Here is a great article that every American must read. It’s not an income problem, it’s a spending problem. The Joneses can ruin your life.
“From what I’ve seen, keeping up with the Joneses is an epidemic in America. It’s a significant contributor to under-saving, excessive debt and the looming retirement crisis.” Ain’t that the truth.
Keep reading and check out other enlightening articles on HumbleDollar, a few even by me.
Keeping Up Rob Carrigg, Jr. | June 16, 2021
I’VE WORKED AS a financial advisor for 25 years and yet I’m still struck by how many people fall for one of the oldest cons in the book: keeping up with the Joneses. Being ostentatious is no longer seen as déclassé, at least in America. Instead, it’s a requirement for reality TV, the currency of Instagram Influencers and a proxy for achievement on Facebook.
Why be rich when we can appear rich? We’re hardwired to act this way. A 2013 study titled Keeping Up With the Joneses found that humans are greatly influenced by group behavior, often assigning value to others and what they own, even when no other information was available.
Similarly, a 2015 study by German neuroscientists used functional magnetic resonance imaging to measure brain activity in participants as they outdid and were outdone by others. When they saw themselves as performing better, they experienced a boost in the same area of the brain that’s triggered by a gambler’s high. What happened when they couldn’t keep up with the Joneses? They showed activity in an area of the brain associated with feeling pain.
“Pop” Momand is often credited with popularizing the phrase, “Keeping up with the Joneses.” His syndicated daily cartoon ran from 1913 to 1938. It focused on the hapless McGinis family and their misadventures, as they tried and failed to keep up with their never-to-be-seen neighbors, the Joneses. The Joneses canoed, so the McGinises tried it, only to end up in the water. Mr. Jones wears pink socks, so Mrs. McGinis dresses her husband in pink socks and a ridiculous fuzzy hat, all in an ill-fated attempt to show up their neighbor.
We all try to keep up with the Joneses. The thinking is simple: If the neighbors can afford it, why can’t we? This type of decision-making stems from a cognitive bias that psychologists call the anchoring effect. We take a sliver of information, such as the neighbors remodeling their kitchen, and decide it’s time we did the same.
Unfortunately, we can justify almost any behavior if we look around—because it’s highly likely someone else is already doing it. This is our herd mentality, an instinct that helped our nomadic ancestors to survive. But today, it can lead to a series of bad financial decisions. You sat in first class the last time you flew, so there’s no going back to coach.
Your kids made friends at that private school, so you can’t pull them out now. The perceived social contract of your chosen lifestyle makes your decisions for you. You may be able to pay that tuition, make those car payments and continue to vacation in Instagram-worthy locales, but that doesn’t necessarily mean this spending is sensible. Managing money is about putting yourself in a position where someday you’ll be financially independent. If you’re well on your way and you’re saving enough, great, you might even be the Joneses. But if you’re trying to keep up, then it’s a slippery slope that can often lead to overspending and under-saving.
Another reason to avoid such competitive consumption: You have no idea what’s really going on over at the Joneses. Yes, you might appear to be in a similar financial position because your houses are alike, you work in related fields or you share similar backgrounds. But as I’ve learned in my years as a financial advisor, it’s tough to get an accurate picture of a family’s finances unless they let you look under the hood. There may be circumstances you have no idea about. Maybe the Joneses have trust funds that pay them income every month. Maybe those trust funds pay their kids’ tuitions all the way through college. Or perhaps the Joneses just earn way more money than you think. Professions such as doctors and lawyers have vast income ranges. It’s possible that you think your neighbors are making $200,000 when they’re really making $800,000.
An additional reason to avoid mimicking the Jones: What if they’re in way over their heads? Perhaps they’re suffering from what humorist Robert Quillen described in 1928 as, “Americanism: Using money you haven’t earned to buy things you don’t need to impress people you don’t like.” Maybe they’re living off their credit cards, that summer house they refer to as theirs is owned by grandma, and their last Google search was “how to file for bankruptcy.” From what I’ve seen, keeping up with the Joneses is an epidemic in America. It’s a significant contributor to under-saving, excessive debt and the looming retirement crisis.
