Surprising facts from economics and neuroscience
“You can become rich if you emulate the thinking of successful people”
We hear these words often, but is it really true?
Research has shown that there are crucial differences between successful people and average people, not just in their behavior but also in how they use their brains .
According to this, people who are more likely to become wealthy tend to have more active parts of the brain .
These findings are among the findings of an emerging field of research called neuroeconomics.
This is an attempt to combine the perspectives of neuroscience and economics to scientifically elucidate how money is used and decision-making mechanisms work.
So what exactly is different about the brains of rich people?
And is it possible to adopt this mindset?
The brains of people who save money vs. the brains of people who spend it
Neuroeconomic research has shown that one of the areas of the brain involved in financial decision-making is the prefrontal cortex .
The prefrontal cortex is the part of the brain that is responsible for rational judgment, planning, and self-control.
It has been found that successful people have particularly developed prefrontal cortexes and are more likely to prioritize long-term returns over immediate desires .
The brain of someone who can save money
Its characteristics are as follows:
Rather than “receive 10,000 yen now,” choose “receive 12,000 yen in one month.”
Prevent impulse buying and plan to increase your assets.
Don’t be shaken by short-term losses and continue investing calmly.
For example, there is an office worker named Taro.
He plans to carefully save a portion of his monthly salary and invest it regularly.
Over the weekend, Taro’s friend invites him to buy a new smartphone because the latest one is on sale, but Taro thinks about it calmly.
They decide, “My current smartphone is still perfectly usable, and if I invest the money, I might get a bigger return in the future,” and so they hold off on the purchase.
In this way, the ability to pause and take a long-term perspective when spending money is a characteristic of the brains of successful people.
The brain of a spendthrift
On the other hand, it has been found that people who tend to spend too much have stronger activity in the limbic system .
The limbic system is involved in controlling instinctive desires and emotions, and triggers reactions such as “I want it now,” “I want to do something fun,” and “Acting impulsively without considering the risks.”
Therefore, suitable people have the following characteristics:
They prioritize short-term gratification.
They tend to jump on sales and limited edition products.
I spend any money in front of me right away.
For example, on the same day that Hanako receives her bonus, she immediately decides to buy a designer bag that she finds in a department store.
I felt, “It’s a limited edition item, so if I don’t buy it now I’ll be missing out!”
But then you immediately regret it when you see the credit card bill.
“I was planning to save up to go on a trip…” you lament, but it’s too late now.
In this way, the brain is prone to spending impulsively, forgetting about long-term planning.
This difference creates the difference between people who are good at saving and investing and those who are squandering money .
Three ways to train your brain to be rich
So, is it possible to train a “rich brain “?
Research suggests that by consciously training the activity of your prefrontal cortex, you can improve your financial decision-making skills .
The following three methods are considered effective:
① Change the awareness of “time discounting”
People tend to overestimate immediate rewards and underestimate future benefits.
This is called “Temporal Discounting.”
For example, by being conscious of the choice to “invest 50,000 yen in six months to increase it to 60,000 yen” rather than “spend 50,000 yen right now and go on a trip,” activity in the prefrontal cortex increases, allowing you to prioritize long-term returns.
② Get into the habit of thinking before using
The brains of rich people have the habit of thinking calmly without being swayed by emotions.
Simply stopping to ask yourself “Do I really need this?” before you go shopping can help prevent waste.
moreover,
24-hour rule (think for a day before buying)
Set a budget (determine your monthly expenses in advance)
By adopting habits such as these, you can further activate your prefrontal cortex.
3. Gain “small successes” in investing
Even if you are not good at managing money, if you start by investing small amounts, your brain’s reward system will begin to feel pleasure from “saving and increasing.”
for example,
Start investing 1,000 yen every month.
Experience the benefits of increasing your assets even with a small amount.
I find it fun to “make money.”
By accumulating such positive experiences, you will naturally develop the habit of saving and investing .
Thinking about investment
So far I’ve been talking about investment over and over again, but what exactly is investment?
Nowadays, it has become common for people to think about investing their assets.
But when it comes to making an investment, how do you decide where to invest?
In many cases, when investing, you may simply judge a company that is growing steadily to be a good company based on its past performance and current market price, and then invest in that company.
This is a correct decision, but when making an investment, it is important to look beyond past performance and the current situation and also to have an eye on future changes.
For example, Toyota Motor Corporation is one of the world’s most successful manufacturers, but given the current trend toward electric vehicles (EVs) , it can be said that there is increasing uncertainty about the future of the market.
Traditionally, Toyota’s strengths have been in efficient manufacturing techniques for complex gasoline engines and simulations that utilize fluid dynamics.
However, there is little need for such technology in the EV market.
The rotation of an electric motor is not as complex as that of a gasoline engine, and in EVs, power can basically be transmitted directly from the motor to the drive wheels, eliminating the need for the complex multi-speed transmission technology developed in the traditional automotive industry.
Therefore, as the promotion of electric vehicles progresses worldwide, the automobile industry, which has previously been dominated by manufacturers with extensive know-how, will become more easily accessible to emerging companies.
In that case, if you invest only in Toyota’s current stability, you may be at risk in five or ten years’ time. (This is merely an example, not a fact.)
Train your brain as an investor
The perspective of neuroeconomics also plays a major role in these investment decisions .
Successful investing involves more than simply reading market trends; it’s about understanding how the brain evaluates risk and reward.
For example, in an investor’s brain, there is a constant struggle between the prefrontal cortex and the limbic system .
The prefrontal cortex is responsible for logical analysis and long-term planning , helping you make calm investment decisions, while the limbic system is responsible for short-term profits and emotional decision-making , making you more likely to react instantly to sudden fluctuations in stock prices or news.
Going back to the example of Toyota Motor Corporation mentioned earlier, when evaluating a company’s future potential, many investors tend to think, “It’ll be fine because it’s performed well in the past,” but this is due to a psychological bias known as “status quo bias.”
Because the brain has a tendency to dislike change and try to maintain the status quo , it may underestimate the obvious change that is the arrival of the EV era and overlook the risks.
In addition, how we evaluate risk is heavily influenced by the brain’s activity tendencies.
The human brain has a loss aversion bias , which means that the brain feels the pain of loss more strongly than the joy of gain . Therefore, when stock prices temporarily fall, people panic and tend to sell their shares despite their original plans.
If you keep doing this, your losses will naturally exceed your profits.
To prevent this, you need to “train yourself to make calm judgments.”
The key to success when investing is to take a long-term perspective rather than being swayed by short-term market fluctuations.
This isn’t just a matter of personality, but by training the prefrontal cortex of the brain, you will be able to make strategic investment decisions without being swayed by emotions .
Summary: The brains of the rich can be “trained later in life”
There’s nothing special about rich people’s brains.
Rather, it’s the habits and decisions you make every day that change the way your brain works, which leads to financial success.
It is important to think from a long-term perspective and not be swayed by short-term pleasures.
Be interested in a variety of things and have a broad perspective, cultivate calm decision-making skills, reduce unnecessary expenses, and be aware of investment opportunities.
And by accumulating small successes, you will gain confidence in managing your money.
These thinking habits create a “rich brain.”
In other words, how you use your brain now will determine your future assets.
It is said that “money is a mirror that reflects people.”
How you choose to spend your money today could determine who you are in a few years’ time.
By being just a little more conscious of the choices you make today, a better future awaits you.