How do you respond when your friends ask you to join them for an outing that will stretch your budget? As I consider the impulses that cause a financial plan to go into the red, I find pressures are more typically social than simply selfish. There’s always going to be those who are in a never-ending race to out-bling their peers. But most pressures to overspend are far more subtle, and savvy planners should be prepared to respond.
Many of us can remember the moment our first friend showed up with a brand-new iPhone or iPad. It was nearly impossible to avoid a twinge of envy as they demonstrated its versatile wonders. An exaggerated example of this social ritual is occurring around the Tesla Model S all-electric car that can go from 0 to 60 mph in 4.2 seconds. Not only do I want to own a Tesla, I want to own one before any of my friends and neighbors do.
Money and the Mind
Behavioral psychologists tell us that experienced happiness is generally not an absolute but a relative measurement. The fact that I have a thousand times more wealth than much of the world doesn’t help if I feel poorer than the people I see every day.
Economists study the effect of these new purchases on your peer group in terms of a decreasing marginal utility. The same goods and services give you less pleasure once you are aware of a better alternative. As social creatures, there is a hidden impulse within every peer group toward bigger and better. And this pressure can create an equal and opposite strain on your personal finances.
This doesn’t mean that individuals are always prone to outdo one another. In most circumstances, I think social circles desire shared experiences. Eating out, travel, or local entertainment are all opportunities to share life and create positive memories together.
The inevitable problem in any social group is that some people have a greater capacity to afford entertainment than others. I’m not just speaking about income when I mention capacity. Some have large inheritances that allow them to live above those of who lack the same cushion. Others have children and other financial responsibilities that stretch a paycheck. I’m talking about the excess margin available after your basic savings goals and living expenses have been met.
Most of us have experienced the desire to join friends in an event that would have stretched our budget too far. Demi Moore and David Duchovny exploit these social pressures in a dark comedy called The Joneses. The film is worth watching simply as a reminder of the emotional despair and financial distress that many are drawn to in an attempt to keep up with their neighbors.
Consider the Long-Term Consequences
It’s important to consider the long view when managing your personal finances. In time, the newness will wear off, but the hole in your budget will remain. My boss, David Marotta, has a saying: “Wealth is what you have, not what you spend.” Delayed gratification is an important message to be shared in a hundred different ways, but I’m convinced that additional advice is needed to handle the social pressures that are sure to arise.
How do we protect our personal finances and manage the pressures of our social circle? Do we need to cut off those friends who spend beyond your means? That seems too harsh a response. Or are there ways to foster healthy conversations among friends about personal finances? People naturally gravitate to those who share a similar standard of living because it avoids many awkward conversations and challenging decisions.
For greater perspective on this issue, I turned to a Licensed Professional Counselor, Margie Satterfield, for advice. Satterfield quickly deflated my hope for more honest conversations about personal finances among friends. She said, “Getting someone to have honest discussion about their financial situation in an unsecured situation [e.g., not with their financial consultant bound by confidentiality] is difficult at best.” Money, it appears, is just too personal.
Instead, Satterfield recommends a focus on personal boundaries and personal acceptance. She said that envy starts to creep in when we focus too much on others. “When we accept who we are, there is no shame.”
When confronted with the often vast disparities between the haves and the have-nots in America, some turn to faith. Satterfield turns to her Christian faith as she shares, “God knows who we are and is our provider, whether we have a lot of money or a little. The lower income couple should view their higher income friends as completely dependent on God for the income that they steward, just as they are dependent on God for their lower income.”
Whatever belief you hold, however, I am left with the thought that each of us must find our own path to honor both our financial commitments and our friendships and find peace in the process. Some of us need to engage in healthy dialogue, and all of us must focus on managing our own expectations. Hiring a financial consultant bound by confidentiality can also help you navigate this challenging winding path.
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