Wednesday, April 23, 2008

Living Frugal Isn't very Rock and Roll

Being rich isn't cool. Spending money like you don't care is cool.

What's cool about being cheap? There's no payoff for bystanders. When someone is totally rich, drives a beat-up old car, shops at thrift stores, buys and sells things used on action sites and classified, and generally doesn't go out throwing lavish parties or having opulent dinners, then anyone else who's standing on the bylines isn't getting one very cool payoff. If they themselves aren't wealthy, it's always at least a little fun to watch and live vicariously through someone else's over-top-escapades.

The interesting effect of this is that there's a social reward feedback loop that takes place when someone within a social groups starts earning what they perceive to be as a lot of money. You get to be a little famous for being Mr. Moneybags.

The payoff is even higher if you do silly and outrageously unnecessary things. This is the essence of 'bling'.

So if someone is in a peer group of people who don't come from a history of money, and that person then makes a lot of money, they are highly likely to take a few splurges here and there, which get the attention of others, creates some social validation, and re-enforces the entire cycle until the wealthy person is wealthy no longer.

You can see this statistic that the average lottery winner goes back to having a job and roughly similar lives to their previous ones. All in about 2 years. [ref 1 needed]

Anyone who's ever got a big raise at work knows that, when you do the taxes and deductions, it never ends up feeling like a who lot when you get your next paycheck. But it's not that numbers that ends up driving the purchases. It's the perception of wealth of whatever their current salary and position are dictating that drives this. It's probably different for everyone.

But the net effect is the same. Saving money just isn't cool. It definitely isn't Rock Star livin'. Just ask Willy Nelson.