Money is also weird and very psychological. Money is weird because if you have too little of it, you’re consumed by it, and if you have a lot of it, you’re consumed by it. Money is weird because it’s not money itself that necessarily matters, but rather your relationship with it and how you think about it. If you use it to buy happiness, you’ll never get there. If you develop the use of it as a tool, but not a magical answer to everything, you might find it does aid you in many ways. Money is psychological because its worth changes as your approach to it changes, even though its dollar value might not have changed at all. And it’s psychological because when you stare at the amount of money that you have or do not have in your wallet or your bank account—I’d argue that it’s not just “you” staring at it. It’s your family, your upbringing, your social circle, your greatest fears and your greatest dreams, and every experience you ever had with money before that point, all converging in a crowded room and staring together. Sounds weird, and psychological, doesn’t it?
In Morgan Housel’s book Same As Ever, he contemplates life in the 1950s, viewed so fondly by many, especially baby boomers and their parents but even younger folks too, as a golden-age era of middle class prosperity. In some ways, it makes sense—it seemed easy to achieve a good, middle-class life with a house, a yard, two cars and an annual vacation with only one spouse working while the other stayed home with approximately three children. But a more critical look at the data paints an interesting picture and reveals an important truth about the psychology of money.
Some stats to consider: median hourly wages adjusted for inflation are nearly 50% higher today than they were in 1955. The homeownership rate was 12 percentage points lower in 1950 than it is today. An average home was one-third smaller than today’s, despite having more occupants. Food consumed 29% of an average household’s budget in 1950 versus 13% today. Workplace deaths were three times higher than today. Mortality rates were much higher then; people died far younger then.
Basically, the idea that the average family was more prosperous or more secure in the 50s than today is easy to disprove with various statistics. But the reason we all still long for that era is a very, very real one. Why are we so nostalgic about the 1950s? It basically boils down to the human propensity to compare how you are doing with everyone else around you, and the fact that comparison today is both wide-spread and accessible, in part due to the rise of social media.
In the 1950s, according to Housel, “The gap between you and most of the people around you wasn’t that large.” During the fifties, it may have arguably been less about people actually being prosperous and at least as much about people feeling prosperous because they were pretty much doing as well as everyone else in their social circle or neighborhood. Housel explains that policy existed that kept wages relatively flat after WWII, and that philosophy stuck around for a while even after policy changed. Smaller houses felt fine because everyone had one roughly the same size. Lower wages felt acceptable because everyone else earned roughly the same wages too. Everyone went on camping vacations because… everyone else went on camping vacations.
Life is so different today (for many reasons, including changes to policy and tax code, that have led to broader income gaps). But notably, thanks to the much more recent past, all you have to do is open Instagram or Facebook to see just how much richer (and therefore happier) everyone else is in your life, including people with whom you graduated college who live all over the country and do professions nothing like yours; including those people’s distant friends from high school; including all of your exes’ siblings and cousins; including Cristiano Ronaldo or Taylor Swift or Kim Kardashian. I’m of course being facetious about everyone being richer and happier, but that’s how it makes people feel; because social media is a curated highlight reel of other people’s lives, and for some reason the unattainable feels like it should be something we should all aspire to have and be. It doesn’t matter how much better off we are than our parents or grandparents were, or than we, ourselves, were ten years ago; we have never-ending access to sources of envy that we really have no business being privy to, and yet, this is the reality of the world we live in today.
Financial equilibrium felt attainable in the fifties, whereas today that balance between what we have and what we want feels endlessly out of reach, regardless of how much more money or opportunity we might have today.
Said bluntly by Housel, “Today’s economy is good at generating three things: wealth, the ability to show off wealth, and great envy for other people’s wealth.” Housel also notes that Montesquieu wrote, almost three centuries (!!!) ago, “If you only wished to be happy, this could be easily accomplished; but we wish to be happier than other people, and this is always difficult, for we believe others to be happier than they are.” Sounds like money has long been like that—weird and psychological—but today’s world is uniquely good at feeding and fostering envy.
