Wednesday, June 27, 2012

Spending money to keep up with your neighbor? Stop NOW!

Good morning economists! Have you ever been in a village or town where you can see the "whatever you can do, I can do better" syndrome? Huge houses left and right, each trying to claim the title of the best house in the neighborhood. Yes you have!

Today we will discuss the need of people to keep up with their neighbors. Has your neighbor bought the latest model High Definition television and has shamelessly demonstrated its potential by watching the Euro 2012 matches on his veranda? Do you also feel the need to purchase the bigger screen model? Well DON'T.

Keeping up with your neighbors is an unhealthy sport. Think back to when you were a child and you were playing with your friends. You admired some of the games that they had, even though truth be told, you might have had better and more expensive games than them. It seems that this sociological need to be better than the people around you has followed you even in an older age.

The problem with keeping up with your neighbors, the Joneses as the Americans call them, is that is costing you money and effort that could be spent more wisely.

Think about the satisfaction you will get if you manage to match and actually beat your neighbor in the eyes of the people around you. Will they respect you more? Will they seek your advise or invite you to parties because you own the largest screen TV on the block? Very doubtful.

As consumers, we tend to place great weight on what other people may think in our decision processes. This weight can throw our expected future utility out of balance and cause us to take the wrong decisions. If you believe that having the largest house in the neighborhood will make you socially acceptable, you may even spend the last Euro (or Dollar) that you have in building that house. Chances are that when the recession hit, a lot of people lost their houses because they overextended themselves, perhaps due to the neighbor syndrome.

So the next time you consider a purchase as a way of keeping up, STOP. Think twice, sleep over it if you have to. You will find that once the primary urge subsides, you will take the right decision.

Have a high utility day!


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