Financial Intelligence Mixers

Throughout this book, we will discuss intersections of different pillars of intelligence, which we call intelligence mixers. These mixers will illustrate how to combine two or more pillars to enhance our understanding of a particular aspect of intelligence. Let’s start by mixing emotional intelligence with financial intelligence.



Intelligence Mixers: Apply Emotional Intelligence to Financial Intelligence



Let’s revisit the definition of financial intelligence mentioned at the start of this chapter: ‘Financial intelligence refers to the ability, knowledge, and skills to drive money to serve one’s purpose.’ When discussing finances, we often emphasise the ability, knowledge, and skills. It’s common to label someone a finance guru if they are knowledgeable about taxes, insurance, investments, and superannuation. However, another crucial element in the definition is ‘to serve one’s purpose.’ After all, possessing all the knowledge and skills is meaningless if we cannot achieve our desired outcomes, and thus, we wouldn’t truly be considered financially intelligent.

To define the purpose our finances should serve, we need a core aspect of emotional intelligence: self-awareness. Self-awareness, like predicting the future, abstract thinking, and using complex language, is a unique ability exclusive to humans. It involves being mindful, viewing ourselves with a non-judgmental perspective, and thinking “I have a body” rather than “I am the body.” This requires the participation of a specific brain region called the Insular Cortex (IC). The IC activates when we think about our inner selves and helps us to understand emotions. Although we often see certain actions from animals, such as dogs, as signs of self-awareness, animals simply don’t have a developed IC and cannot possess the same level of self-awareness as humans. So, when we see a dog lying on the ground with its head on its paw, and as much as we think it might be contemplating its life, it isn’t. A dog doesn’t have the self-awareness brain structure; that is a human’s exclusive superpower.

By harnessing our unique self-awareness superpower, we can question the precise purpose we want our finances to serve, activating the Insular Cortex. Some might say their financial goal is “being able to afford private school” or “moving to a more secure suburb.” However, I suggest we delve a bit deeper. Let’s consider a concrete example. Think about the last time you bought a car—what exactly motivated that decision? This scenario is an excellent opportunity to apply self-awareness to financial choices. There might be practical reasons, such as needing a larger car to accommodate additional family members. However, more often than not, emotional factors are at play. We might seek novelty because the old car feels dull. The human mind constantly craves novelty, as it once meant the possibility of a new food source during the Stone Age (e.g., “Wow, a new creek! There might be orchards if we follow it”). Car designers always introduce novelty through fancier lights or more streamlined shapes in the next generation of cars, enticing us to desire a new vehicle. We might also seek certainty, especially if our old car frequently breaks down. We simply can’t afford the emotional uncertainty of dealing with another car repair, so it’s better to get a new one. Additionally, we might crave fairness. “Peter, the neighbour, is much younger than me, has a much lower-paying job, and he has a new car. It’s not fair that a hardworking middle-aged man like me is driving this old car; I certainly deserve a new one too!” By exercising self-awareness, we can uncover these cravings for novelty, certainty, and fairness, allowing us to view our financial motivations with a broader perspective.

Another way to harness human self-awareness is by understanding our emotional state during financial activities. Our brain’s ability to think logically, abstractly, and futuristically largely depends on stable emotional states, such as calmness, mindfulness, peace, and energy. In other words, when we are drained, stressed, sad, angry, or tired, we tend to make poor financial judgments and decisions. In a drained state, our brain’s glucose supply is reduced, slowing ATP production and decreasing the number of neuroelectrical and chemical reactions per second, impairing our ability to think sharply. Stress hormones like cortisol divert activity from the prefrontal cortex, leaving us with reduced executive power. The amygdala is more likely to hijack decision-making processes due to its ancient position in the brain, with low-level, hard-wired connections to many other brain areas. As a result, we may quickly abandon price negotiations, gamble on risky investments, and fail to recognise cost-saving opportunities.

The notion that “people make poor financial decisions when tired” is frequently employed in business negotiation strategies. Experienced negotiators often create less-than-ideal physical environments to pressure the opposing party into conceding and signing the deal. Imagine you are the head of the business strategy department at Company A, engaged in an oligopoly-style negotiation with Company B (an oligopoly means both parties need each other). After several weeks of back-and-forth discussions, both you and the representative from Company B realise that the deal must be signed today, otherwise both companies’ supply chains will suffer. You schedule the final negotiation meeting for late afternoon, starting at 4:30 PM, knowing that Company B’s representatives have a flight at 6:30 PM and need time to reach the airport. Before this meeting, you organise a large, exhausting business lunch, followed by a two-hour walking tour of the factories and laboratories. For the 4:30 PM meeting room, you set the temperature to 29 degrees and remove all water coolers, claiming, “Sorry, our water supply is under maintenance. I’ve asked my people to bring bottled water,” but the water bottles never arrive. You ensure the final slides on the screen use high-contrast colours that almost strain people’s eyes and present them directly in front of everyone’s noses. After 50 minutes of negotiation, some representatives from Company B are visibly tired and frequently check their watches. You present the final offer: “Okay, how about we reduce the price by 0.1% more? Let’s call it a deal, and everyone can go home.” The deal is signed, bottled water is served, hands are shaken, and the air conditioning is working magically again. It is only later that Company B’s representatives realise they signed something they would never have agreed to a few days ago. You intentionally introduced stress to trick the business partner into making poor decisions. Let’s try not to be Company B when making our own decisions.

