Spending money seems to be a simple concept. We want something, we take money and we get it. But what is not usually explored is why we want the things we want. For most of us, money is a scarce resource and therefore it would be rational to spend it on the things we need ahead of any frivolous wants. However, as in many things, the way humans actually behave is different from the economic idea of rationalism.

Despite the fact that we like to deny the motivation for some of our purchases, studies show that the phenomenon known as keeping up with the Joneses is still alive and well. This phenomenon refers to the tendency for people to spend money to impress others. One study showed that making more money did not make people happier unless they felt they were better paid than their friends and coworkers. Another study found out that Americans were taking on more housing-related debt in order to keep up with the tastes of their richer neighbours.

The explosion in the use of social media has amplified this phenomenon. A survey by the Royal Society for Public Health conducted in early 2017 in the UK found that social media posts set unrealistic expectations and create feelings of inadequacy and low self esteem (as reported by Time Magazine). Instagram especially was identified as having the most negative impact. This seems intuitive as it is one of the more visual-heavy social media platforms and features a lot of options to digitally alter images to appear perfect.

I love social media and I can’t ever see myself asking people not to use it but at some point I evaluate the kind of effect that the lifestyle of others is having on my financial decisions. For instance, am I changing gadgets that are working perfectly well? Am I eating out as a replacement for home-cooked meals rather than as a social event? Am I insisting on paying for everything when my friends/colleagues would gladly split the bill? Am I consciously overpaying for clothes/shoes/watches etc because I don’t want to be found shopping on the street? Am I racking up transport costs by avoiding public transport? These are all important questions that I ask myself and I think you should ask yourself too.

Behavioural finance and economics have taken off as fields of study partly because of how people have come to understand the psychological underpinnings of decisions people make about money. I believe most people would notice that they know people who have a particular relationship with money. Some are compulsive spenders who get what they want immediately they get money, some are compulsive savers who hoard money, some are compulsive givers who give all their money away due to their inability to deny any requests made of them. The bottom line is one cannot do away with psychology and the psychological make up of people when talking about personal finance.

Humans spend money on certain things because they care what other humans will think or say about them. That is just how humans are and there is no need to be ashamed of it. We will never be able to do away with this feeling. But what we can do is evaluate ourselves from time to time to find out whether the financial decisions we are making are the best we can be making at the moment, or whether they are motivated by a post we saw on Instagram from someone who does not even care about us.