Effects of Peer Pressure and Your Money: How Can You Manage?

The effects of peer pressure can be very subtle. Every day you are surrounded by lifestyle choices. You have big decisions about where you live or what you drive, and you have small things like what to wear or what to eat on a daily basis. Whether large or small, all of those expenses add up and impact your financial situation. It seems like a never ending list of decisions to make and money to spend.

It is critically important to align your lifestyle goals with your financial ones. I find that many people I work with struggle trying to get the two to line up properly. I think there are a variety of reasons that people have a difficult time doing so. One of the worst enemies you face is the negative effects of peer pressure.

Have you ever taken a close look at how peer pressure affects your lifestyle choices? I have found in working with clients that it has a bigger impact than they realized. For example, I know several people who ended up having buyers’ remorse when it came to purchasing their home. I will categorize these folks into two groups.

Effects of Peer Pressure Pin

Effects of Peer Pressure – Too Much House

The first group were quite content to have a nice small house with an affordable mortgage. The maintenance and utilities were reasonable, and most of them lived in a nice neighborhood. However, as their friends and family started getting into larger homes, they started feeling pressure to keep up with them. They started hearing comments such as “why are you staying in that small house, you guys can afford a bigger one”, and “you should sell now while you can get top dollar and get into a place that will just go up higher in value”.

Unfortunately, despite their misgivings, they sold the house they were perfectly content living in. They “upgraded” into a larger home that required a higher mortgage payment, higher utility costs, and more maintenance than they wanted to do. The higher expenses impacted their bottom line and started taking them away from the lifestyle that was important to them. Some had to cut back on saving and investing for their future in order to cover expenses on the house. The house became a curse instead of a blessing.

I have said on multiple occasions that there is nothing wrong with buying a large house if you want it, can afford it, and it fits your lifestyle. But I caution people that buying a house for the wrong reasons can be a boat anchor on your bottom line and have a negative impact on you emotionally. Most of the people I know that fit this group ended up selling the larger home and took a massive financial hit just to get out from under the burden. They learned a hard lesson about not staying firm with their desires and caving into the effects of peer pressure.

Renting Versus Buying

The second group of people I would like to discuss are those who are perfectly content renting an apartment or a house. They have no desire to maintain a house, they hate doing yard work, and they just want a hassle-free roof over their head. They are still trying to figure out what they want out their life, so they are willing to be patient and wait for the right time.

However, our good buddy peer pressure once again rears its ugly head. Perhaps you even experienced some of these conversations. Mom and Dad may have said “Hey, why are throwing away your money renting – you could be investing in a house”!  You visit your friends in their shiny new house in a big subdivision and they say, “Why are you staying in an apartment when you could put a small amount of money down and get into a mortgage like we have”?

The myth of home ownership always being a good financial decision is woven so deep into our culture that it is hard to even quantify. I know people who are flat out broke that will argue with me if I even mention the fact that a house is not a good “investment” in the traditional sense. Once again, if you buy a house that fits your lifestyle and financial situation, it can be a solid choice. However, there are a lot of people that simply do not want to own a house, and they do just fine. You do not need to own a home to win with money. Do not let the effects of peer pressure derail you from your lifestyle goals.

Shame Shame Shame

Lately there has been some interesting discussion in the personal finance community regarding the “house shaming” phenomenon. Not only are there people that pressure friends and family to buy a house, they try to make them feel bad if they decide not to! J. Money over at Budgets are Sexy wrote a great article about it here.

That really struck a nerve with me since I really have seen the impact of peer pressure. It hurts many people when it comes to financial decisions. The really sad part is that most of the people who feel the need to “shame” someone regarding their house, cars, and their clothes are usually totally and completely broke. They have zero or negative net worth, are burdened with house and car payments they can’t afford, and have no savings, emergency fund, or investments for their future. I am not trying to be mean, but frankly they are the last people you should get lifestyle or financial advice from.

When J Money put this topic out on twitter, I felt compelled to respond. This is what I wrote and really summarizes how I feel on the subject:

“Please keep preaching this message. A house does not make you wealthy. Money and net worth makes you wealthy. Can a house purchase be a part of a good financial plan? Yes. Is it essential? No. You need a roof over your head. I know lots of winners who rent. Lifestyle choice!” – @BuildFMuscle

Effects of Peer Pressure – Awareness is Your Friend

I focused on living quarters in this article since it’s typically your largest expense and there are a lot of strong opinions on the subject. However, peer pressure affects all of us on a regular basis. It may be in very small subtle ways you don’t even notice. Your co-worker just bought an incredible new $400 purse that you have had your eye on. A good friend just bought your favorite luxury sedan and his buddy at the dealership can “hook you up” with a great deal right NOW.

I’m sure you can relate this to diet and exercise as well. You are going out with your co-workers on Friday night. As you leave the office, you are determined to eat your salad and have one drink. Two hours later, after 4 pieces of pizza and 3 beers, you wonder what happened. You brought a nice lunch to work and are trying to save a few bucks, but the group is going out to your favorite restaurant. You have a workout scheduled right after work, but your buddy calls and wants you to come over and play cards with a group of friends.

Of course, none of those things are “wrong”, but they can end up derailing your best intentions. That is where awareness is really important. Just know that there are times that the effects of peer pressure will influence your decisions. Awareness helps you stick to your goals and avoid the temptations that come up regularly. Naturally, there may be times where you decide to indulge. All of us need a break and need to enjoy some recreation. You just have to understand that there is always an impact to your lifestyle goals and desires. Make sure you do not “fall off the wagon” too often!

Not All Peer Pressure is Bad

Peer Pressure can also have a positive impact. People who want the best for you and share similar lifestyle goals can be a source of encouragement. Being around successful people and those who make solid decisions in their life can provide a lifetime of wisdom. The key thing to remember is that you alone decide what is important to you.

Effects of Peer Pressure

If you want to rent an apartment and keep things simple, do not let misguided advice influence you. You really do not need to argue or justify your feelings with people either. Like I mentioned, people who are usually dogmatic about how great an investment a house is, or want you to feel bad because you are driving a $15,000 sedan while they drive around in a $60,000 luxury car are usually in miserable financial shape. Do not take financial advice from people that are broke. Stick to your goals and your lifestyle choices and be careful of the negative effects of peer pressure!

1 thought on “Effects of Peer Pressure and Your Money: How Can You Manage?”

  1. I confuse my friends badly. Like many of them I’m a muti-millionaire but unlike them I don’t buy expensive new cars. They spend $70k to $200k for very nice new cars while I spent $7,000 on a 2008 car a couple of weeks ago. It looks pretty new and is a kick to drive but it puzzles my friends. They would never keep a car past 50,000 miles and my cars all have 150,000 miles on them. They have two or more houses that are for their convenience and are never rented out and I still live in my first and only house. Two of them own their own jets and I fly economy class. They live happy lives and my wife and I have happy lives. The difference is that I only have wealth because I was frugal, they have it because they earned massive amounts of money, millions per year. We felt the peer pressure, but are glad never gave in. It’s the only reason I no longer have to work.

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