Financial Insanity

A contributed perspective by Stephan J. Hess, CFP

Editor’s Note: This is another installment of a recurring series of contributed pieces addressing financial matters.

Every day we move around in our communities observing and interacting with the world around us. Our brains are constantly processing and analyzing information. This is a good thing, since it generally keeps us out of trouble. Unfortunately, this constant analyzing can turn into the incessant comparing and critical judgement of others. It is hard not to look around and observe neighbors, friends, and coworkers and see what is going on in their lives. Normally this is not a problem, but if we allow ourselves to somehow feel inadequate because of it, it could lead to unhealthy changes in our own behavior. If it leads you to spending money that you don’t have, just to be like them, then that’s a problem. In the financial world we call this, keeping up with the Joneses, and none of us are immune to this phenomenon. It’s the grown-up version of peer pressure.

It’s impossible to ignore what we notice and how it makes us feel.  We see tangible items that people have like houses, clothing, electronics, and cars. We see what is new and what is not. We see lifestyle choices, like how people decorate, where they vacation, and where they go out to eat. People who get new stuff and do fun things tend to get a lot of attention and people like getting attention. We can even get a sense for whether people are generally happy, confident, or financially secure. All of this can trigger unhealthy comparisons with our own lives.

We enjoy analyzing people so much, that the activity known as people watching is almost an official hobby. Anthropologists would probably say that these skills developed from an evolutionary or a survival-based need, which may be true. Being able to quickly size up an interloper or compete within your tribe would have been important and have provided advantages. Today it seems to only serve the purpose of driving us nuts, and social media only amplifies it.

Every culture has a different set of socially important or meaningful cues, and pretty much everyone in that culture knows exactly what they are. Because of this, many people will go to great lengths to copy those cues. The pressure to fit in, or to be more, can be so strong, that some people will do whatever it takes to portray the success, wealth, or attractiveness they desire.

For me, the line gets crossed when you put your own financial wellbeing and sanity in jeopardy. When all discretionary funds are being funneled towards personal lifestyle enhancement in lieu of financial security, you are prioritizing the wrong things. What does it really say when you have a nice house, nice car and you take awesome vacations, but you have no emergency funds, high credit card debt, little equity in your home, and no retirement savings? A common phrase people often say in these situations is that it will all just work out. I’m not sure the evidence supports this, but okay. People will also say that they will just keep working and never retire. This may sound reasonable at age 40 but in your 60’s, your mind and body are going to aggressively disagree.

The greatest gift my profession has given to me is perspective. Many people, as it turns out, are not as appearances would suggest. There is a book out there called “The Millionaire Next Door” by Thomas J Stanley. He essentially describes the millionaire next door as someone who neither looks nor acts like how we think a millionaire should look or act. There are actually a lot of these people out there, but nobody showers them with nearly as much attention and likes. Why don’t people put all their time and energy trying to emulate them instead? They quietly build wealth and tend to be happy in life despite not exhibiting the more obvious social cues that we correlate with success or whatever.

I know this is silly, but sometimes I wish that we could all have a personal financial rating that goes well beyond a credit score. What if there were a rating system that everyone else could see that reflected our financial stability versus wealth. What if the rating reflected adequate emergency funds and debt levels that were realistic in relation to your income? What if it reflected the progress you were making on saving for retirement and other goals? People who live on a lower percentage of their income and have larger surpluses would get higher scores too. Let that be what people see instead of all the cool stuff that you cannot pay for. Might that create healthier financial goals and motivations? Maybe people would then choose better life partners too. I hate to say this, but many of the divorce cases we see have some element of poor money management and overspending as root causes.

The truth is that when you pull back the curtain, things aren’t always as they seem, but you and I don’t know that. Therefore, we feel compelled to turn ourselves inside out to display those all-important social cues. This is not healthy. What’s odd about this is that if you ask people what they want most in life, they almost always say more time with family and friends and having financial security or financial peace of mind. For most people, their financial behavior doesn’t reflect this at all. One look at their credit card bill will tell you what they really care about. So, does it make sense to keep up with the Joneses and everyone else? If you knew that they were not nearly as financially secure, happy, and confident as you thought, would you still feel the pressure to keep up, or would it be a relief? Financial peace of mind is priceless. It is better than any new and shiny object in my opinion, and I don’t care how many likes you can get from it.  

Stephan J. Hess, CFP®, is a CERTIFIED FINANCIAL PLANNER™ Professional and is the owner of Hess Financial in Harrisonburg. Neither he nor his company has any financial relationship with The Citizen or its publishers. Securities and advisory services offered through Commonwealth Financial Network®, Member FINRA, SIPC, a Registered Investment Advisor.

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