A False Referent

Last week we talked about how to help reduce status competition among friends, family, peers and colleagues. Today's post is about an intriguing nuance of status competition: We usually pick the wrong people to compete with.

As Juliet Schor puts it in her book The Overspent American, humans, like other higher mammals, place extraordinary value on social status. Our desire for status among our peers is instinctive, subconscious and largely beyond our control. And it turns out that the modern era is becoming a petri dish for status competition of the worst kind.

Imagine the standard cubicle office space, a social environment where entry level staffers work right alongside senior executives. All employees pull their cars into the same parking lot every day, they all hear water cooler discussions about peoples' homes, vacations and other emulatory consumption decisions. Naturally, and instinctively, employees will find themselves "looking up" to the senior people around them, and thus emulating them.

The problem, however, is this: compared to the senior people, the junior people in the office are at completely different life and career stages. The senior executives are not appropriate benchmarks. To "compete" here, a junior level staffer would need to spend all her income and then some to try to match the car, clothes, vacations and other surface-level status signifiers of, say, her boss, or boss's boss.

This is what Schor calls a false referent. In their instinctive, subconscious desire for social status, people cannot help but compare themselves to those around them, even when they're not in the same league.

The thing is, false referent groups aren't just at work. When we go home and turn on our media, we see celebrities on TV living in conditions far beyond what most can afford. Yet again, however, we instinctively see them as benchmarks to aspire to when they are not appropriate benchmarks at all. In reality, a celebrity or the CEO of a large corporation are extreme, extreme outliers in the proverbial statistical sample of humanity.

Before the mass media era, we only competed with the Joneses. Now, we can compete with everyone, everywhere. And it doesn't take a rocket scientist to see that whenever you compare your stuff to the stuff of someone decades ahead of you in a career progression (or worse, some celebrity on TV), you're guaranteed to find your stuff... wanting.

This phenomenon probably explains why, in an era when humans are wealthier, healthier and safer than ever, we all seem to have this vague sinking feeling that things just aren't as good as they ought to be.

There's one final step in the discussion here. In the modern era of consumer lending, it's much easier to (temporarily) match the emulatory behavior of a much higher income person. How? With debt! It's relatively easy for people from a wide range of socioeconomic levels to lease luxury cars, buy a larger home with as little a down payment as possible, and aggressively use HELOCs, credit cards and other readily available consumer debt sources.

In other words, people now have the means, motive and opportunity to satisfy their emulatory urges to a greater extreme than ever.

Okay. One critically important point: While reading this post, if your main thought so far is something along the lines of I would never status compete with my boss's boss or I don't 'emulate' ... well, great. Lovely. I'm really happy to hear it.[1]

Except that this post isn't about your status competition urges. This post is about everyone else around you and their status competition urges.

What I'm trying to say is this: it's very likely that in some area of your life, you are someone else's false referent. If you think about this for a minute, you'll realize that you have your own opportunity to either raise--or lower--the status competition bar for others. You can change the default status environment in a significant way for everyone around you. Note: This is most powerfully true in areas of your life where it hasn't yet occurred to you that you might be influencing anyone.

Back to the metaphor of Laura's old car for a moment. Laura is one of the senior staff in her office, which means by continuing to drive her old Honda Civic, she sets an example in many ways, including in ways she probably doesn't even realize, for those around her. At the least, she may help someone in her office take pride in the economically sound decision to continue driving a modest yet fully functional car. At the most, she shows everyone around her a crystal-clear alternative to status competition.

So, if you lead others in a work environment, if you interact with people of various ages or socio-economic backgrounds... heck, if you have anyone looking up to you at all, you've been handed an enormous opportunity. Help those around you by giving them less to compete against. By "lowering the status competition bar" and avoiding all flashy purchases, you can positively impact the financial future of far more people than you think.

Don't forget: you get to save money too. A lot of money. So there's something in it for you as well.

Finally, for those readers just starting out their adult lives and their careers, remember: across the course of your life, you'll be surrounded by a wide range of social referents from a wide range of socioeconomic levels--at work, outside of work and in the media you consume. The first rule to follow is don't status compete. The second rule: when you inevitably do status compete, don't compete with the wrong people.

