This one is but flesh and faith, and is the more deluded – Typical mind fallacy

One of the biggest problems I have when writing about FIRE and personal finance in general is trying to look at things from a different perspective than my own.  I don’t think I’m alone in this because we all tend to look at the world through the lens of our own experiences.

Morgan Housel has a great line in his book The Psychology of Money (which I highly recommend!) about your personal experiences being 0.00000001% of what’s happened in the world, but maybe 80% of how you think the world works.  I think he’s probably deliberately exaggerating with the 80% number, but you get the idea.

Reading blogs/FB/Reddit and listening to podcasts from others in the FIRE community I’d have to say that I’m definitely not the only one struggling with this.

So what is typical mind fallacy?

I’m going to use the LessWrong definition here, which is that “it’s the mistake of modeling the minds inside other people’s brains as exactly the same as your own mind. Humans lack insight into their own minds and what is common among everyone or unusually specific to a few. It can be often hard to see the flaws in the lens, especially when we only have one lens to look through with which to see those flaws.”

Basically we look at our own way of thinking and assume other people think the same way.  Which isn’t necessarily wrong for some subset of the population, but almost certainly isn’t true for everyone. 

What are some examples?

An easy example is that almost without fail any newcomer to FIRE asking about how to invest is told to either put all their money into a high growth index fund (usually VDHG or DHHF) or some collection of ETFs that are all or almost all equities.

Another one is that everyone already has plenty of knowledge about personal finance and investing, or has hours upon hours to read through the various blogs and other resources out there on FIRE and personal finance.

That people should only see a financial adviser to invest a lump sum, and will have no problems staying the course, will diligently read up on all the changes to legislation that affect them, and not panic when the market crashes as it does every few years.

That it’s super easy barely an inconvenience to create a spreadsheet that tracks your wealth, projects your future wealth, has your budget and actual spending etc.

Or that everyone has the time and desire for a side hustle, or is going to continue to do some sort of paid work after they reach their FIRE number.

Why does it matter?

Because what works for one person doesn’t work for everyone. 

Even if someone is young and earns a high income it doesn’t mean that they have the risk tolerance to invest purely in equities, they might be much more likely to stay the course if their investments are less volatile and include some defensive assets. 

Lots of people are time poor, or simply don’t have much interest in finance or investing beyond knowing that they should do it.  They’d rather pay a professional to help them out with that or handle it for them, in much the same was as they might pay a personal trainer to come up with a program for them and keep them accountable for following through.

Not everyone knows how to use a computer let alone create a spreadsheet.

Likewise there are plenty of people who simply don’t have the time for a sidejob, or would rather spend time with their family than driving for Uber or the like.  And although I know a lot of the more prominent folk in the Aussie FIRE community plan on earning income from their work after they reach their FIRE number, I personally have zero interest in doing so. 

Mea culpa

I’d like to think that I’m mostly not too bad at putting myself in other people’s shoes, in part at least because I’m old enough that I’ve lived through a bunch of different scenarios like being single, getting married and being a DINK couple, then having kids.

But I’ve also generally earned pretty good money and really don’t know what it’s like to worry about where I’m going to have to find money to pay the rent or buy food or pay the bills.  I don’t live in Sydney or Melbourne and so don’t have to worry about paying a million dollars just to get a house that’s within an hour of the CBD.  My parents and in-laws are all in a good position financially, and don’t need any support from us financially or with care-giving. 

Because I’ve spent almost a quarter of a century working in finance I’ve got a pretty good understanding of investments and unlike a lot of people don’t get worried about putting money in the stockmarket. 

So there are definitely a lot of instances where I just don’t know what it is like to be in a certain situation and can’t really put myself in someone else’s shoes to feel what they’re feeling. 

How to get better

I’ve written a few times about not comparing your own situation to others, or finding someone who is in a similar situation to yourself rather than someone who’s not.

Just because you’ve spent years reading about investing in shares doesn’t mean everyone else has the same level of knowledge and confidence as you do.  And even if they do, it still might not be an appropriate investment for them for a variety of reasons.

Not everyone has lots of surplus income to invest, particularly if they don’t earn nearly as much as you do or are simply in a different stage of their life, for example a DINK couple compared to a single mum or dad.

There are lots of reasons why a couple might want to have separate finances, particularly if this isn’t the first marriage for at least one of them.

At the end of the day what it really comes down to is trying to look at things from someone else’s point of view rather than your own. 

What are your thoughts on typical mind fallacy?  If you enjoyed this post and would like to read more like it then please subscribe!