12/23/2013 6:45 PM ET|
Do you behave like a poor person?
Many people who grow up without a lot of money are frugal when they finally have some. Others, though, seem to be making up for lost spending time.
Rachel Knight, 31, has countless stories about money being tight when she was growing up. There was the time when she was 6 years old and her parents couldn’t afford to take her younger sister to the doctor.
There were the mornings in the middle of January when there was neither hot water nor bath soap, so she had to take a cold shower with grainy laundry detergent. There was the teasing from kids at school who mocked the clothes she wore -- the oversize, stained T-shirts that her family got for free from the church mission.
“People talk about being poor,” says Knight. “but unless you know what it’s like to go hungry so your kid sister can have the other half of the only bologna sandwich you’ll get for the day,” she says, “you don’t know a thing.”
Now Knight, a wife and mother, has a good job, and, in theory, is living the American dream. Still, though her household income is about $140K per year, neither she nor her husband has any savings. And every month, the minimum payments on their credit cards grow closer to exceeding the cost of their mortgage. She knows she’s headed for financial disaster, yet she continues to hit the spa and download shopping apps from her favorite stores.
Knight acknowledges that her extravagant spending is likely a knee-jerk reaction to the lean years of her childhood.
Why the poor spend more
And she’s not alone: In fact, her spending behavior is echoed by scientific research. A study published in the February 2013 edition of Psychological Science suggests that, surprisingly, adults who grow up with fewer financial resources are more likely to be heavy spenders during times of economic crisis, whereas those who grew up wealthier will respond to tough times by cutting back.
One would think that someone who knows what it’s like to be less fortunate would be afraid of doing anything that might put them back in that position again, but that’s not so according to Professor Joshua Ackerman, a co-author of the study: “As adults in times of stress, particularly economic stress,” he says, “people who grew up relatively wealthy tend to be more interested in saving whereas people who grew up relatively poor tend to be more interested in spending. Although neither strategy is irrational, the spend-now strategy could create longer-term problems over people’s lives. So, if you grew up relatively poor, you may have to battle your instincts or immediate preferences in times of stress in order to ensure your long-term financial health.”
And, for Rachel Knight and others like her, often that first instinct is to whip out your wallet. “Every time I see something I want, I buy it,” Knight says. “Because if I don’t, my mind goes back to being that poor kid, living in the projects, and all I can think is, ‘I know I deserve better…’”
How to beat 'I deserve it' syndrome
“I deserve it” is one line with which Katie Brewer, a certified financial planner™ with LearnVest Planning Services, is very familiar.
“I hear it from people all the time,” Brewer says of her financial planning clients. “They spoil themselves as adults because they’re making up for all the ways they felt deprived as kids.”
In other words, although Knight is no longer poor, her spending habits are in danger of putting her back in the poor house.
“When I think about how my kids are growing up, I wonder if they are going to struggle with the same problems I’ve had because my parents never really saved much, and now I have nothing in my savings account,” she says.
But Brewer says Knight—and others like her—can change. “You are not your parents, and you are not your past,” she says. “Just because they went down a rocky path doesn’t mean that you have to.”
Here, the three things that Brewer says will keep you from reacting like a poor person—so you can finally live richly.
1. Avoid deprivation spending
Saying “I deserve it” is one of the biggest culprits behind failed diets -- and failed budgets. You see something that you want to buy (or eat) but you don’t really need, so you tell yourself no. Then that “no” starts gnawing at you and you feel deprived.
You may begin telling yourself that you’re a grown-up who can spend her money however she chooses. So you decide to treat yourself just this once. The problem, Brewer says, is that it’s never a good idea to make financial decisions based on a feeling of deprivation. Instead, she suggests turning the “I deserve” on its head.
“Establish larger, long-term savings goals,” she says, like a year-end vacation or a living-room makeover, something that will truly make you feel rich, not satiate a whim. Then, instead of telling yourself you deserve that pretty new dress, remind yourself of the bigger picture—and what you’ve chosen to save for over time.
2. Create a 3-question checklist
Once your budget is set, it’s set … right? Wrong, says Brewer.
“When someone decides one afternoon, ‘I need a new pair of shoes’ or ‘My computer is running slow, I’m just going to replace it,’” she says, “these are the kinds of decisions that can throw you way off.”
