Mind games: Phil Slade

Trying to keep up with the Joneses will end in tears

When my wife and I were deciding which school our children should attend, we weren’t overly focused on academic reputation, quality of facilities or the reputation of the sporting or music programs. The bigger concern was the mindset of the children and families in and around the school community. We knew that the friends our boys made would have a massive influence on their attitudes and behaviours, so we chose a school that we thought gave them a better chance of making friends who shared our values.

If their friends had a positive attitude toward study, then so would our boys. If they had a good work ethic and sense of respect for others, then so would our boys. If they ate healthily and were careful how they spent money, then so would our boys. As parents, we never neglected the part we played in shaping attitudes and behaviours, but we also didn’t underestimate the collective impact of their friends and teachers.

There is an enormous body of evidence in psychological literature showing the significant impact of peers on attitudes and behaviours – and this same influence follows us into adulthood. There is evidence that obesity is linked to the size of the people we associate with. How much we exercise, study or drink is largely influenced by our salient contemporaries. But one effect that is often overlooked is the impact others have on our finances.

There are two big financial influences we commonly observe. The first is that being around people who spend more will make you spend more, irrespective of income or relative financial status. The second is that how much you invest, and the diversity of your investments is largely correlative with the size and diversity of your peers’ investing behaviours (and how much you discuss it).

We also find that when people change jobs, move house or make a significant social change (like joining a sporting team or church), their behaviours change in alignment with the norms of their new group, irrespective of previous habits. We are herd animals, and we change our behaviours to align with those around us.

As our behaviours shift, so do our attitudes, to help reduce any cognitive dissonance (which is the mental anguish we feel when our attitudes seem to be out of step with our behaviours).

However, this is not as simple as associating with wealthy people if you want to be wealthy. Financial ruin has visited many people who tried to keep up with spending behaviours of others better off than themselves to keep up with the Joneses. Maladaptive financial behaviours can be found at any level of socio-economic status.

The reason our financial health is so closely linked with the financial behaviours of those immediately around us has to do with social identity, fear of being left out, social justice and the insatiable desire for our brains to feel good. Who we associate with heavily influences our concept of who we are, as we take on the norms and social identity of the group we are connecting with. We then behave in ways that align with that group to strengthen our identity and sense of belonging. The strength of this connection becomes more important than our actual financial health, and we justify all sorts of poor financial behaviours for fear of being ostracised.

The trick is learning to identify when our herd instinct and emotions are taking over, put limits around how we spend, and find other ways to strengthen the connection with our group that doesn’t involve trading off our future financial stability for short-term feelings.