Three Surprising Ways Language Affects Net Worth

Dear reader, What separates those who maintain great wealth from those who lose it?

There are 3 surprising ways in which language affects the choices we make regarding our wealth: use of Flow vs Rooted words, Strong vs Weak future tense, and Native vs Non-native languages.

Flow vs Rooted Words

Flow words, such as “income” are more abstract in their essence. Rooted words, such as “asset”, are more salient. The thought of spending “assets” triggers a stronger feeling of loss, than the thought of spending “income”. This is particularly true as there is an endowment effect. Income is often treated as “free money” that has not yet been added to the perception of our wealth. After all: isn’t it a continual flow? This is a similar effect to gamblers playing with “house money”.

Strong vs Weak Future Tense

English has a strong future tense: “It will rain tomorrow.” Chinese has a weak future tense: “It rains tomorrow”. People who speak languages with a strong future tense do not save as much money on average as those with a weak future tense. This is due to the psychological distance produced by a strong future tense: there is less linkage of present behaviour and future impact. It is difficult for the “present self” to fully envisage the impact that their behaviour will have on our “future selves”. We see this behaviour every time we decide not to go to the gym.

Native vs Non-native Language

Reading financial choices in a foreign language causes people to make more prudent choices. Non-native languages force people to engage the “cognitive” part of their brains. It doesn’t just flow like with native language and the “emotive” part of our brains. Foreign languages also have less emotional resonance: there are less preconceptions of, and reactions to, certain words.

“There are many languages in the world but the most widely spoken and understood by everyone are power, love and money.”
– Bangambiki Habyarimana, The Great Pearl of Wisdom

Think about the way in which you use language to frame your financial and investing decisions.

As investors, we always need to think about the entirety of our underlying assets. Including those that are not obvious. For example, salary comes from the assets of talent and time. Likewise, rent comes from the asset of capital used to purchase a property. Don’t forget the cost of maintaining an asset: especially opportunity costs. Even skills need time and money to upgrade.

We must guard against the endowment effect. The price at which we bought a stock should have no bearing on a current decision as to whether or not we should sell it.

We should make sure we don’t just pay attention to what is salient. A bond in our portfolio defaulting is very noticeable, but might have a much smaller impact than an overall fall in bond prices.

We need to pierce the veil of time, and consider the impact that our actions of today will have on our selves of tomorrow.

We cannot be afraid of slowing down. To think; to process; to make the best and most rational decision.

Yours Sincerely,
Henry Chong