Are You Keeping Up with the Joneses?
Have you ever heard of a behavioral science department? I hadn't.
The first day of my previous job working for a financial app I was introduced to our behavioral science department. I was thoroughly confused. What did behavioral science have anything to do with a finance app? However, I came to understand this division's importance especially in regards to the app. The behavioral science department studied our user's habits with money. They interviewed our users and studied what actions they were taking on the app. They asked important questions such as how they felt and thought about money; what they were saving their money for; and where they learned about money. Their studies influenced what we built on the app and helped us create strategies to address our user's financial difficulties.
However, they did find out one truth about money that impacts everyone. They found out that the more people earned, regardless of financial education, the more they spent. The more that an individual spent, the more likely they were to get into debt.
In layman's terms: making more money can decrease your chances of becoming financially free rather than increase your chances.
Wow, that is scary.
Most of my clients tell me "if I just had more money coming in, I would feel ok" My response is usually: "What would you spend that money on?" That answer usually entails a new house, new car, or new clothes. I almost never hear that someone would pay off their debt.
Are you falling into this same trap? Do you want more money so you can do more things like increasing your lifestyle? Are you not focusing on paying off your debt? If you are, you aren't alone. Most individuals think that an increase in pay means that you can afford an increase in lifestyle, but that's because they just haven't done the math — debt compounds almost twice as fast as investments. If you have credit card debt, your debt is increasing on average 16% per year! You are lucky if the stock market returns on average 8% a year. See the problem?
The second reason you may be falling into this trap is the more you earn, the more you think you should have your life together. You think to yourself "there is no way someone with my income doesn't know what to do with their money." So, instead of paying off your debt and becoming financially free by following a simple equation, you put your feelings into your finances. This is the way you become trapped - ear more, more debt, no financial help, repeat.
You aren't alone in this problem; financial professionals are to blame too. Financial professionals do not do a great job of informing you that your intelligence and financial literacy have zero correlation! I see so many clients that tell me that they are "smarter than this" or that their financial situation is "embarrassing" for someone in their field. I want to let you know that it is entirely possible that you are brilliant yet may not know the first thing about your finances. Science says that it's more likely than not! If you are caught up in the myth that you are not intelligent if you don't know how to handle your money, you're wrong. You can effectively manage your money; you have just never been taught.
So, if you've found yourself unintentionally keeping up with the Joneses, I don't blame you. It is so easy to do. With over 85% of Americans in consumer debt, it is more likely that you are trying to keep up with the Joneses than not. To top it off, it isn't only socially accepted; it is encouraged.
Stop this cycle and come talk to me. We can get out of this trap together.