One sunny afternoon in Dubai while attending yet another blingy social event with some friends, I couldn’t help but notice the dazzling Hermès Kelly bags dangling from the arms of some of my peers.
These luxury handbags known for their hefty price tags (from around £10K a pop) are not only symbols of wealth but also status. Now, I already owned two Hermès bags, but I was gripped with the desire to acquire a Kelly bag. Why? Peer pressure. I’m a financial expert, and my values revolve around financial freedom, investing in experiences, and helping others achieve their dreams, yet I was still sucked in.
I managed to avoid the Hermès shop (online and in real life) until I got over this pang. Away from the party and its competitive atmosphere, I realised I didn’t need a Kelly bag to feel fulfilled or successful.
In the journey toward financial literacy, we often focus on budgeting, saving, investing, and all the other technical aspects of managing money.
Yet there’s one crucial aspect that often gets overlooked in the quest for financial stability: the influence of friends on our spending habits.
We’ve all heard the saying “Show me your friends, and I’ll show you your future.” When it comes to finances this saying holds true as well. Our friends can have a significant impact on our spending patterns, sometimes without us even realising it.
And it’s something even financial expertise can’t shield you from. My writing partner Dr. Cole found himself succumbing to the powerful grip of Fomo. It all started when he received an invitation from some close friends to join them on a luxurious holiday to Mykonos.
As the days passed the WhatsApp group chat buzzed with excitement as his friends discussed their plans, shared images of the destination, and detailed the extravagant activities they had booked. Dr. Cole couldn’t help but feel Fomo creeping in. The fear of missing out on what promised to be an unforgettable adventure began to cloud his judgement.
The Peer Pressure Effect: Here are some common pitfalls, and how to avoid them:
As social creatures, humans are wired to seek approval and validation from our peers. This natural instinct can easily spill over into our financial decisions.
1. Lifestyle Inflation
When we see our friends indulging in luxury purchases, dining at expensive restaurants, or taking lavish vacations, we feel the urge to keep up. This phenomenon, known as “lifestyle inflation,” can lead us to spend beyond our means. When our friends see us travelling business class, buying luxury cars and a luxury home I remind them we didn’t achieve this overnight.
2. Fear of Missing Out (Fomo)
Nobody wants to be the odd one out when friends make plans. Fomo can lead us to participate in costly activities or events, even when our budget protests.
3. Impulse Buying: Shopping with friends can turn into a competition of who can buy the most. Impulse purchases can quickly add up leaving us with buyer’s remorse later on.
4. Splitting Bills Equitably: Splitting bills with friends can be tricky, especially when spending habits vary widely. It can be uncomfortable to suggest a more equitable arrangement, leading to overspending.
5. Gift-Giving Pressure: Birthdays, holidays and other special occasions often come with expectations of gift giving. The pressure to match your friends’ gift-giving can lead to financial stress.
Tips for Talking to Friends About Money
Conversations about money with friends can be uncomfortable but they are necessary for maintaining financial health and harmony in relationships. Here are some tips for approaching these discussions:
1. Choose the Right Time: Find a private, comfortable setting and an appropriate time to discuss financial matters. Avoid bringing it up during social events or when emotions are running high.
2. Be Honest and Transparent: Share your financial goals, limitations, and concerns openly. Honesty can help your friends understand your perspective.
3. Avoid Blame: Frame the conversation as a way to improve your financial well-being, not as an accusation. Use “I” statements to express your feelings and concerns without blaming anyone.
4. Offer Solutions: Instead of just highlighting the problem, suggest practical solutions that can work for everyone. For example, propose budget-friendly alternatives for social activities.
5. Respect Differences: Understand that not everyone may share your financial priorities or constraints. Respect their choices as they respect yours.
He recalled thinking, “I knew better, of course. I’ve spent years advising others on responsible financial planning and investment. But here I was, caught in the Fomo trap.”
Driven by the desire to be part of the group and experience what everyone else seemed to be raving about, Dr Cole hastily made arrangements to join the holiday, spending thousands on flights, accommodations, and activities.
No one is immune to the fear of missing out. Even experts in finance can find themselves making impulsive decisions when swept up by the excitement of the moment.
Rich Forever: What They Didn’t Teach You about Money, Finance & Investments in School (£18.99) by Bianca Miller-Cole and Dr. Byron Cole is out now, published by John Murray One
