Dear Quentin,
We have family friends that we’ve known since before we had kids several years ago. Since then we’ve gotten pregnant at the same time, weathered COVID-19 as a pod, and relied on each other for relationship and career advice.
One thing that makes us sad, though, is seeing all the rough financial decisions they make. They’ve leased cars they can’t afford. They’ve taken out tons of store brand credit cards. They spend more than they take home on silly Amazon AMZN,
And they fight about money.
As we look into our future, we see summer trips and divergent school choices for our kids, in part because of the financial decisions we’ve made. We’ve been honest sounding boards during money fights, and we’ve offered to take savings/debt classes, but old habits die hard.
At some point, we’ll come to more frequent forks where we have more opportunities because we have more financial freedom. I don’t want to go down that fork without my friends. What can we do? How can we be good friends and not gloat and preach?
I’d love to have this friendship for decades, but I worry that the difference in spending and debt habits mean our families’ paths will grow apart.
Pandemic Pod 4ever
Dear 4ever,
They have everything they need right in front of them. YOU are the best personal-finance class they can have. There’s one thing that influences us above all else: Our peers. Those we decide to compare ourselves to while making cupcakes on a Saturday afternoon. You are that for them.
I recently got a letter from a woman who was tired of her neighbors and coworkers trying to emulate her. But you should keep talking about your plans over your Chicken Maryland, and how you intend on realizing those plans, until they tell you to stop, be up front and transparent about your decisions.
This is one time it would be a good thing, indeed. Or, as this academic study put it, “peer conformity shows a significant effect on consumptive behavior.” It does not sound like you are acting in a very “consumptive” manner, but your lack of spending should not go unnoticed.
“ People who realize they’re spending more than their peers — those of a similar socioeconomic status — will cut back on their spending. In theory, that is. ”
People who realize they’re spending more than their peers — especially those of a similar socioeconomic status — will cut back on their spending, researchers at the University of Chicago and the University of Maryland found in this paper published in 2018. In theory, that is.
That study found that wealth can lead to overconfidence and folly. Consumers in the lowest income group — those earning $ 40,000 a year on average — were more likely to be influenced by their peers and actually reduced their spending for the month by 19%.
However, those in the highest income group studied by the researchers — those earning $ 120,000 a year or more— only cut back on their extravagant ways by 10%. With that in mind, it wouldn’t hurt to mention over a game of Scrabble that you are putting money aside for retirement now.
While eating some Baked Alaska and playing Pictionary, you could nonchalantly say, “Johnny, tell Mary and Roger about the story you read on MarketWatch the other day. The one that scared the life out of us.” Who doesn’t like a good scare at bedtime?
I am referring to this story by my colleague, Alessandra Malito. By the age of 40, you should — ideally — have saved 3 times your salary, and max out employer-sponsored retirement accounts, such as a 401(k) or 403(b) plan. Talk about how you would like to share that retirement.
Ultimately, however, the couple who share your pod are the ones who should be writing to me. As much as you want to help them, you can only do so if they are willing to help themselves. You can’t live their life for them. You can live your own life, and lead by example.
You can email The Moneyist with any financial and ethical questions related to coronavirus at qfottrell@marketwatch.com
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