How to Escape the Social Status Trap

“Keeping up with the Joneses” can unknowingly lead you into a social status trap. Learn how to escape it and sever further damages.

It is undeniable that peer pressure can drastically affect a person’s money decisions. Most people don’t want to get left behind by their friends and co-worker. However, trying hard to keep up can drag your finances to rock bottom.

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Why You End Up in Social Status Trap

Conspicuous Consumption: Flaunting social power

Thorstein Veblen is a sociologist who described “conspicuous consumption.” It is a behavioural characteristic wherein a person uses public consumption of goods and services to show social power.

Gone are the days when a person could just use cash. No cash means no way to show off. It was that simple. However, we are now at the age when people can pretend to have higher financial status. It is possible through credit cards and loans.

Financial psychologist, Brad Klontz, explained that people subconsciously compare themselves with the people around them. As a result, they look for confirmation of their social and economic status.

The “animal brain” takes over rational thinking. It occurs when we compare ourselves with other people. Like a peacock flaunting its colourful tail, humans exhibit their social status with their possessions.

Illogical, but it does happen. It is our human nature to feel terrible when we are left behind.

Wealth Signal in Social Media: They can do it… I must also do it

Facebook shows what your peers can buy and do with their money every day. How will you show off your financial status? Are you going to display the real you? Or are you planning to stage a lifestyle? 

Wealth signals indicate high social status. For example, the posts on Facebook and other social media platforms trigger you. As a result, you opt to do the same.

Peer pressure is usually associated with teenagers. But, it actually transpires to all ages.

Parents will get tutorial classes for their children because other parents do it. Young married couples get an expensive home because people their age do it. Millennials travel the world because their news feed is full of #TravelGoals.

The problem worsens. Social media can easily show you what other people have and can afford.

Forgotten Budget: Road to overspending

Budgeting is not fun at all. Klontz shared that our emotional brain responds to budgeting as it responds to diet. The word budgeting sends signals of deprivation, depression, and suffering.

The more you resist buying something, the more it becomes irresistible. It implies scarcity. Therefore, your brain wants you to fill in the need. If uncontrolled, you’ll overspend. Thus, it ruins your budget.

Some of us buy the newest iPhone model to follow the trend. But if you do such without thinking, it will take you out of the budget. Also, it is hard to work in an office. Often, people show off their latest gadgets, fashionable clothes, and branded bags. Then on paydays, your coworkers would invite you. It’s either you go out to eat with them or have fun.

Many Singaporeans value their image and social status so much. However, they forget their budget. They don’t want to be left out. So they spend on something they can’t afford.

In addition, it is financially dangerous as people become more competitive. The fear of losing out is right under their skin. Also, it does not matter if they ignore the basic needs. So you may have an excellent social status but a ruined financial status.

The social status trap is one of the reasons why a person can get into debt.

How Can You Escape The Social Status Trap?

Most people think that having an excellent social status reflects a better financial position. However, this misconception drags a person into a financial and social status trap.

Are you looking to have a better financial situation? Then, you must consider two factors: excess cash flow and earning assets.

Excess cash flow is the amount of money left after spending for your needs. On the other hand, the earning asset is the money working for you.

Have no savings because the FOMO (Fear of Missing Out) always gets into you? Again, it all boils down to lifestyle, not your salary.

The Scenario

Jenny and Lianne are both earning $5,000 monthly.

Jenny only spends half of her salary on her daily needs. She’s friendly. But, she rarely goes out. She thinks that she should not replace her valuables. As long as it is still working, it is okay. Every month, Jenny can save $2,500.

On the other hand, Lianne would spend almost everything to always be in style. She loves buying new gadgets. Her peers like her because she usually treats them to a restaurant. Also, she always travels every time she gets a chance. She wants what her friends do. At the end of each month, her excess cash flow is only $500.

Remember that they have the same salary. But, their lifestyles are different.

In Five Years

After five years, Jenny would have saved at least $150,000. She can use it to build her own business and invest. This way, she can grow her money faster.

Lianne, on the other hand, could only save around $30,000. Also, she can build a business. But, her options will be limited due to low savings.

Who will have a better retirement plan? Who can have financial freedom?

Crash the Root of the Problem

It is hard to break out from the pressure of keeping with your social status trap. The simple solution is accepting that you have to live within your means.

The underlying cause is more on the psychological side than the lack of financial skills. Also, the fear of getting left out results in low self-esteem.

Trying too hard to “keep up with the Joneses” will undoubtedly lead to overspending. So instead, focus on more essential matters. For example, having a saving for a business or investment. In addition, forget buying things that can only produce short term pleasure.

Most people want to step up their social class. But, they are only doing the opposite. Do not wait to reach rock bottom before changing your mindset and lifestyle.

Beat the need for urgent spending. Instead, take out a personal loan from legal money lenders in Singapore like Cash Mart.