The way I got interested in finance is quite different than most.  Money always fascinated me but I preferred to look at it in the bank as opposed to when I was handing it over to the cashier.  As a result I never ran up credit cards and found myself near bankruptcy.  I was taking finance classes and was introduced to compounding interest, that number magic that justifies everything anyone does in finance.  This lead to an interest in my own investments and savings and eventually personal finance.  But since leaving college I’ve broadened my reading and research.  With the help of Weakonomics my interest in how money interacts with our lives has grown exponentially.  But I can’t figure out exactly what this interest is.

I can’t call it Weakonomics because the blog’s theme centers around what’s wrong with money and our use of it.  Plus Weakonomics is my word and I’m not interested in sharing it with others.  So what is it that we are looking at then?

Ultimately, what we care about here is money, our money.  How is our money being spent?  What can impact our personal money supply?  What factors can we control, what can’t we?  It’s the economics of the individual.

Sigmund Freud defined the ego as “that part of the id which has been modified by the direct influence of the external world.” In non-crazy psychoanalysis babble the ego is the part of you and I affected by the world around us.  Therefore egoeconomics is the study of how your money influences the world and how the world influences your money.  This is not to be confused with eggoeconomics which is the study of how humans consume frozen cardboard.

The best way to illustrate this is by recreating how various would approach a specific topic.  Let’s go with the credit crisis since it’s fresh on our minds:

• A finance professor would ask: How did the assets get so overpriced creating the need to additional capital?
• An economist would ask: What factors (such as: interest rates, housing law, and personal spending) contributed to the crisis?
• A sociologist would ask: How will the current culture be impacted by the shortage of financing?
• A psychologist would ask: Were certain personalities more susceptible to irresponsible behavior than others?
• A personal finance blogger would ask: Why were people living above their means?
• A historian would ask: Did y’all know we’ve done this before?
• A Harvard MBA would ask: Where’s my bonus? (Okay that’s a joke, kind of)

And finally an egoeconomist would ask the question we all really want to know:

How does the credit crisis impact ME?

The answer is well known by now.  With a shortage of money to loan out to businesses and individuals the economy can lock up.  I could get laid off because my company can’t pay me.  I might not be able to borrow enough money to buy a house.  My sister might get laid off and have to move in with me.  My parents might not make enough to retire and I’ll have to support them.  The government might over-spend and have to raise my taxes.

We’re all egoeconomists in a way. For most of us our interest in money and economics only goes so far as to understand how current economic conditions could affect us.  A macroeconomist is usually employed by government or a university so they aren’t overly concerned with their own personal situation.  So we’re all egoeconomists, however when I use the term I’ll mostly refer to people explicitly interested in learning how money impacts the individual, as opposed to someone simply interested in how it impacts themselves.

Here’s the recipe for egoeconomics:

• 4 parts economics
• 1 part finance
• 1 part personal finance
• 1 part psychology
• 1 part sociology

To conclude I’ll explain why the word egoeconomics is needed.  We aren’t doing personal finance here and egoeconomics is my effort to identify what it is I am doing. Personal finance focuses on many of the subjects in egoeconomics however PF is not concerned with the world around it.  I’ve said before Weakonomics is mostly for people who have mostly figured out the personal finance thing and are ready to move on.  That’s egoeconomics.  Unlike previous “New Word” posts we’ll come back to egoeconomics in a few weeks with a new segment.

By The Weakonomist

The Weakonomist is the founder of Weakonomics. Clicking the picture of the puppy will tell you more about him. If you like what you're reading consider subscribing to the blog, following him on Twitter, and checking out the related posts below. Please consider a donation if you really enjoy Weakonomics.

categories: economics