Personal Finance: How to Save, Spend, and Think Rationally about Money Big Think
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Whether you have a lot of money or a lot of debt, it matters how you manage your personal finances. A crucial step when it comes to saving is reassessing your relationship with money and learning to take a broader, more logical view.

In this video, social innovator and activist Vicki Robin, psychologist Daniel Kahneman, Harvard Business School professor Michael Norton, and author Bruce Feiler give advice on achieving financial independence, learning to manage your emotions, spending smarter, and teaching kids about money.

It all starts with education and understanding. The more you know about how money works, the better you can avoid mistakes and the easier it will be to take control of your financial circumstances.

Check out Vicki Robin's latest book Your Money or Your Life: 9 Steps to Transforming Your Relationship with Money and Achieving Financial Independence at https://amzn.to/3iYISI8
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TRANSLATION:

VICKI ROBIN: I led a session on a relationship with money. I was just curious what people were doing at the moment. This was in 2016. We had 50 people in the room. We spun around and we went around the room, just say something about your relationship with money. And I realized that everyone in that room was afraid of money. From the 80 year old I know who has millions of dollars, to the 20 year old who is already 20,000 in debt. And it honestly made me angry at the kind of society that requires everyone to participate in something that terrifies them. This feels so wrong to me.

DANIEL KAHNEMAN: People are not completely rational and they make a lot of choices that, if they thought about it, they would do differently. There's no doubt about that. The main trend is that people tend to frame things very narrowly. They have a limited view of decision making. They look at the problem and deal with it as if it were the only problem. Very often it is a better idea to look at problems as they will repeat themselves throughout your life, and then look at the policies you will adopt for a particular type of problem. Doing it harder would be better. People frame things narrowly in the sense that, for example, they save and borrow at the same time, rather than somehow treating their entire portfolio of assets as one thing. If people could take a broader view, they would generally make better decisions. So that is certainly one of the weaknesses of human decision-making. We call this a narrow framing.

Four layers of financial independence

ROBIN: First of all, I want to distinguish between independence and freedom. So financial freedom is the same as freeing your mind. Financial freedom means understanding that I am myself and that an economy exists and that I have a relationship with it, but it does not control my life. It frees my mind from the messages of consumer culture, the messages of economics. The messages that a house is a starter home. No, that's my house. I could die in my house. It's like there are so many assumptions driving us into garbage slavery and debt, and it doesn't matter if you're on the low side or the high side. If you are involved in that kind of anxious process of more, more, more, you are not free.

So the first layer of financial independence I'm talking about is this freedom of mind. This frees your mind. To speak as if I were sovereign. The economy is secondary. I will move my sovereign self into the economy for my own purposes, instead of me being a sucker, the economy is my mega boss and I don't know it, my boss seems to be as big as the sky and so I'll just let it be my life is run by my boss and the tax system and I just let myself be run by this thing. No. So you are sovereign beings, so your first layer of financial independence is your own sovereignty. And then the second layer is getting out of debt. And for some people, debt feels endless. And the first step to getting out of debt is to stop taking on debt. There are many people who have written to us and have paid off their debts within a few years. Impossible debts. Debts that would be endless. They would die with this guilt. And once they see what the debt is doing to them in terms of the actual opportunities, the future opportunities of their lives, that's the kind of link we're trying to get people to make so that something in the future is more important than the immediate pleasure of buying another tchotchke that you'll never use…

Read the full transcript at https://bigthink.com/videos/personal-finance-how-to-save

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