environment and it’s the interaction that breeds success or failure
“They say to know the best in life ya gotta know the worst.” Steve Goodman