Are You Trying To Keep Up With The Jones? – Well Stop!!

Are you spending more than you should because you are influenced by those around you?

James Duesenberry wrote a paper called: “Income, saving and the theory of consumer behaviour” back in 1949 at Harvard University. If you want some good bedtime reading, then give it a go!!

His relative income hypothesis states that an individual’s attitude to consumption and saving is dictated more by his income in relation to others than by abstract standard of living.

So, what he is saying here is that we look at what our neighbours and friends and colleagues have, and we want the same, if not better.

For example, our neighbour has just bought a brand-new Range Rover, it has the new 2020 plates and looks beautiful, plus is a massive car. Am I jealous? Hmmmmm . . . . well, I love our “Smartie” Blue Lexus and it is a dream to drive, but it is a few years old and will have been much cheaper than their brand-new Range Rover . . . Why can’t I afford the same?

This is where I give myself a slap and remember that I have three kids not just one, I have been divorced and I probably save more for my future than they do. And maybe they earn more than I do. Who knows and who cares?! It is irrelevant what they have, it is what I have and can afford, whilst doing everything that I want to do (like save for my future) that matters. Stop comparing yourself to others!!

How about you? Are you living your life to ‘keep up with the Jones’, or do you just buy what you need / can afford, whilst still saving enough for your future / making sure you do not run out of money?

Secondly, James Duesenberry hypothesizes that the present consumption is not influenced merely by present levels of income, but also by levels of consumption attained in a previous period.

It is difficult for a family to reduce their level of consumption once attained.

Translated to: Once you are spending at a certain level, it is difficult to spend less than that. I could have told you that!! But many of us need to. Maybe we have got used to spending more than we earn, maybe we do not save enough for our future, maybe we have less money in retirement than we have been used to whilst working. Whatever it is, take a good look at what you are spending money on and see whether or not you really need it.

 

In the words of Marie Kondo:

“Keep only those things that speak to the heart, and discard items that no longer spark joy”.

Do the same when spending money.

If it doesn’t spark joy, then don’t buy it.