Readers, share your thoughts.

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[1] A quick side thought on our egos. Consider the depressingly large segment of consumers who make statements exactly like these while they merrily go around emulating and status-competing: No, my [high end car brand] isn't conspicuous consumption at all. I really get a lot of value out of it. I need the turbo engine for good acceleration and these Corinthian leather seats are simply more comfortable. Ego defense can be a real bitch, can't it? We all engage in status competition, no matter how much we'd like to think we don't.

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Anonymous said...

How do you "share the wisdom?"

Is it even appropriate to tell someone how they should spend their money? (unsolicited advice)

I'm not a financial planner or an H&R Block trained tax preparer, why should they listen to me?

Anonymous said...

I'm only learning, because I found some recipes that sounded good & simple. I just read the financial bits because I'm already here. (I didn't coome here for financial advice, it is a side benefit of the recipes.)

Daniel said...

Anonymous, I'm not quite sure what you're asking: are you asking how to explain this idea to others? One way would be to share this article.

But to answer your second question: I don't consider it appropriate to tell someone how they should spend their money. This is a personal decision and each individual has to make that decision for themselves.


chacha1 said...

I am trying to be a conscious referent for a young co-worker of mine. He gets a lot of the status messages from his outside-of-work peer group, so I try to reinforce the decisions he's making that will be financially helpful - like hanging onto his 1987 Volvo instead of buying a new Audi. :-)

It helps that I can do this from a position of relative frugality. Renting an apartment close to work (instead of trying to own an overpriced condo), driving a 20-yr-old car myself, etc.

Financial reality checking never works if the person administering the check is not clearly trying to "do things right" him/herself. It's like a fat doctor telling a patient to lose weight ... not likely that advice will be followed.

Daniel said...

This is a great point Chacha, and I think it might help answer to Anonymous' question above. There's a credibility component that makes setting an example work... or fail to work.

Which brings up another question: What is the nature of that credibility, then? Is it domain specific? Do you have to be "successful" at frugality to set an example as a "true" referent? Interesting question, and maybe material for a future post.


chacha1 said...

I don't know that you have to be "successful" but you do have to be sincere!

Do As I Say, Not As I Do = non-credible.

Someone who says "you should save X amount of your paycheck" while showing up to work with new handbags, shoes, jackets, or electronics; or bragging about their new car; or going out to Starbucks every day for coffee; and then coming to work when they have the flu because they "can't afford" to take time off ... non-credible.

Daniel said...

Very well put Chacha. :)


Marcia said...

chacha has very good points.

I enjoyed the Overspent American - it made some good points. But I also read "The Way We Never Were" by Stephanie Coontz.

Part of it is that people use false referents, but part of it is that a dollar doesn't buy what it used to anymore. You cannot escape the fact that certain parts of living simply cost more than they used to - specifically housing.

Also, wages have been incredibly stagnant over the last decades too, and not just for the middle class or lower middle classes either. My wages, as a senior engineer, haven't budged in over 3 years.

I don't shop for clothing or handbags. My car is old and paid for. But I cannot escape the rising cost of groceries, the fact that my daycare cost just went up by $70 a WEEK, and that cable internet just went up to $123 a month. That's NOT TV that's internet and phone ONLY. (And yes, we will be calling to decrease that, again. But internet is not "optional" and there is no other source of internet in my 'hood.)

Most of my coworkers have learned not to be status conscious. But not all of them.

Daniel said...

Thanks Marcia. I'll read Coontz's book too, although I'm a little suspicious of a guy who doesn't know how to spell his own last name. :)

As to your point about inflation and prices going up, it's a good one. I'd like to write a post here at CK about some of the idiosyncrasies of inflation over the past several years. And I agree with you: there are rising costs in some life domains that are very difficult to avoid. It actually is kind of like an engineering problem: you have to solve for something under various and sometimes difficult constraints. Maybe this is why the challenge resonates with you!