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Financial Social Norms Are Your Worst Enemy

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We cannot avoid the truth: money issues are never perfectly rational or numerical. The argument for saving and investing is easy to make, easy to understand, compelling, and exciting. Compound interest is an extremely simple formula. So, why are so many working- and middle-class people around the world making such terrible financial decisions?


Some studies report that a whopping 80% of Americans aged 30-54 believe they will not be prepared for retirement when it comes. 45% of Americans don’t have any retirement savings. A key factor that influences the epidemic of terrible financial decision-making is the pressure of social norms. Financial social norms are a smart decision maker’s worst enemy.


Julie saves 15% of her paycheck each month. Her groceries, rent, and other usual expenses take up most of her remaining salary. Julie prefers to take the money she has left over and sock it away in a medium-term savings account for a vacation she plans to take,or to spend it on new clothes that she’s been wanting for awhile. Julie does not like to go out for drinks. She finds the costs prohibitively expensive and prefers to talk with and cook for small groups of friends at her or someone else’s home. She’s also read about how, in bars, the price of beer is marked up 400% and cocktails up to 1,200%! 


The problem that someone like Julie runs into is a common one. Friends and coworkers invite her out to a bar or a restaurant. They enjoy frequently spending money on outings such as this. If Julie declines, she feels rude. If she explains that she invests an admirable 15% of her salary each month, others might judge her as being greedy with her money and shunning the social norms that they embrace.


Even worse, they might determine that ‘she can afford’ to come out with them, and pressure her to do so. Well, they aren’t the sort of people who think long-term (millionaire by middle-age) or even medium-term (vacation next summer). Julie, who is making fantastic financial decisions, is being micro-exiled. It’s a bummer.


Here’s the deal: like with most things in life, confidence is key. Julie knows that she has made a wonderful decision, and shouldn’t feel a need to defend her values to closed-minded outsiders. It’s the unfortunate reality for people like Julie that a bit of loneliness comes with making exceptional, mature decisions. It applies to much more than finance, as you’ve probably already experienced.


If Julie is confident in her decision, she will express that confidence in declining expensive, superficial outings and putting her money towards things she values. She doesn’t need to shun people who don’t share her beliefs, but she doesn’t need to feel subject to their opinions.


A final thought: the phrase ‘you can afford it’ is a silly one. Having enough money to buy a product isn’t being able to afford it, philosophically speaking. A commitment to yourself to save x% of your income should be treated just like a bill. If your rent is $450/month, and you have $500 this month, you surely cannot afford anything that costs $100. Similarly, if you’ve committed to investing $200 a month and have $250 this month after your expenses, you can’t afford a $100 pair of shoes.


Your commitment to your plan (and to yourself) is like any other obligation. Though you can afford to save $200 a month, you can’t necessarily afford to buy something that costs $200 (a month). Don’t let others decide what they think you can afford. It’s not an objective determination, it’s a subjective one.


You’ve made your decisions; they’re mature and admirable. Don’t let others project their financial values onto you, because chances are those values aren’t as wholesome and intelligent as yours.


By all means, however, pass along the good word to those who are interested. There’s no need to shun people who don’t make the same money decisions as you make. There’s also no need to feel judged by them. If you come across someone with the brains to be intrigued and excited by the kinds of decisions we encourage here at WLI, talk to them! Tell them about your situation. Often, they’ll feel as excited as you did when you first found about all of this stuff.


Money shouldn’t be taboo, and communication is wonderful. Stick to your choices and your values with confidence, the rest will follow.


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