We live in a world where social comparison is inescapable. Whether through social media, friends, or colleagues, we often compare our financial success to others, consciously or unconsciously. This phenomenon, sometimes referred to as “Keeping up with the Joneses,” can significantly influence how we spend, save, and invest. In The Psychology of Money, Morgan Housel explains that the desire to match the financial achievements of others often leads to misguided decisions that may not align with our personal goals.

Understanding how social comparisons affect our financial behaviours can help us make better, more thoughtful decisions based on our own financial objectives rather than societal pressure.

1. The Pressure to Spend: Why Social Media Can Be Dangerous

Social media platforms like Instagram and Facebook provide endless opportunities for comparison, often magnifying feelings of inadequacy when we see others flaunting luxury goods, expensive holidays, or new homes. A study by Harvard Business Review found that individuals who spent more time on social media were more likely to engage in impulsive buying and make financial decisions driven by a desire to keep up with their peers.

Housel points out that social comparison is dangerous because it often leads to increased spending without any real improvement in happiness or life satisfaction. In fact, research from Princeton University shows that material purchases rarely lead to lasting happiness. Instead, people tend to derive more satisfaction from investing in experiences, like travel or education, than from purchasing tangible goods.

This pressure to keep up can easily lead to lifestyle inflation—where increased income leads to higher spending rather than higher savings or investments. Avoiding lifestyle inflation and focusing on your personal financial goals is key to long-term wealth building.

2. Relative Wealth: Why It Feels Like You’re Never Doing Enough

One of the biggest challenges in financial planning is the concept of relative wealth. No matter how much you earn or save, someone will always appear to have more. This can lead to feelings of inadequacy, even if you are making great progress toward your financial goals. A study by The University of California, Berkeley found that people tend to compare themselves to wealthier individuals, rather than those with similar incomes, which perpetuates the feeling of always being behind.

Housel argues that focusing on relative wealth often leads people to take on excessive risk in an attempt to “catch up.” For example, someone might invest in speculative assets, like cryptocurrency, because they feel they are falling behind financially, despite the high level of risk involved. This is where the danger of comparison becomes evident: instead of making rational, long-term financial decisions, people are driven by a desire to outperform those around them.

3. The Hedonic Treadmill: Why More Is Never Enough

The hedonic treadmill is a psychological concept that describes the tendency for people to quickly return to a baseline level of happiness after acquiring new wealth or possessions. In other words, no matter how much money you make, your desire for more will keep growing. A study by The London School of Economics found that people with higher incomes experienced only marginal increases in life satisfaction compared to those with lower incomes, reinforcing the idea that more money doesn’t necessarily lead to more happiness.

In The Psychology of Money, Housel explains that this endless pursuit of more is one of the biggest traps people fall into. Rather than focusing on building long-term wealth and achieving financial freedom, many are caught up in the cycle of constantly striving for more, only to find that it never feels like enough.

To counter this, financial experts recommend focusing on contentment and finding satisfaction in the progress you’ve made rather than constantly comparing yourself to others. By aligning your financial decisions with your personal goals, rather than societal expectations, you can break free from the hedonic treadmill.

Conclusion: Focusing on Your Own Journey

Social comparisons can have a profound impact on how we manage money, but recognising their influence can help you make better decisions. By focusing on your personal financial journey and goals—rather than trying to keep up with others—you can reduce the pressure to overspend and make more rational, long-term financial decisions.

As Morgan Housel highlights in The Psychology of Money, understanding that wealth is not a race can help you build a healthier relationship with money. The key is to set personal goals and measure success based on your own progress, not on what others are doing.

References:

• Housel, Morgan. The Psychology of Money: Timeless Lessons on Wealth, Greed, and Happiness. Harriman House, 2020.

• Harvard Business Review, “The Impact of Social Media on Financial Decisions,” 2018.

• Princeton University, “Happiness and Material Wealth,” 2010.

• University of California, Berkeley, “The Psychology of Relative Wealth,” 2019.

• The London School of Economics, “The Hedonic Treadmill: Why More Money Doesn’t Equal More Happiness,” 2015.