I recently asked my eldest daughter (11) the hypothetical question:
Would you rather keep your old iPhone 8 or get a new Samsung phone?
Straight away she said that she'd rather keep her iPhone. I asked her why but she didn't have an answer. She just likes having an iPhone.
I explained that a new Samsung would have a better screen, an upgraded camera, the battery would last longer and it would be a lot quicker. She didn't care about that stuff and just preferred having an iPhone.
This shows the power that brands have on a lot of people, especially younger people.
In this blog, I explore this topic in more detail as the downsides of overspending to impress other people can be long-lasting.
Dangers of Overspending To Impress
Overspending to impress other people is one of the major reasons why people end up suffering from financial stress.
Chasing the buzz ...
Whilst spending on nice things gives us a nice feeling, this feeling is generally short-lived and the financial impact lasts for a long time.
If you buy an expensive top from the shops you feel great when wearing it and it feels even better if someone comments on it.
Sadly, when you wear it for the 5th time, the feeling has largely gone. You want to get that feeling back so you go and buy something new. This leads to more and more spending over time.
The Diderot Effect ...
This is one of the most underrated issues with spending to impress others. Once you buy a certain brand which is above your usual level of spending, there is a need to update everything else around you to fit that new brand you have identified yourself with. This again leads to more and more spending.
I recommend you read my full blog on the Diderot Effect:
Now, let's go through how we can help kids manage the need to spend to impress others.
Digging into the 'Why we spend?'
As mentioned, my daughter didn't have a solid answer for why she would take the old iPhone.
Morgan Housel, author of The Psychology of Money, claims that a lot of spending decisions come down to seeking recognition, i.e., people feel they get respected if they buy nice things.
Humans are social creatures. Fitting in and getting recognition from the group is very important. A lot of this is programmed into our subconscious. We have to remember that we are still programmed from the historic days when outcasts were thrown out of the group to fend for themselves, so following the social norms was life or death.
This means when we do spend on certain things, we aren't doing it fully consciously. There is an embedded need to please others. This is especially true with adolescent children who are going through the phase of moving away from their parents and spending more time with friends.
Therefore, the goal for parents is to help their kids realise what is happening and bring their spending decisions from the subconscious to the conscious.
Don't get me wrong, this isn't suddenly going to stop kids caring about what other people think and avoid them buying certain brands. However, it should reduce this and get a better balance between spending for Self vs for Show.
Below are some points which are worth discussing with your kids.
I wanted to probe Morgan Housel's point about recognition a bit further. I asked my daughter:
"Who do you most respect at school and why?"
She listed off people who are kind or good at sports/school and, interestingly enough, those "who don't care what others think about them!"
At no point did she mention that she respected anyone just because they had nice clothes or an iPhone.
When I replayed that back to her, I could tell straight away that it had an impact. Essentially, we like having nice things as we believe people will respect us more, but if we want respect or recognition, then we should focus on the things that people actually rate highly rather than spending lots of money.
I hope this point sticks and when your kids are make spending decisions, they consider if this is really going to get them the recognition they think it will. Hopefully, they will start focusing on more sustainable ways of getting recognition, such as being kind, funny, smart, sporty, creative, hard-working etc.
Exclusion vs Recognition
My daughter raised a good point following that discussion. Sometimes it's not all about getting recognition but avoiding getting excluded. For example, if you don't have certain things or brands then there is a fear of being excluded, or potentially, bullied.
As parents, we have to be aware of this point and have some tolerance for our kid's spending so they aren't excluded.
That being said, it is worth ensuring that our kids question who they fear would exclude them if they didn't have a certain thing or brand. Are these people really friends and worth caring about?
Hopefully, raising these questions will avoid some poor spending decisions and make better decisions about who their friends really are.
Spending for Self or Show
The key purpose of this blog is to get kids to question whether they are spending for Self or Show and to ensure there is a balance.
This isn't just for kids, I've been asking friends the question that Morgan Housel raised:
Would you buy an entry-level BMW or a top-of-the-range Toyota? (assuming they are the same price)
The BMW has the brand name and reputation but as it is entry level it won't have many add-ons, i.e., a basic experience. Whilst the Toyota might not get that much attention, the top-of-the-range could have everything you need to have a relaxing/stress-free driving experience.
The decision gets to the heart of what we should all be asking when buying something "Are we buying for ourselves (top-of-the-range Toyota) or to get attention (entry-level BMW)?"
The more we raise questions like this to ourselves and our kids, the more likely we are to get the right balance between spending for Self vs Show.
Not outlawing buying of big brands
For the avoidance of doubt, I'm not suggesting that people should never buy big brand names.
I explained to my daughters that their granddads (on both sides) have spent more money than most people on their cars. However, they have done this as they really love cars. They love researching the cars, finding the right car for them, looking after their car and talking about cars to others. They get a lot of self-joy from their cars.
The fact that other people like the cars they drive is a bonus to them, rather than the reason they bought their cars in the first place.
As their motivation is based on their interest in the specific thing they are buying (in this case cars), it hasn't led to them spending more on other things like clothes or fancy restaurants, i.e., they didn't get caught up in the Diderot Effect.
Over time, my daughters might have a genuine interest in technology, cars, fashion or food and therefore might spend more than more on these items compared to most. Personally, I feel that would be fine as they are spending for themselves (as long as they are still managing to save some of their money!).
It is very easy for kids going through adolescence to get caught up in spending lots of money to fit in and seek recognition from others. This can create a dangerous spending habit going into adulthood.
It is therefore really important that we speak to our kids about why they are spending and ensuring that they get the right balance between spending for Self vs for Show.
Ask your kids "Did you buy that for yourself or to impress others?"(make spending decisions conscious)
Ask your kids "Who do you respect most at school?" (highlighting that recognition comes from what people do rather than what they have)