While most of us spend a lot of time thinking about money — making money, saving money, etc. — it turns out that merely thinking about money makes people more apt to engage in unethical behavior like lying, cheating and stealing, according to researchers.
Of course, considering how important and integral finances are to our daily lives, it’s near impossible not to think about money at all. So how can we maintain financially healthy lifestyles without letting money corrupt our behavior?
Thinking About Money Is The Root of All Evil?
I generally don’t buy the saying that “money is the root of all evil.” However, four studies conducted by Harvard University and The University of Utah did find that thinking about money may be the root of much evil.
The studies, which included 324 total participants, involved getting participants to subconsciously think about money by showing them images of currency or asking them to unscramble money-related words. Their behavior in situations that followed was then observed.
Kristin Smith-Crowe, one of the study’s authors and an associate professor at the University of Utah’s David Eccles School of Business, was quoted by a CNN article as saying:
“Across all of these studies we found that participants who were merely exposed to the concept of money were more likely to demonstrate unethical intentions, decisions, and behavior than participants in a control condition.”
The study’s conclusion, per CNN:
“These findings suggest that money is a more insidious corrupting factor than previously appreciated, as mere, subtle exposure to money can be a corrupting influence.”
My take is that it’s not money itself that is the root of evil, as money is simply a tool. Rather, it’s the thinking about it as an “end,” not a tool. It does seem that people who are in professions where dollars are front and center are more prone than others to have these types of attitudes: “It’s okay to walk the gray line” and “It’s survival of the fittest.”
Three Examples of How Thinking About Money Corrupts People
It’s not possible to give definitive examples here as we get into the “chicken or egg” dilemma. Some individuals could be corrupt to begin with – and might have committed crimes even if they weren’t in jobs that heavily dealt with money.
That said, being hyper-focused on money has to be a major factor that leads someone who is in the “shaky ethics” category over the edge into committing crimes.
1. Bernie Madoff
Bernie Madoff has the infamous distinction of committing the largest financial fraud in U.S. history. The court-appointed trustee estimated losses to investors at $18 billion.
Perhaps not surprising, given the results of the studies by Harvard and the University of Utah, Madoff’s entire career was spent in the financial realm. He started work as a stockbroker and investment advisor soon after graduating from college. In fact, thanks to a nice chunk of change from his father-in-law, he was able to open his own firm while he was in his 20s.
Too much too soon? Perhaps. Just a corrupt person lacking in empathy to begin with? Perhaps. We’ll never know for sure.
Madoff, aged 74, will surely die in jail. However, it’s one his sons (both of whom worked for their father), who paid the biggest price: He committed suicide two years to the day after Madoff’s arrest.
Lesson for Investors (and everyone):
Just because a person is largely respected and/or has a highly respected position (Madoff was Chairman of the NASDAQ stock exchange) does not mean he or she isn’t corrupt. While there’s little doubt a fair amount of insider trading goes on among the financial elite, nobody would ever expect a guy who held Madoff’s position to be defrauding investors for decades by running a huge Ponzi scheme.
2. Jeffrey Skilling
Skilling, the former CEO of Enron, was convicted in 2006 on multiple felony charges, including conspiracy and securities fraud, related to Enron’s financial collapse and bankruptcy in 2001.
Enron’s bankruptcy was the largest in U.S. history at the time. It cost 20,000 employees their jobs, and many lost considerable savings. Investors also lost billions. While they were talking “up” the company to investors and employees, Skilling and many of the top executives were selling huge portions of their Enron stock before the bankruptcy filing.
Skilling is serving 14 years of a 24-year sentence. Perhaps not coincidentally, Skilling also lost a son to suicide, or a likely suicide in this case (drug overdose), several years after his conviction.
It’s not possible to know with certainty if Skilling thought too much about money. However, many of Skillings’ comments indicate he put money above all else, or at least had a very callous attitude.
For instance, while Enron energy traders were plotting to keep the cost of energy high in California, Skilling joked about California’s energy crisis: “What is the difference between California and the Titanic?”At least when the Titanic went down, the lights were on.”
Lesson for Investors — Including Retirement Plan Investors
As with Madoff, just because someone has a so-called respected position doesn’t mean they’re not corrupt.
Additionally, employees of companies should NEVER invest all or most of their 401(k) or other retirement savings in one place, and this especially holds true with their company’s stock. In fact, most experts recommend not investing any money in an employer’s stock or only a small percentage.
This holds true regardless of how attractive the company’s “matching” program may appear, or how well the company’s stock has historically performed. The reason: A person’s paycheck is coming from the employer, so he or she is already quite financially dependent upon that company’s success.
3. Bernie Ebbers
Ebbers, the former CEO of the WorldCom, was convicted in 2005 of fraud and conspiracy related to false financial reporting, which resulted in a $100 billion loss to investors. This is the second largest accounting scandal in U.S. history.
There’s little doubt that Ebbers was constantly thinking about money. Even though he was extremely wealthy, he had an appetite beyond even his means. He went on mega-buying binges — huge tracts of land, hotels, a trucking company, a yacht builder, a stake in a minor league sports team — largely using borrowed money.
He used his stock holdings in WorldCom as collateral. When the stock price dropped, he needed to provide addition collateral. Rather than liquidate some of his personal holdings, he had WorldCom’s board of directors authorize a series of loans.
When financial statements were discovered to be off by billions — $11 billion was the final figure — Ebber’s and other WorldCom insiders’ fraud was discovered.
Lesson for Investors
Same with the others: Just because someone has a so-called respected position doesn’t mean they’re not corrupt. And there’s another one here: Just because someone is overtly religious doesn’t mean they’re not corrupt. Ebbers was a devout Baptist who regularly taught Sunday School and attended services with his family while he was CEO of WorldCom.
If the Harvard and University of Utah studies holds true, you might want to run from (some) people who are always thinking about money!