Money Dysmorphia Strikes Young Adults

Is your financial perception distorted by your observations of others?

Ric Edelman: It's Thursday, April 18th. On today's show, an affliction among young adults, money dysmorphia. Let me ask you a question. How does your financial situation compare to others? If you have a healthy view of money, you won't even be able to answer that question. It doesn't matter how you compare to others. All that matters is how you're doing for your own and your family's own personal individual needs. How you compare to others is completely irrelevant. But a lot of people, maybe you, if you're a financial advisor, maybe your clients, are more focused on your friend's money or your neighbor's money or your relative's money than your own money. 

Back when I was a kid, we called it keeping up with the Joneses. Now there's a new term for it, money dysmorphia. Thanks to social media, we're able to keep tabs on our friends and coworkers and relatives and their money habits better than ever. Guess what? The more time you spend on social media, Facebook, TikTok, Instagram, YouTube, you name it... the more you're going to feel that everyone is living in a better house than you, driving a better car than you, wearing better clothes than you, sending their kids to better schools than you, enjoying nicer vacations than you. Just simply living a better life than you.  

Almost a third of Americans admit that they're suffering from money dysmorphia. They're comparing their own financial situation to the financial situation of others. If you do that, it'll cause you to feel inadequate. And this is affecting younger people more than older people. 43% of Gen Z, 41% of Millennials, say they're comparing themselves to their peers, and they feel they're behind financially, and it's making them feel rotten. The crazy thing is that this research found that a lot of people who have money dysmorphia are actually doing quite well. They have more savings than the average person, but that's not enough. These people feel like they're doing bad. That is what's consuming them.  

What you don't know, what you can't know from scanning social media posts, is what's under those posts, what's behind those pictures. Sure, you see people you know in exotic places, wearing the latest fashions, enjoying life to the fullest. What you're not seeing is that they're in massive debt to finance those vacations, and the jewelry, and the big screen TVs. The fact is that of all the people in the US who are earning more than $100,000 a year, more than half of them admit that they're living paycheck to paycheck. They might be enjoying themselves right now, but they're going to be miserable in the future, because as soon as they lose that paycheck from getting fired, or their company getting sold, and they're laid off in a massive synergy, or they get disabled, and they've got to quit work, or a spouse or a parent gets sick or injured and needs them to become their caregiver, or they simply retire at some point for some inevitable unavoidable reason... those folks are going to lose their paychecks. And if they haven't set aside any of their current income for the future, they're not going to have any money available when they need it. But those photos of luxury vacations that you see online, those photos don't reveal any of this. When you read their posts on Facebook bragging about some exciting thing they're doing or spending money on, you don't know if they're current on their bills or if they're paying their taxes, if they're maxing out their 401K, or on the other hand, maybe they're racking up credit card bills. All you know is they're driving a cool car. That's making you unhappy.  

How bad is your unhappiness? It's gotten so bad that for the first time ever, the United States no longer ranks among the world's 20 happiest countries. We now rank 23rd. And for Americans age 30 and younger, we rank 62nd. Our 20 year olds are less happy than their peers in the Dominican Republic, Brazil, and Guatemala. If you're not happy about your finances, you really need to start recalibrating how you're measuring your finances. Stop comparing yourself to others. Focus instead on your own goals. Track your progress. And if you want to really have fun, next time somebody posts, “We're in Aruba!” – you can post a comment saying, “That looks expensive! We were going to go, but decided to put the money into our retirement fund instead, so we can do lots of Arubas later!” Let's change the narrative. Brag on social media that you've filed your tax return. Brag that you maxed out your 401k. Brag that you have no credit card debt. Brag that you just rebalanced your portfolio. Or better yet, just do what people your age are doing in Guatemala, and stop trolling everybody else's social media accounts. You'll have a much happier life, because those folks in Guatemala, they're on to something.  

And if you're a financial advisor, you need to ask yourself, are you talking to your clients about this? If all you're doing is talking to them about how they're doing, you're making a big mistake. You need to help your clients understand not only that they're doing well, but the fact is, that's all that matters. Ask them how they're feeling about how they're doing. You might discover that your clients are uneasy or unhappy. We all know as financial advisors that no matter how much money our clients have, they often feel like it's not enough. No matter how much money they have, they worry they're going to run out of money. You need to give them the psychological reassurance, the emotional reassurance that they're fine. And if they express fears or worries, probe with them to see what the basis for those fears are. 

You just might discover that they're feeling inadequate because they're comparing themselves to others. Now you have the means to help them alter their behavior. Help them reduce their time on social media by a few hours a day. Encourage them to quit social media entirely for just one week. It'll be awkward for them to do it at first. They'll be filled with FOMO, worried about what they're missing, fear of missing out, but soon that feeling will pass... after a week, how much better they feel about themselves, about their money, about their life. Their happiness score will rise. That'll make them feel really good about you. Life is about the pursuit of happiness. If we're not doing things that propel us toward achieving that goal, then we need to change what we're doing. Your future self is counting on it.  

On tomorrow's show, is your financial advisor using AI? 

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