Best Books on Financial Education

Best Books on Financial Education (Updated 2021)

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by Sven WoltmannDecember 15, 2021

The Psychology of Money: Timeless Lessons on Wealth, Greed, and Happiness

by Morgan Housel

Link to the book at Amazon

In "The Psychology of Money," author Morgan Housel shares valuable advice for personal financial success in 20 loosely connected, mostly real-life stories.

He defines financial success not as achieving above-average returns and owning expensive luxury goods but as building wealth over the long term with a personal strategy that lets us sleep well at night.

The decisive factors for this strategy are primarily not technical aspects and specialist knowledge, but rather an understanding of ourselves, our attitude, and our emotions - such as awareness of our goals, what risks we are willing to take, and how we deal with stressful situations.

Each chapter addresses a different aspect and provides tangible recommendations. These include, for example, a long-term investment strategy and patience, awareness of appropriate returns, luck and risk, room for error (so as not to be forced to take ruinous steps in the event of setbacks), and self-confidence (so as not to be led astray by self-proclaimed financial gurus).

Thanks to the loosely connected and relatively short chapters, the book is a very enjoyable read.

It stands alongside financial classics such as Benjamin Graham's "The Intelligent Investor" and John C. Bogle's "The Little Book of Common Sense Investing" but tells much more contemporary stories and is significantly easier to read.

I recommend it to anyone who wants to build wealth and sleep well while doing it.

Suitable as an audiobook? Yes.

The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns

by John C. Bogle

Link to the book at Amazon

John C. Bogle is the inventor of index funds and founder of Vanguard, one of the largest asset managers in the world.

In this classic book, he explains what he believes is the easiest and most efficient investment strategy: index funds that track a broad stock market index, such as the S&P 500, and reinvest the dividends.

He uses extensive data to explain why, for private investors, index funds are always the better long-term investment option than individually picked stocks or managed mutual funds.

While index funds have almost no costs, you pay about 2% in annual fees for managed funds. However, almost no mutual fund manages to beat the market by more than 2% over the long term, so the net return is ultimately lower than that of index funds.

When trading individual stocks, few private investors outperform the market over the long term, as many become frantic during setbacks and tend to panic sell.

Therefore, if you prefer to sit back and relax rather than delve deeply into the subject matter, index funds are the best choice for you.

This book teaches you everything there is to know about index funds. The explanations are based on facts and data, are well-structured, and written understandably.

My only criticism: the book could have been a bit more compact. Many topics are unnecessarily stretched out and repeated several times.

Nevertheless, it's a recommendation for anyone who wants to invest their money with little effort and an attractive return.

Suitable as an audiobook? Due to the many numbers and statistics, I would recommend it more companionly to the printed book.

The Intelligent Investor Rev Ed.: The Definitive Book on Value Investing

by Benjamin Graham

Link to the book at Amazon

"The Intelligent Investor" is the classic book on "value investing," long-term, analytical investing in undervalued growth stocks, and resisting the lure of short-term market trends. In other words: the strategy Warren Buffet (a student of Graham's at the time) used to build a fortune of more than $100 billion.

Particularly memorable is the allegory of Mr. Market, a trading representative who knocks on investors' doors day after day, offering to buy or sell shares in companies at sometimes plausible but often irrational prices.

Investors should be aware that the prices quoted by Mr. Market often do not reflect the real value of a company based on its fundamentals. Accordingly, one should not let Mr. Market drive one crazy, rather ignore him in most cases and move on. Because there's one thing that you can always count on: that he'll be back at the door the next day.

Graham published the first edition of his work in 1949 and has updated both stock market statistics and mathematical formulas for selecting undervalued stocks every five to six years – most recently in 1973.

While the basic principles of value investing are still relevant today, identifying undervalued companies is no longer something that simple formulas can model in the age of efficient, globally connected markets.

The current edition was updated in 2003 – when investors rediscovered value investing after the .com bubble burst – by financial journalist Jason Zweig to include easy-to-understand chapter summaries and facts and examples from today.

Despite its age, "The Intelligent Investor" is a foundational work that advanced investors should have read. For those new to the stock market, I would first recommend "The Psychology of Money", published in 2021, which covers a similar range of topics but is written in a much simpler manner and is much more up-to-date.

Suitable as an audiobook? Due to the many numbers and statistics, I would recommend it more companionly to the printed book.

Priceless: The Myth of Fair Value (and How to Take Advantage of It)

by William Poundstone

Link to the book at Amazon

What prices are people willing to pay? Even as a computer science student, I had to learn about supply and demand curves in my basic economics course. These are based on the assumption that humans, as "homo economicus", always decide rationally.

Countless studies in recent decades have disproved this approach. Humans act highly emotionally. Numerous psychological factors influence the prices people are willing to pay.

For example, take the "anchoring" bias: people are exposed to a (usually very high) price before a purchasing decision. The higher this "anchor", the higher prices a buyer considers appropriate. Every supermarket exploits this effect: The most expensive wines are not presented because they are often bought – but because they pull up the price that customers find acceptable for mid-range wines.

This book is a collection of reviews of academic studies on price psychology, with exciting and often surprising findings, complemented by entertaining anecdotes from the lives of the psychologists and economists who conducted them.

The results are not only interesting for people who have to set prices, but also for us consumers. In our day-to-day confrontation with prices and purchasing decisions, it gives us a chance to reflect on the psychological tricks that have led us to believe that the price we are willing to pay is reasonable.

Suitable as an audiobook? The title is currently not available as an audiobook – should that change, it would be suitable as such.

Rich Dad Poor Dad: What the Rich Teach Their Kids About Money That the Poor and Middle Class Do Not!

Rich Dad Poor Dad - Buchdeckel

by Robert T. Kiyosaki

Link to the book at Amazon

Robert Kiyosaki tells the story of two fathers – his own, a successful upper-middle-class teacher with several university degrees and a good income (but equally high expenses) – and the father of his best friend, who dropped out of school in the 8th grade and became one of the richest men in Hawaii.

Both men shaped the author in his childhood and youth with entirely different views on money. Based on these views, Robert explains clearly why "poor" people remain "poor", and the rich get richer and richer.

Most people think and act like Robert's "poor" father: A good education leads to a good job – and this results in a reasonable, regularly rising salary. But this leads them to what Robert calls the "rat race": the constant cycle of more salary and equally increased expenses.

Robert's rich father, on the other hand, invests his money (initially also earned through employment) in assets such as real estate and securities, giving him financial independence: He makes his living from the money that these assets regularly generate, such as rents and dividends. He only affords luxury goods when his assets have earned the capital required to buy them.

The book does not contain insider tips on how to invest in real estate or stocks; it will not make you rich overnight. But the author gives food for thought and shows ways in the appropriate directions. In particular, he recommends investing in your financial education in the form of business books and courses.

The book is easy to read and understand, and thanks to the many anecdotes from the author's life, it is very entertaining.

Suitable as an audiobook? Yes.