“Nothing so undermines your financial judgement as the sight of your neighbor getting rich.” – J.P. Morgan
What’s more dangerous than winning the lottery? Living next to someone who wins the lottery. A recent study shows that neighbors of lottery winners have a higher tendency to go bankrupt. Peter Coy at Bloomberg writes:
As if you needed proof that trying to keep up with the Joneses isn’t a good idea, here it is: Close neighbors of lottery winners in Canada tended to spend more on conspicuous goods, put more money into speculative investments such as stocks, borrow more money—and eventually declare bankruptcy.
Then again, this result shouldn’t be all that surprising. Humans are social animals. Watching others increase their consumption is a visceral challenge. Most of us don’t live next to lottery winners or startup CEOs whose companies just went public. That doesn’t mean we shouldn’t be on the lookout for signs that our peers are unduly influencing our financial decisions. Justin Castelli at All About the Benjamins writes:
It is said we are the average of our five closest friends; this can be a blessing (Drake) or a curse (Antoine Walker). If financial responsibility is important to you, but it is not for your friends, it may be important to re-evaluate your top five. Maintaining the discipline to stick to a budget, avoiding the temptation to keep up with the Joneses, and progressing in your financial planning is difficult enough without the constant peer pressure of friends living a different lifestyle.
As Castelli notes, it may take spending time with a different crowd to help you make you better spending decisions. The good news is that self-control can in certain sense rub off on us. Sabine Doebel writing at The Conversion notes:
So can self-control be learned? My answer is yes – what can seem like an inborn trait may actually be substantially influenced by social forces. Parents may be able to help kids build this skill by exposing them to role models (in real life or stories) who demonstrate and value self-control. Adults may be able to increase self-control by spending time around friends who use it. Ultimately, cultivating self-control as a personal value and norm may be critical to using and developing it, whether you are young or old. With a little help from your friends, resisting that second piece of cake may be easier than you think.
If you are reading this blog (and post) you are already in a position where the next additional tangible purchase won’t put a dent in your happiness. You have already experienced in one form, or another, lifestyle creep. That sneaky process by which we become inured to new and novel purchases. What was once novel becomes necessary.
One way to prevent impulsive shopping is to pause a reflect. A recent study shows that those individuals who ‘mentally shop their closet’ are less likely to make impulsive purchases:
The findings of these studies show that reflection about the recent use of one’s possessions provides an effective method to quell the shopping urge and to reduce consumption.
Putting speed bumps between an impulse and a purchase can make a big difference in our spending. This helps integrate our values with or actions, or as Carl Richards at NYTimes writes:
You are not your spending thoughts.
Thoughts are fleeting, spent money is forever. The issue addressed here isn’t consumption, per se. We are all free to spend, save or invest our money as we see fit. It is thoughtless consumption or consumption that won’t move the needle on your happiness that is problematic. As you take breath, and contemplate your next purchase, think about some other ways that money could be put to good use: on your future self or on someone else entirely.