How Anyone Can Become Addicted to Money
Can you be addicted to money? For entrepreneurs, it seems unlikely. The best business builders are in it to change the world or to make the most of a great idea--not to get rich. Statistically, most entrepreneurs would be financially better off if they stuck with their day jobs.
Yet new research from Stanford, along with a recent essay in The New York Times, suggests that money addiction is separate from all that. And that there are are certain situations--inside and out of work, for both employers and employees--that encourage a money addiction or at least a wildly unhealthy attitude toward money.
What does money addiction look like? Sam Polk, who admits he was once addicted to both alcohol and drugs, writes in The New York Times of his time as a hedge fund trader:
Ever see what a drug addict is like when he's used up his junk? He'll do anything--walk 20 miles in the snow, rob a grandma--to get a fix. Wall Street was like that. In the months before bonuses were handed out, the trading floor started to feel like a neighborhood in "The Wire" when the heroin runs out.
Later, he writes, "I see Wall Street's mantra--'We're smarter and work harder than everyone else, so we deserve all this money'--for what it is: the rationalization of addicts."
You would expect Polk's traders, in some sense, to be "greedy." All businesses need to be profitable, and traders' jobs are more connected to moneymaking than most. But an addiction to money can be more subtle than that. Jeffrey Pfeffer, a professor of organizational behavior at Stanford University's Graduate School of Business, is a co-author of a new paper titled “When Does Money Make Money More Important?” which pinpoints the spiraling nature of money addiction. In that paper, the authors cite a quote from Daniel Vasella, formerly CEO of Novartis:
The strange part is, the more I made, the more I got preoccupied with money. When suddenly I didn’t have to think about money as much, I found myself starting to think increasingly about it. Money corrupts the mind.
Vasella's observation is at odds with the traditional way of thinking about money, which holds that the primary reason you want money is to buy stuff. Once you've bought the basics and a little more, the value of any additional stuff is supposedly pretty low, giving money "a declining marginal utility," says Pfeffer. This framework fits well with academic research showing that once you've attained a certain level of material comfort (generally pegged at a salary of about $75,000 a year), more money doesn't make you happier.
We don't act that way. Instead, in some situations, having money only drives you to try to get more of it.
It's not that some people are greedy and others not, says Pfeffer. "Human behavior is heavily influenced by the situation we find ourselves in," he adds. "In a certain situation, you would find yourself acting the same way" as someone whose behavior you don't admire.
When does money, rather than merely satisfying your needs, just make you want more money? Here's what Pfeffer and his colleagues found:
You work for it
Money that you inherit or win doesn't necessarily induce the same craving for more as earned wealth does. This is one of the phenomena that the researchers studied.
They started by examining the responses of 16,170 people who participated in a British government survey. From this, they could tell how much each person made per hour and whether they had passive income (such as investments) and if so, how much. Respondents were also asked, on a scale of 1 to 10, to say how important money was to them. Overall, people who earned more money valued it more highly than those who made less.
Pay is perceived as a signal of job-related competence
The researchers then designed a short-term experiment dealing with small amounts of money. Students were shown how to make origami planes and then asked to make as many of them as they could in five minutes. Then they received an envelope with either $1 or $10 in it. Half the students were told that they were selected randomly to receive the money, and the other half were told they got the money because their planes were so good.
They were then asked a variety of questions to determine their attitudes about money. Students who got $10 and were told they did so because their work was so fine ranked the importance of money significantly higher than those who were told they received $10 randomly.
Chances are that the research subjects didn't have a deep emotional attachment to their ability to produce flawless origami planes. "It's not going to have that addictive property, because it doesn't implicate your self-worth and confidence as much," says Pfeffer. Money has more impact, and is more apt to be used as a means for keeping score, when you're emotionally invested in the thing you're being rewarded for (or not).
You're surrounded by wealthy people
"Wealthy" here is open to interpretation, and that’s on purpose. We naturally tend to think we’re just as good as anyone else (or above average), and we expect our income to reflect that, says Pfeffer. If everyone around us appears to have more than we do, we sense injustice. We figure we're just as good as they are, so we should have just as much money. Whether or not you tend toward a money addiction can depend on how hard it is for you to keep up with the Joneses.
Pfeffer says women are less likely to fall into these traps than men. "There's a ton of differences between men and women and their relationship to money," he says. "Women in general are less power oriented, less competitive, less status seeking, so they're probably not going to have as much of their self-worth lodged in what people think of them."
Why raises are boring
Pfeffer notes that when getting money only makes people want more money, it becomes very difficult to use bonuses or even raises to motivate the troops. Employees may get excited about raises when they're doled out, but after a month or two, the effect is gone. What used to be a raise is simply salary.
As the researchers write, the idea that money can make money more important means that companies that emphasize big pay and bonuses can unwittingly create an environment where "they have to continually rachet up the amount of money offered." The solution is probably one you've heard before: Create a positive work environment, recognize employees' good work, and for Pete's sake, say thank you.