We Have To Let Go
Here is a crazy thing. If you win the lottery your neighbours are more likely to go bankrupt. Yes, you read that right.
A study published last year by the Federal Reserve Bank of Philadelphia looked at whether social comparisons between peers leads to increased debt and financial distress.
They looked at small neighbourhoods in Canada where someone had won the lottery. They found that the larger the lottery win, the more bankruptcies there were in the neighbourhood over the next three years.
What’s going on here?
Well, it’s human nature and evolutionary biology.
Making comparisons to the people around us is an innate human tendency. We are herd animals and our brains are wired for one thing – survival. This herd instinct combined with a ‘monkey brain’ that is saying to us ‘don’t die, don’t die’ mean that we are terrified of getting left behind. We are not consciously aware of that fear, but it drives us.
Even monkeys have been shown to use a comparative process to evaluate their outcomes. In one study capuchin monkeys were happy when given a piece of cucumber as a reward but later when some received a juicy grape the others refused to play, no longer accepted the cucumber, flung it to the ground, or sulked. (Sound familiar in any humans you know?)
How does this apply in real life? When we seek answer to questions such as ‘Am I Happy’ or ‘Do I Make Enough Money’ or ‘Is My House Big Enough’ we look at the people around us. We can’t answer those questions easily in isolation, so we resort to comparisons. It’s dangerous, dangerous.
Carl Richards, columnist for the NY Times and one of the wisest people I know, has an amazing nine-minute podcast titled ‘Keeping Up With The Joneses’.
He makes many important points. The first is that we must acknowledge that we don’t consciously make the decision to “Keep Up”.
“It’s much more insidious than it seems. It’s not in your face. I don’t think, oh well they have a $100,000 car and so I’m going to get a $110,000 car. I don’t think that” says Carl. “What happens is that slowly a new baseline creeps into your life.”
“You’ve got to swim upstream to avoid it.”
Dr Brad Klontz, Founder of the Financial Psychology Institute, says:
“Subconsciously, humans look at those around them for confirmation of their social and economic status. In the modern world, those signals come in the form of houses, cars, clothes, jewelry and material possessions.
Whereas a peacock fluffs his feathers and a lion flaunts his mane, humans flaunt their material possessions.
It makes no rational sense but the animal brain tells us to think in terms of survival and it’s a terrible idea to be left behind. The slowest runner misses out lunch or becomes lunch.”
It’s important to recognise that this is hard for us humans. Our brains are working against us (they are always working against us when it comes to money). Only with recognition and awareness can we start to counteract the insidiousness of it.
Carl postulates that what we are really trying to measure is happiness. But there is no unit for happy – we can’t measure my units of happy against your units of happy. We use money as a shortcut. We think what we are measuring is how much money they have. Again, we don’t do this consciously and we wouldn’t admit to replacing money for happiness, but money is an easy unit and happy is a hard unit.
Is money a good unit though? What do we really know about other people’s financial lives?
We know absolutely nothing.
In the podcast Carl uses an example of a $140k boat. Someone buys a brand new waterski boat. We see that boat and the narrative that immediately runs through our head is ‘wow, they are rich, they must be doing really well’. What follows is thoughts of ‘why aren’t I doing that well?’.
But do we know they are rich? Do we actually know how much money they have? Thank you Carl for pointing out that nobody walks around with a net worth sign flashing above their head.
What we do know, if we know anything at all, is how much money they have spent.
And we don’t even necessarily know that. Maybe it’s not their boat. Maybe it was a gift.
Maybe the Joneses are secretly worth $100m and the boat is nothing to them. Maybe when Mr Jones’ Dad died he left the family $140k with the sole proviso that the money is spent on a waterski boat, because he loved to waterski. Maybe they put it on a credit card.
Do you see the ridiculousness of it all?
Here are the best four sentences from Carl’s nine minute podcast (everyone human should listen to it):
“We have to realise that the financial actions of other people should play no role in the narrative running through our heads. Even more specifically, the financial actions of other people should play no role in our financial actions. We just have to let that stuff go.”
“We have to let go of comparisons based on stuff we don’t even know.”
This impacts us all. We all do this. Carl’s trick is to continually ask yourself two questions.
Do you even know it’s true? AND, does it even matter?