How Friends Can Impact Your View of Your Finances
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Here's your Money Briefing for Friday, March 1st. I'm J.R. Whelan for The Wall Street Journal. There's no shortage of numbers and headlines telling us about the health of the economy. Turns out, many people form their opinion about the economy not by what they read, but by what's going on with their friends.
If I'm someone who finds out that I'm making more income than my friends, I'm going to feel great about myself. But if I find out that they actually have lower debt loads than I do, I'm going to feel worse about myself. And this sort of speaks to why looking at the people immediately around you and judging yourself based on that gives you this skewed perception.
We'll talk to Wall Street Journal personal finance reporter Julia Carpenter after the break.
The way our friends approach their finances can make us feel differently about our own situation.
How do friends shape our perception of the economy?
Wall Street Journal personal finance reporter Julia Carpenter joins me. Julia, there's this divide between what consumers are feeling about the economy and what the numbers tell us. What's causing this?
Research shows that we often take our cues from the people immediately around us. So our friends and our peer networks. And when I was telling an editor about this story, she said it's like everyone lives in their own micro economy. And I think she's totally right. If you are in a community where you see things going great, Everyone's businesses are doing well. Your spending is up. Their spending is up. You feel good. If you're in a workplace where there have been layoffs recently or you're in an industry where CEOs are sending emails that are scary, then you feel bad and you don't connect those two different realities together.
Are there particular areas of personal finances that people often compare to their friends and their peers?
The number one thing is income. The other thing is debt. So there's an incredible study out, and I interview some of the researchers for this piece, looking at how we assess and rank ourselves within those peer groups. So if I'm someone who finds out that I'm making more income than my friends, I'm going to feel great about myself. But if I find out that they actually have lower debt loads than I do, I'm going to feel worse about myself. And this sort of speaks to why looking at the people immediately around you and judging yourself based on that gives you this skewed perception.
Is there more to know beyond just those top line numbers?
Totally. Think about what people give as the highlights and think about what they conceal. Someone's income might be high, but they might carry a lot of debt. Someone's debt might be high, but maybe it's because they just bought a house. There's so many different stories and contexts behind those. But as humans, we're only taking the things that then correlate to how we feel about ourselves.
What role does social media play in the way people view their microeconomic situation versus the broader economy?
This is the complication because social media makes us think that our world is bigger than it actually is. Whereas if anybody has spent a lot of time on Instagram knows, you're really only seeing people who are like you, mostly. You're also being served by the algorithms, people who are like you. So they know what you are scrolling and clicking on, and then you're mostly just magnifying that same portal. I spoke with a professor of marketing at the University of Michigan, and he said that we are probably overestimating the number of perspectives we're exposed to.
Is it also true that people tend to post when things are going really well in their lives as opposed to, oh, my God, I lost my job. Oh, my goodness, I have no money.
We definitely know that. And I interviewed a woman named Christy. She's a business owner in Texas. And she said that once she sort of realized that, that's when she noticed how it had been affecting her. When she noticed that mostly people were posting the highlight reels, she could then check that impulse in herself and think, wait, wait, what?
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