From: hubermanlab
In a recent episode of the Huberman Lab podcast, Andrew Huberman, a professor of neurobiology and ophthalmology at Stanford School of Medicine, welcomed Morgan Housel, a partner at the Collaborative Fund and author of “The Psychology of Money.” The discussion delved into the intricate web of how social comparison impacts financial decisions and, ultimately, our pursuit of happiness and security. Below, we explore the key insights shared during their conversation.
The Influence of Social Comparison
Social comparison, the process of evaluating oneself in relation to others, plays a significant role in shaping financial behaviors and aspirations. Housel and Huberman emphasized the psychological underpinnings of social comparison, noting how it often drives individuals toward decisions that may not align with their personal goals or values.
Historical Context
Housel pointed out that societal wealth has increased over time, but happiness derived from wealth has not necessarily followed suit. This is in part due to how people compare themselves to their peers rather than focusing on their personal financial well-being and goals. He noted:
“The average family is richer than they’ve ever been…but because we manage it in such extreme ways, is it making people happier?”—Morgan Housel [01:19:00]
The Role of Geography
Interestingly, geographic location also influences the benchmarks we use for financial success. For instance, in places like Silicon Valley, the culture of innovation might push individuals to seek out financial success through breakthroughs or high-profile ventures. In other regions, particularly where the cost of living might be lower, success could manifest in different forms, such as home ownership or community standing.
“If you are a family dentist here in Los Angeles, you don’t stick out whatsoever. You might feel like you are so far behind because you’re surrounded by legitimate billionaires.”—Morgan Housel [01:04:00]
This comparison extends beyond just immediate neighbors to a global scale, influenced by ubiquitous social media platforms that provide curated highlight reels of wealth and success.
The Psychological Mechanisms
Housel highlighted several psychological tendencies that exacerbate the pressures of social comparison. These include:
Competition for Resources
The innate drive to compete for resources is deeply embedded in human psychology. This evolutionary trait, while beneficial for survival, now manifests as financial competition rather than the physical competition seen in earlier human societies.
Envy and Status Anxiety
Envy can drive individuals to make financial decisions geared more toward appearing successful rather than achieving personal financial security. This status anxiety is often fueled by seeing others’ wealth and accomplishments, creating pressure to emulate those perceived standards of success.
“You could be working less but it’s all a competition between other people.”—Morgan Housel [01:38:00]
Financial Independence and Personal Fulfillment
Ultimately, financial decisions driven by social comparison can detract from actual financial independence and personal fulfillment. The key takeaway from Huberman and Housel’s discussion is the importance of aligning financial decisions with personal values and goals rather than external benchmarks that social comparison provides.
Advice for Financial Well-being
Both speakers emphasized the value of maintaining a focus on independence and a sense of purpose as central components of psychological well-being:
“At the highest level of psychological well-being: independence and purpose.”—Morgan Housel [01:26:00]
Conclusion
Recognizing the impact of social comparison on financial decisions can empower individuals to adopt a more personal and fulfilling approach to wealth management. By focusing on what truly resonates with one’s values and needs, rather than competing with illusory standards, individuals can find a more satisfying and less stressful path to financial well-being.
For more insights, you can listen to the full discussion between Huberman and Housel, which provides an in-depth exploration of the psychology of money and its broader implications.