Why you should keep up with the Jones
Why you should keep up with the Jones
Why peer pressure can be a good thing and how you can make it so
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5-second summary: conventional finance wisdom tells you to treat peer pressure like you’d treat an old friend who reached out to reconnect and talk about how Herbalife can change your life. I make the case that peer pressure isn’t the problem and can in fact be a positive influence. It’s the peers themselves you need to worry about.
Why you should keep up with the Jones
The personal finance world is obsessed with the mythical Jones family. Those Jones’ and their perfect teeth and their white picket fence and their loose spending habits! Do they have unlimited discretionary income? Or are they one flat tire from having to jump in front of a Lexus to pay off a blender they bought on layaway? Nobody knows! Either way, they’re bad news. Finfluencers like to admonish you, they like to tell you to resist the temptation of the Jones family, as if they are the parents from Footloose and you are just a whimpering teenager with an uncontrollable urge to dance the night away and carry a credit card balance. Here’s my counterpoint to the finfluencers:
You’re an early Neandarthal on the savannah, hairy and hungry. You’re out by yourself picking berries and later you’re going to lay a bunch out to dry so they’ll last all through the rainy season. Really, you are a prehistoric financier investing in berry futures. Your friend Steve is out with a large band hunting Wooly Mammoth. Ha! The meat won’t last a week. Come rainy season they’ll be begging for your berries, and you’ll be able to trade them for all the Sabretooth necklaces in the village. You begin to drift away into a pleasant tooth-necklace daydream, a favorite pastime, when the ground starts quaking. Out of the bushes comes Steve, followed by a horde of your peers. “Run!” they all yell. Steve stops just long enough to suggest you drop your basket of berries and flee. You think about it for a second, but decide not to. “These are nice people'' you remind yourself “but they make bad decisions. After all, they didn't’ bring back any meat from hunting, and now they tell you to stop gathering berries?” You get back to business and the stampede of Neandarthals passes. You smile, knowing you’ve done the right thing by resisting peer pressure. It’s your last thought before you're buried under the hoof of a Wooly Mammoth.
Peer pressure isn’t a weakness, it’s a survival mechanism. We are biologically programmed to follow our fellow humans and that can be really useful, like when looking for an airport exit or crowd-surfing. It can also lead to herds of lemmings blindly following one another’s idiocy, a quirk that corporations love to exploit. For example, fake Amazon reviews. Which, of course, is all Amazon reviews. Who is leaving all these reviews? There’s risk to keeping up with the Jones’, but there’s risk to keeping away from them too. The Jones’ could be on to something. They might be avoiding a Wooly Mammoth or saving a bunch of money on their car insurance. That’s why I think you should absolutely keep up with the Jones. You don’t have to copy those Jones' every move, but you should totally be keeping up with what they’re doing. Here’s what I mean.
Focus on the facts - don’t let anyone tell you who what “everyone” is doing
Often people don’t figure out who the Jones are. As in, who are the people worth keeping up with? Take Peloton. It may seem like everybody has one, wants one, or is getting one. Here’s the thing: there are about four million Peloton users in the US right now, which is about half the number of pet birds in this country. Where are all the commercials of fit people playing with their birds in exotic rooftop penthouses? If you’re being told “everybody is doing this,” then a good check is the Bureau of Labor Statistics Consumer Expenditure Survey. They break down average Americans spending in a ton of detail, and let you filter the data by different demographics. It’s always a good gut check to see how your spending compares to the average American. Here’s a snapshot of that data that I broke out that shows average spending per household:
A stationary bike probably fits into the miscellaneous bucket. I don’t know what else is in there. Other non-transporting modes of transportation, maybe. If the average American bought a Peloton bike, an annual subscription to the app, and the absolutely necessary merchandise like this $25 Peloton waterbottle, they’d eat up their entire miscellaneous budget for the whole year. That means no cash left over for model cars, passengerless drones, unseaworthy vessels, shipping containers, treadmills, helium balloons. Think of all the non-modes of transportation America would miss out on! On the other hand, this chart reveals that the average household is saving $8,451 per year, or about 12% of after-tax income. That’s something worth keeping up with. My point is that peer pressure isn’t so bad if you pick your peers - find the right Jones family to keep up with!
Figure out why the Jones are buying what they're buying
Want someone to lie to your face? Ask them why they bought something. People who buy small-batch artisan mustard swear they can taste the difference, but what they’re really tasting is a sweet feeling of superiority over their classless neighbors who squeeze and shake the mustard out like chimpanzees. People have no idea why they buy things. When my friends tell me about a product I simply must have, I do two things. First, I smack them directly across the face for using the phrase simply must have. Don’t speak to me like I’m wearing a monocle. Second, I try to figure out what exactly my friends are paying for. To do this, you simply must disregard what your friend claims they paid for. People invariably claim they are paying for some type of better quality. Oh, it’s just safer/better tasting/more durable/faster/prettier/etc. Instead, a good starting point is to break down the cost of the product. I made the below graphic based on Prada’s financial reports.
As unbelievable as it sounds, Prada makes less than $100 for every $1,000 it sells. Even that number is probably too high because oftentimes Prada is selling through a third-party (like a store) that take a cut of the sales price. A $1,000 Prada bag probably costs under $300 to make. Where, then, is all the money going? When you buy a Prada bag, you can be assured that at least 50% of what you pay for is marketing. Paying for marketing means that you aren’t paying for quality, you’re paying to communicate something to those around you. You pay the company to cultivate a signal that you can inherit by owning the product. There’s nothing wrong with that if it's what you want. It’s just that I rarely hear anyone say “you simply must buy these yoga sweatpants. They let the world know that you have excessive disposable income.” In fact, I never hear that. Which is strange, because the value proposition - the reason to buy a product - should be critical to any purchasing decision. That’s why it's important to do some thinking and figure it out for yourself - don’t rely on the Jones for that information.
Wrapping up
The danger of keeping up with the Jones is always cited as one of those black-and-white personal finance concepts. Concepts like always have a six-month rainy day fund and avoid debt at all costs. These rules are generally technically correct, but they often ignore the nuance of reality. They anchor on the downside risk without factoring in the benefits. Yes, keeping up with the Jones can get you into financial trouble but it can also introduce you to a new hobby or connect you to interesting people. The goal of personal finance shouldn’t be to mathematically optimize every single decision down to the penny or to turn yourself into an emotionless robo-saver. The goal of personal finance is to make sure you can support the lifestyle you want to have. Keeping up with the Jones is part of that lifestyle. It’s hard to have meaningful relationships if you can’t keep up. That can be problematic, but the solution isn’t to just cut all your friends and family out of your life like they’re infected gallbladders. The solution is to get smarter about exactly what and who you want to keep up with.
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Additional Reading & Sources:
Alchemy by Rory Sutherland: If you’re interested in the art of signaling.
Sapiens: A Brief History of Humankind: If you’re interested in the ancestral brain.
Ticket to the Fair (Harper’s Weekly, 1994): David Foster Wallace explores what you really buy when you purchase a ticket to the Illinois State Fair.