But it isn’t too late to break the cycle. The next time you justify a major expenditure based mostly on seeing what your friends or neighbors are doing, stop and ask yourself: Is this something you truly want—or are you just trying to keep up with the Joneses?
Source: Keeping Up – HumbleDollar
My Dad said credit is what made America great. If we all waited till we saved enough to pay cash for a new car, GM would have gone belly up years ago. Dad said a lot of things I think he borrowed from someone else, Like: “You can’t stay young forever, but you can be immature for the rest of your life.”
Also, the life cycle theory of consumption (Modigliani) ” The theory is that individuals seek to smooth consumption throughout their lifetime by borrowing when their income is low and saving when their income is high.”
Borrow when you’re twenty something to buy a house, car, raise kids, etc. Slowly pay off debt as your income increases, then save for retirement. Keep up your regular style of living hopefully by “Dis-saving” in retirement.
Modigliani suggested that’s not just logical for the individual, but for society in general (as in “General” Motors, and all their employees and suppliers).
It worked for Dwayne.
Keeping up with the Jones will kill you financially. Period. I got out of that mindset by listening to the Simon and Garfunkel song: Richard Cory.
He hits the nail on the head with regard to the people he apparently advises. Here’s an excerpt from his website:
“Rob has been a financial advisor since 1995. He is a problem solver who works to simplify high-net-worth clients’ financial lives. He assists clients in identifying and prioritizing their various goals—including estate planning, investments, tax minimization, wealth transfer and retirement income—then develops strategies that may be customized to suit their personal circumstances and their own unique feelings and attitudes.”
Keeping up with the Joneses is likely much more prevalent among folks he meets everyday among the few who do have “high net worth” and are his clients – those whose wealth is countered with debt – missing the “net” in “high net worth”. He likely meets people most days who have high incomes but spend it all (and more) – individuals who he could serve if only they saved.
Anyway, “Keeping up with the Joneses” means something very different when it comes to over half of American households who live paycheck to paycheck. Their goal is not so much keeping up with the Joneses, but more likely commiserating with the Smiths – where “keeping up” means keeping up with food on the table, a roof over the heads, clothes on the backs, etc.
Perhaps this graduate of Exeter Academy ($57,000+ a year today), and Hamilton College ($75,000+ a year today) has other insights of value to the common folk, the middle class.
I think you miss the point that paycheck to paycheck involves what you spend and on what as much as the income in the paycheck. The spending patterns of very average Americans does not support the notion that PTP means just getting buy with necessities. I see it all the time with people I know very well. Look at all the businesses that exist providing non necessity goods and services and it’s not to high net worth families.
Sorry. Not saying people always make judicious financial and life decisions. But, this guy probably has never met a middle class American other than the guy who cuts his grass and the woman who does the cleaning and one who launders his shirts.
I could care less about high income Americans who are spendthrifts – regardless of the reason.
The myth of having keeping up with the Jones may have started on Madison Ave., may have been modernize with “social media influencers”, but our own government has a done a lot to push us to compete with the Jones. The government does this by pushing home ownership to people who can’t afford houses.
My neighbor and I bought our houses when we were not making so much money and we could barely afford them at the time of purchase. Two decades later, we both had advanced in our careers and were making about $100k. We look at our neighborhood which had turned into rentals and section 8 housing by the early 2000’s. We just could not understand why we couldn’t afford a brand new McManson. We didn’t understand what we were doing wrong. By 2007, we found out why we couldn’t afford the McManson when the housing bubble burst. It was then we realized that our financial priorities were correct all along. By the mid 2010’s we both had moved to a city with 40% lower taxes while continue to fund college and retirements goals and neither of us bought a McManson. We were only house poor our first few years of homeownership when our families were young.
The US economy is now about 70% consumer spending. Our economy needs people to throw out the old and buy the new. The US government needs to keep the retail sector churning in order to keep people employed and so that they can collect tax dollars.