To enhance financial intelligence using emotional intelligence, notably self-awareness, we can: 1) Delve deeply into our purpose until it reaches the level of values and beliefs, allowing us to truly analyse our motivation for financial decisions. 2) Avoid making financial decisions when in a poor emotional state.




Intelligence Mixers: Apply Relationship Intelligence to Financial Intelligence




Finances play a crucial role in our relationships. In Chapter 2, we will delve into relationships, particularly those with our significant others. Here, let’s explore the intersection between finances and relationships. The exact reason financial matters are important in our relationships is that finances represent how we want to allocate family resources, which deeply reflect our values and beliefs. Misalignment of values and beliefs, along with the inability to communicate about them, can fundamentally harm relationships. Finances often reveal misalignments in values and beliefs because they are directly linked to significant decisions that cannot be ignored.

For instance, a couple might develop a misalignment over the years regarding how much the family should seek novel experiences. One person might view spending on travel overseas and upgrading the TV to an ultra-wide model with the latest stereos as essential. The other person, who prefers staying in a familiar environment, might see little necessity in spending on long trips and TV upgrades. Before facing a financial decision, this disparity in the need for novelty can be tolerated. One person might always try new restaurants while the other prefers familiar ones, allowing them to compromise by alternating between old and new places. However, when confronted with the decision of whether to spend an extra $20,000 on upgrading the family car or on an Asian trip, arguments become unavoidable. Unlike compromises that can achieve both desires, budget constraints make it impossible to satisfy both. Without a decent level of relationship and financial intelligence, family conflicts persist, harming happiness.

How do we apply relationship intelligence to financial matters? Surprisingly, the answer is simple: just listen. Listen to the other person’s point of view without judgment or bias, with absolute attentiveness seeking understanding. It might seem obvious to one person that spending $20,000 on an overseas trip is excessive, but it can be surprising how much reasoning is behind the desire for this trip. See the conversation below between Bob, who wants to travel, and Alice, who wants to buy a car.




Bob: “I’m really disappointed that you don’t like the idea of us spending those savings on a decent Asian trip, darling.”




Alice: “Why would anyone want to spend so much money on travelling? We could easily buy a much larger and more comfortable car, and we wouldn’t have to suffer from the tightness of the small Yaris.”




(Silence. Alice’s relationship intelligence kicks in, and she realises she should listen without judgment to fully understand Bob.)




Alice: “Okay. I never asked why you want this trip. Can you explain? I’m here to listen.”




Bob: “I’ve tried many times to articulate it, but you just walk away, murmuring that my reasons are nonsense and ridiculous.”




Alice: “I’m sorry, honey. I shouldn’t have done that. This time, I promise I will listen without judgment.”




Bob: “Okay, thanks. That means a lot. Well, I have three reasons to justify this trip.”




Alice: “Oh? Sounds like you’ve really put a lot of thought into it. What are the three reasons?”




Bob: “Well, first of all, I’ve been eager to experience those Asian cultures for a long time. You know I read a lot about Middle and East Asian culture, food, and history. I’ve always wanted to see it with my own eyes. We couldn’t afford it in the past, but we can now.”




Alice: “Yeah, I know that. And?”




Bob: “Also… I think we’re not young anymore. You know we’ve been talking about trying to have a child soon. I’m worried that once we have children, we won’t have the time and freedom to make a long trip.”




Alice: “Oh, I haven’t been thinking that way. I never thought you linked our baby talk with this travel plan. It’s new to me.”




Bob: “There’s another thing.”




Alice: “Go for it.”




Bob: “Well, it’s a bit strange to say, but since you’re really listening, let me get it off my chest. I know you’ve been under a lot of pressure at work lately, especially after that big promotion. I genuinely am happy for you. But I’ve noticed we don’t spend nearly enough time together. I miss those days when we’d spend hours gossiping about everything. I’m kind of… hoping this trip will give us a chance to spend more time together and reconnect. Phew, I can’t believe I’m saying this.”




Alice, looking shocked: “Oh, I never knew you felt left alone. I have indeed been spending a lot of time at work recently. Sorry I didn’t notice.”




Bob: “I never knew how to say it.”




Alice: “Thanks for sharing that with me. I hear you. Now I understand it’s more than just a longing for Asian cultures that drove you to push for this trip. You’re thinking about me. Give me some time to digest this, and let’s talk about the trip again, okay?”




Bob: “Okay, thanks, love. You’re brilliant.”




Alice discovered something about Bob she had never known, opened the door to enhancing their relationship, and unlocked the potential to make smart financial decisions. Magic happens when we combine these two pillars of intelligence!