Beat inflation, ditch spendthrift mates
OPINION: When economist Tony Alexander set out to collect inflation-busting tips for households, among the more extreme suggestions was for people to ditch their most spendthrift friends.
Inflation has reared its ugly head. It hit 5.9 per cent on an annual basis in the December quarter.
Inflation hurts households, and most have to respond by making some cuts, or increasing their incomes, or a mixture of both.
But among the tips Alexander collected from the interested, older, better-off, educated people who subscribe to his economics newsletter was for people trying to trim their budgets to cut their ties with big-spending friends who put them under pressure (unconscious or not) to spend.
‘‘Eliminate the people who are financially incompatible with you,’’ one person advised.
Perhaps eliminate was not the best choice of words. Another put it more mildly.
‘‘If frugality is hard because of your social milieu, you can either change your friends or tell them that you are doing it for the planet. Then go and buy your clothes from op-shops,’’ they said.
It offers a choice: Change friends, or adopt strategies that allow friendships to continue, without ending them.
Money does have a tendency to divide people, says author Thomas Corley, who has made a living out of studying wealthy people, and writing self-help books on how to emulate them. Corley sees a self-selection in this process, with people aspiring to wealth reaching up, seeking friendships with wealthy people, and blanking their old pals. But I think the process goes both ways, with people not able, or willing, to keep up with the spending of their richer pals eventually turning elsewhere for friendship.
While wealth is unevenly spread in New Zealand, I tend to favour the idea of connectedness over breaking ties. How might a person do this?
The second of Alexander’s subscribers suggests adopting a convenient, and socially-acceptable lie as camouflage for spending less, in order to live more frugally, and, I assume enable them to carry on living decently, while also saving, and paying down a home loan, or managing the rent.
Maintaining a lie is hard work, so I wouldn’t suggest that was sustainable.
Instead, an idea that’s gained prominence in the age of social media is that savings has a visibility problem.
The idea goes like this. Spending is visible. Photos of people in restaurants, at concerts, carrying their branded handbag, wearing their new Nikes, seated on their new lounge suites, or at the wheel of their new cars, are all the stuff of social media.
Viewing all this evidence that spending is normal, desirable and expected works on us at both conscious and unconscious levels, making it easy to be sucked into patterns of spending and saving that are not good for us.
What we don’t see is the flip side of spending, which is the debt people have taken on to live their lifestyles, or at the very least, their lack of savings.
If saving, spending and debt all had the same visibility, we might take a more critical view of people’s spending decisions.
Plenty of things stop people from sharing their net wealth, KiwiSaver balance, or confessing that despite being well-paid, they have car debt and credit card debt. But that does not mean we can’t talk about our ambitions and strategies with friends, including the desire, or need, to spend less.
This gives it visibility in our friendships, and helps establish why we are making certain choices: Not to accept the invitation to a fancy restaurant, or to invite your friends to a picnic at the beach instead.