If I could wax poetic about spending habits, I think it’d revolve around all of this. If you’re spending to chase some aspirational feeling of having arrived or made it, I fear you won’t ever attain it. But on the contrary, too, if you’re foregoing spending in order to chase some aspirational feeling of finally having enough to afford to spend some, I fear you won’t ever attain that either.
We’ve talked before in various Insights pieces about the intersection of people and experiences and that being a spending sweet spot, or money well spent. I still believe this. Spending money on people is enriching and spending money on experiences is enriching, and when the two intersect, it tends to be worth it. I let this be my own “North Star” in how I approach spending, and I don’t hesitate to share it with my clients either. I often ask myself, are my money habits or a certain spending inclination driven by envy or an endless aspiration to have more? Or does a particular purchase actually buy me something in return: growth, learning, fulfillment, joy, memories, etc.?
Some spending is not zero-sum. In a zero-sum situation, one gain is exactly balanced by another loss. This means that the total amount of value, wealth, or resources in the system remains constant, with no net gain or loss. If you purchase a $2000 couch, you lose $2000 and gain a $2000 couch. You lost $2000 so that you could gain a piece of furniture for your living room, most likely to replace the old couch that you had in its place. And there’s nothing wrong with that, per se. But I would merely argue that if you spend $2000 taking your family on a long weekend getaway, while it’s true that you also lose $2000, there’s something that feels harder to quantify about all of the things you gained in return. It is harder to reach a zero-sum. You gained time away, you gained quality time with your family, you gained memories, you gained experiences in a new place, you likely experienced joy/laughter/pride or some other depth of feeling—all of which you wouldn’t have otherwise had. You also likely gained a contentedness or willingness to experience the moment at hand, as opposed to thinking about the next thing. This is an important distinction in today’s world of comparison. What you gain tends to compound and last; you continue to benefit or feel the impact of it, long after the experience, or the spend, is over.
There seems to be an inherent difference between the value of money when spent on experiences versus material things. While we would never pretend to be experts on money and happiness, one theme that feels true to us as advisors who help people every day operate the world from a more strategic and informed financial perspective is that people who are comfortable experiencing their money tend to be freed by it, as opposed to debilitated or weighed down by it.
As we age, our worlds get smaller, and in many cases, so do our income trajectories. Our days that used to be spent working, running errands, running a household, and filling a social calendar… in classrooms and offices and cars and airplanes and restaurants and bars and other people’s houses… start to take up a lot less geography—and the walls of our lives start to close in. It’s certainly a “normal” trajectory, from an aging and slowing down perspective, but I’d challenge the degree to which we consider it so. There are still ways to experience your money, in ways that feel uniquely enriching to you, not zero-sum. In theory, you’ve spent most of your working life foregoing spending in many instances so that you would be able to enjoy the fruits of your labor later. Don’t underestimate the value of letting yourself enjoy the fruits of your labor with people that you love in experiential ways that expand your world, fulfill you, and pay you back in ways you never imagined.
Disclosures: The information provided in this marketing piece is for informational purposes only and does not constitute financial, investment, tax, or legal advice. The views and opinions expressed are those of the author and do not necessarily reflect the views of Howe & Rusling. Any investment strategies discussed in this material may not be suitable for all investors and are not guaranteed to be successful. Past performance is not indicative of future results. Financial decisions are highly personal and should be based on individual circumstances. Before making any financial or investment decision, you should seek the advice of a qualified professional who can assess your unique situation. Any references to specific companies, books, or individuals in this marketing piece are for illustrative purposes only and do not constitute endorsements or recommendations. All examples are hypothetical and intended solely to demonstrate concepts discussed in the piece. Investing involves risk, including the possible loss of principal. There is no assurance that any investment strategy will achieve its objectives or avoid losses.