When it comes to money, we need to not only teach our kids how to look after their money so they 'become' wealthy but also teach them how to 'stay' wealthy. This means ensuring they don't fall foul of the Diderot Effect!
This is a topic I have alluded to in the past but I didn't realise it had an official name until I saw a post referencing it by my friend Clifton Corbin (author of the book 'Your Kids, Their Money').
What is the Diderot Effect?
The Diderot Effect is when you buy (or are gifted) something that is really nice and it makes your other things seem old and dingy so you start to replace them. For example, you buy a nice new coat but then feel you need a new pair of shoes to go with the coat. Next you want to wear your new clothes to a new, hip restaurant to meet friends who always dress well so you buy even more new clothes. Soon you need a new car and house to match! This is how riches can in fact lead to debt.
The effect is named after an 18th century French philosopher, Denis Diderot, who wrote an essay called 'Regrets of parting with my old dressing gown'.
Summary of 'Regrets of parting with my old dressing gown'
Diderot's essay talks about when he was gifted a beautiful scarlet dressing gown. He felt like royalty in his new fancy gown, but his throne room was anything but majestic. In fact, it was more like a dump with a threadbare tapestry and a desk that barely stood-up straight. The chairs looked like they had been through a war, and the bookshelves were on the verge of collapse. It was like trying to put a diamond tiara on a pig's head - it just didn't work.
He couldn't bear the thought of being seen in such a lackluster space, so he set out on a mission to upgrade his study. It was like Extreme Makeover: Home Edition. He went through each piece of furniture, upgrading them all to match the quality of his new dressing gown. It was a long and costly process, but when he finally finished, he felt like he was living in a palace fit for a king (or at least a very stylish court jester).
The big issue was that as he was upgrading his office, he ran out of money. He had to borrow money and ended up in debt! His new dressing gown had led to financial stress and ruin.
"I was absolute master of my old dressing gown but I have become a slave to my new one" Denis Diderot
Why teach your kids about the Diderot Effect?
When it comes to money, there is the skill of becoming wealthy and then there is the art of staying wealthy. Lots of people focus on making money but don't place enough focus on retaining their wealth.
There are many stories of people who win the lottery or get lucky with an investment and suddenly come into money. They fall foul of the Diderot Effect, however, and suddenly end up buying more and more new things resulting in them losing their money.
Essentially, the Diderot Effect is one of the reasons some people might become 'rich' but not ever be 'wealthy'. You can learn more about the difference between rich and wealthy by reading 'Rich Kids vs Wealthy Kids'.
The Diderot Effect is especially strong when you buy something that might change your social group. For example, you move to a new house in a more expensive neighbourhood with what appears to be 'rich neighbours'. In this case, you might need to upgrade your car to match the cars of your neighbours. It's the same in terms of clothes and where you shop for food.
"Beware of the contamination of sudden wealth. The poor man may take his ease without thinking of appearances, but the rich man is always under a strain" Denis Diderot
How to teach your kids about the Diderot effect?
Read them a story or two!
As you'll know from my previous blogs, I love to use stories and characters to help teach my daughters about different money topics. The Diderot effect is captured in two of my most popular stories:
'The Invisible Slime Story'
I would therefore recommend that you read these stories to your kids to get the conversation started.
Show them this Domino video!
Also, I would recommend you show them this fun video which uses dominoes to show how a small change can lead to a big impact, just like the Diderot Effect:
Share your experiences
Think about personal examples of when you have ended up spending more money due to the Diderot effect. I shared how the impact of moving to a new house in a fancier area led to us shopping in a more expensive supermarket and wanting our furniture to be more in keeping with a mature, family-sized house compared to our old ikea-filled apartment!
Staying wealthy is a skill that isn't talked about as much as it should be. One of the main reasons people who come into money don't keep their money is due to the Diderot Effect. They use riches to upgrade one part of their life and this results in them upgrading all parts of the life at much expense.
If you want your kids to look after their money, we need to make sure they understand the Diderot Effect. This could help them make better spending decisions as they get older.
Don't get me wrong, I'm not saying that we shouldn't buy nice things. It's about being aware of the potential impact that buying something really nice could have in the future. The more you are aware, the less likely that your will fall for the Diderot Effect.
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