We all have the best of intentions, but it’s those last-minute, emotional purchases that often get the best of us. The next time you’re in danger of thwarting your bottom line, do a quick mental check—whether you’re about to spend $5 or $500 -- by asking yourself these three questions:
- Have I saved up for this?
- Do I really need this?
- Will this delay me from meeting my goals?
Still not sure how much you should be spending and saving? The 50/20/30 Rule makes budgeting easy.
3. Know your shopping triggers
Maybe for you it’s shoes, or maybe it’s kitchen gadgets. Brewer says her clients who weren’t used to having money as kids often get that feeling of cash burning a hole in their pocket when they spot something they like. And there’s nothing that’ll make them go overboard faster than a 20% off coupon.
Of course, saving $15 at the grocery store when the items on your list happen to be on sale is a good deal. Taking home a $350 sea foam green KitchenAid you had no intention of buying just because it’s on special? Well, that’s a budget bomb.
Next time you’re tempted, Brewer suggests this tip: Don’t set yourself up to spend money you wouldn’t otherwise spend. In other words, unsubscribe from retailers’ mailing lists and flash sale sites, and steer clear of places (or specific store aisles) where you might be tempted to take advantage of a deal on something you don’t need.
Of course, when you are making a planned purchase, you should always look for a bargain, just don’t let the bargain come looking for you.
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I can see what she is saying to a point, I am retired and am comfortable, but I do dress down, just wear faded jeans and drive an older Ford, Just because I have money, doesnt mean I go out of my way to impress others or show off, in fact I often see the ones that try to impress the most are the ones with the least money.
You see ones on welfare with fancy IPads, smartphones, their kids have the Nintendo DS, they have a brand new car, and show it off like its a mark of honor. I could go on, but you get the point.
Do I have any sympathy for this person the article mentions? No I dont, but IMHO its often that you do have to look and act that way especially if you have family and friends that want to think your a lending institution or that your "their only hope". Your only hope in modern America is getting off the welfare dole and actually work like most hardworking Americans. I worked hard for mine, now work for yours and quit showing off with the baubles that the taxpayer paid for.
I must be one of the rich ones. My needs are met (food ,shelter, clothes on my back). and very little wants in the way of material things. I am not rich in the monetary sense but I do have an abundance of people who care. If you have these things you too are rich. People need to get their priorities clear. The big house new car are just luxuries that we could all do with a little less of. Before I get called on the carpet for this stop and think about how good your life might be already.
Growing up poor inspired me to focus my working life on steady employment and retirement but in the early years I probably bought too many new cars. Now I am retired and able to buy anything I want, other than buying a second home with cash, I have little interest in spending money on luxuries.
Before buying something, consider how much you had to earn before taxes to purchase it. Consider how that must-have, cutting edge electronic device will be outdated within a year and how your life will or won't be enriched by it. Consider how a 3 year old Lexus looks and performs not much better than a Honda Accord and is scarcely more reliable. Consider the cost of maintaining an item. Consider (maybe even calculate) the future value of a dollar invested rather than spent. Consider how much a good set of basic tools, some basic knowledge, and a little time can save on home maintenance. Consider whether you really need a 2,000 plus square foot house. Consider whether the folks you're trying to impress are worth it. I know a lot of high net worth, disciplined people that live simply and buy good stuff and use it until it dies. I also know a lot of high earners who blow it all on fancy clothes, cars, vacations, and homes. I'm not impressed by the latter group.
50k a year I could live very happy, currently I am 32k shy of that. Currently working my way back up after being unemployed for a long time during the great recession ( really another depression). I had to do like a lot of folks and take a job at a lower pay level and skill level to survive. I am currently looking at taking a second job to make ends meet just as many are having to dot. I probably will never own my own home, that dream has been pulled farther and farther out of reach for most Americans my age (46) and younger. I am luckier than most, I no longer have any college debt and car payments.
I wish the US didn't send so many good paying manufacturing jobs to China. By doing that American companies are reducing the quality of products to the level of the Chinese, and also slowly reducing our standard of living to their level as well. I also do not believe for a minute that we are in a recovery, especially here in Wisconsin. All Walker seems to have done is fight the Unions, tick a lot of folks off, and rack up frequent flier miles raising out of state money for his re-election campaign. I think Wisconsin should pass legislation that mandates all campaign monies come from inside the state of Wisconsin and require documentation and disclosure of all fund sources for all candidates running for office. What happens in Wisconsin should stay in Wisconsin.
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