WHEN IT COMES to your financial life, should you care what other people think?
I’ve always found this a tricky question. On the one hand, it’s easy to fall into the trap of keeping up with the Joneses. If you care too much about what other people think, life can become very expensive—and that can be detrimental to your financial health.
On the other hand, it’s also natural to want to be accepted by one’s peers. No one wants to operate too far outside societal norms. Yes, you can march to the beat of your own drum, but if you’re too far out of step with your peers, that can make life hard in other ways. In short, you don’t want to care too much about others’ opinions, but you also don’t want to care too little. This can be a difficult balance to strike.
In their book The Millionaire Next Door, authors Thomas Stanley and William Danko offered one solution: Simply choose a different peer group. To avoid judgment from wealthy neighbors, they argued, move to another neighborhood. While I suppose that might work, this always struck me as impractical. If my neighbor drives a Mercedes, do I have to pull my children out of school and leave town just to avoid the temptation to buy—or lease—one myself? That, I think, rings hollow as a solution.
But there’s another way to strike a healthy balance—which is to associate with the Joneses, without feeling like you need to keep up with them financially. About two decades ago, psychologist Thomas Gilovich and colleagues discovered something they dubbed the “spotlight effect.” What they found is that the rest of the world is paying much less attention to you than you think they are.
How did they prove this? In a series of experiments, the researchers outfitted college students in a variety of T-shirts and then sent them out into social situations on campus. Some students were given shirts carrying pictures of popular icons, including Jerry Seinfeld, Bob Marley and Martin Luther King, while others were given shirts carrying an image of singer Barry Manilow, designed to be intentionally embarrassing.
Before they entered the social situations, the students wearing the Barry Manilow shirts were asked to estimate how many of their peers would notice their shirts. Then, some time later, the researchers polled the other students to find out how many had actually noticed the embarrassing shirts. Result: There was a wide gap between students’ expectations of how they would be perceived and how they were actually perceived. Those wearing the Barry Manilow shirts expected 50% of their peers would notice the shirts. As it turned out, barely 20% did. The lesson: Even when you’re going out of your way to stand out, most people just don’t notice.
How does this apply to you and your finances? In my view, the spotlight effect conveys two valuable messages.
First, it tells us that there’s no point in trying to keep up with the Joneses. If I come home with a new Mercedes, my neighbors probably won’t notice and, if they do, they probably won’t care. This, I think, is liberating. If you’re stretching yourself financially to gain social acceptance, there’s no point since most people won’t notice anyway.
The second lesson: If you’re feeling self-conscious about your financial standing, you shouldn’t. If you drive a minivan instead of a Mercedes, some people might notice and some people might make a remark, but far fewer than you’d expect. Even then, it’s probably just idle chatter. They don’t really care. The bottom line: Don’t worry about what you think other people are thinking—since that’s probably not what they’re thinking anyway.
Adam M. Grossman’s previous articles include Double Checking, Oddly Effective and Fact vs. Fantasy. Adam is the founder of Mayport Wealth Management, a fixed-fee financial planning firm in Boston. He’s an advocate of evidence-based investing and is on a mission to lower the cost of investment advice for consumers. Follow Adam on Twitter @AdamMGrossman.