By: Jeremy Shapiro
As the federal government confronts its mountain of debt and struggles to reduce its spending, many Americans are going through a personal version of the same ordeal. On a psychological level, choices about spending and saving are not merely matters of dollars and cents because our emotions and well-being are also at stake. A financial plan that makes sense in accounting terms but leaves us feeling miserable is no solution at all. Fortunately, recent research on the psychology of money and happiness can provide valuable guidance to people trying to achieve the twin goals of being thrifty and happy.
Our personal identity is central to our sense of well-being; we cannot be happy with our lives unless we are happy with our selves. Identity and financial behavior are intertwined in a number of ways. We buy things not just to own them but to be the kind of person who owns them. This is why advertisers work so hard to build associations between their products and attractive, appealing people. As a result, changing our patterns of spending and saving might change our self-image.
Images of Spending and Saving
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Some people have positive images of thrift; they associate frugality with thoughtful, disciplined individuals who have highly evolved values that do not emphasize material things. Other people have negative images of thrift; they associate frugality with chincy, pitiable losers who are afraid to have fun. The experience of cutting back on expenses can make us feel either better or worse about ourselves, depending on our image of thrift. In a way, it boils down to what we consider cool.
Perhaps the most important variable is whether we associate spending and consuming with success while associating frugality with failure. If these associations are yours, it will be difficult and painful to cut down your spending, because doing so makes you feel like a loser.
Hats and Cattle
If you associate thrift with failure, you might want to reconsider this in light of some research reviewed by Tom Stanley and William Danko in their book, The Millionaire Next Door: Surprising Secrets of America’s Wealthy. The main “secret” is summarized by the title of Chapter 2: “Frugal Frugal Frugal.” Stanley and Danko’s research debunks common myths about high net-worth individuals by finding, for example, that the typical millionaire did not inherit significant money, works more than 50 hours per week, has lived for more than 20 years in the same home with neighbors who are not millionaires, drives an ordinary car that is not new, and buys jeans at Wal-Mart. Most millionaires accumulated their wealth by living below their means and foregoing purchases of expensive cars, jewelry, and other status symbols. What did they buy instead? Financial security and independence.
A study by Derek Rucker and Adam Galinsky, published in the Journal of Consumer Research, found that when people feel insecure and helpless, they are more willing to spend a lot of money for products associated with high status. When we feel powerless, we worry about being perceived as inadequate by other people, and impressive material possessions might seem to offer a solution. There is an old Texas saying that describes this form of overcompensation: “Big hat, no cattle.” Conversely, when people feel secure and in control, they have less need to flaunt expensive possessions—just like the millionaire next door.
How important are material possessions to your self-esteem? If the answer is “very important,” this will make it hard to be happily thrifty, and you might want to reconsider this emphasis on possessions as a source of pride. Here are some questions to ask yourself:
- Where did I get the idea that owning lots of material things makes a person impressive and admirable?
- When I take an inventory of my personal strengths, which of my good qualities are related to possessions, and which have nothing to do with material wealth?
- How many of the people that I admire are rich? How many of the people that I respect are not particularly wealthy?
- What does my spiritual tradition say about the importance of material wealth?
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How Much Stuff Does It Take to Be Happy?There is no objective answer to this question. People vary greatly in the amount of material wealth they need to be satisfied. Big spenders need a lot—or they feel deprived. Happily thrifty people need only a moderate quantity of material goods to be content.
These two types of people derive different amounts of pleasure from the same amount of material wealth. For example, some children can enjoy themselves for hours with nothing but crayons and a few pieces of paper. Other children need a continuous supply of new toys and electronics to keep from getting bored.
Internal and External Resources
The more internal resources we have, the fewer external resources we need. The greater our capacity for pleasure in the ordinary, readily available opportunities of everyday life–socializing, music, nature, the exercise of our minds and bodies–the fewer material things we require to have a good time. This means that thrift is a skill: the ability to extract a lot of positive experience from a minimum amount of stuff. The possession of this skill can be something to be proud of—a positive identity component.
You might feel this skill is not well developed in you. Most people in our consumer society are in this position, because the cultural messages bombarding us daily insist that we need many expensive possessions in order to feel good about ourselves. Nonetheless, if you have not made a real effort to develop the skill of thrift, there is no reason to be discouraged. Skills are built, over time, by practice. In this case, practice means applying the principles of both accounting and psychology by carefully controlling our spending while noticing the effects of doing so on our identity and modifying these effects when they do not make sense in terms of our values.
Reconstructing Our Images of Thrift
If you are worried about money, you need to spend less and save more—there is no way around it. But what will this experience be like?
When you imagine yourself passing up a purchase, how does this self look to you? Like a self-directed, thinking person with good priorities? Or a pitiful failure who lacks the resources to enjoy life?
One of the things we have going for ourselves in the endeavor to be happily thrifty is that the more one thinks about financial choices, the more sense frugality makes. The more we delve into subtle forms of value, the more appealing they become, while the opposite is true of glitz. Wisdom does not favor miserliness, but it does favor thrift. We can discover new sources of pride in the virtues made necessary by today’s hard times.
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Jeremy Shapiro, Ph.D., is a psychologist and adjunct faculty member of Case Western Reserve University. He has written four books and numerous scientific/professional articles on topics related to psychotherapy. He also directs the website, YouCutTheBudget.com.
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