This post started as a study of frugality and free spending and turned into something else entirely. Follow along as I navigate through how psychology and society influence the world of personal finance.
The world is full of extremes and the extremists that create them. The personal finance community is no stranger to this. While most people find a comfortable spot in the gray area, the black-and-white-ers take it all the way to the edge.
This may not be such a bad thing, as we’ll soon discover.
The Classic Debates
Consider the following standard personal finance debates that creep up again and again:
- Extreme frugality vs. Buying what I want
- Saving all your money vs. Spending all your money
- Individual accounts vs. Joint accounts
- Paying down debt vs. Saving as much as possible
- Leave everything for your kids vs. Leave nothing for your kids
- Prepare for the future vs. Live ‘in the now’
You get my point…
Mainstream and widely accepted frugality is a fairly recent development due to the recession, and it’s brought its share of extremes which make for a good example.
The hyper-frugal camp opposes any needless spending to the point of obsessiveness, and the freedom camp believes they’ve earned the right spend as they wish and don’t care what it costs them.
Each side tries to unsuccessfully convince the other that they’re right.
The Conventional Approach
Whether they realize it or not, each side of the debate actually helps to keep the grey area established. If the frugal camp pushes harder, the gray area shifts to frugality, until the freedom camp pushes back. Whoever can make the best case for their option at any one point in time pulls in more followers.
The result is the “conventional approach” to doing something – a balance between each extreme, and the widely accepted method by the majority.
A Shifting Target
If you stay alert, you can actually see the sentiment (conventional approach) changing, and especially quickly now as the economy pinches down and everyone is focused on money issues.
It happened most notably and recently with debt. “Pay down your debt as fast as possible in the most efficient manner” is steadily but quickly changing to “Save as much money as possible right now because cash is king.” It’s not a clean and complete shift, but it’s happening.
It doesn’t matter what you think is right – what I’m after here is most people’s perception of the best approach.
The Grey Area
What’s interesting is that I don’t notice either extreme in the mentality of people I interact with every day. It’s because each of them is stuck somewhere in the middle, shifting to either side based on the news they digest and the sentiment they pick up.
This is the ‘They’ in the often-overused “They say that…(insert sentiment).”
Listen. You’ll hear it all day long. Based on the types of media someone is exposed to, it will bounce and shift, and people can shift it further by talking with others.
“Bob, they’re saying that car insurance is going to sky-rocket and we should probably buy used cars…”
“Nonsense, Jim, they’re saying that now’s the best time to buy a new car. You should trade in your clunker!”
The rise of blogs and social media have exponentially accelerated this amazing phenomenon. The advice that’s best, most useful, most relevant and most in line with what we think is right rises to the top.
Sooner or later, more people hear about it. They respond with their own arguments. Extremes are established. The gray area is born. The conventional approach is established, for now.
How do you challenge the status quo? What forms your own opinions? What are your influencers and how do you influence others?
Photo by Cyron