Ep # 98: The Dangers of Benchmarking Against Others
Recently Carl Richards shared results from a study conducted by researchers at Harvard a few years ago. In the experiment they gave people two options:
- You could earn $50,000 a year, but everybody else in the world around you only earns $25,000.
- You could earn $100,000, but everybody else around you was earning $200,000.
In those two scenarios, everything is equal, except for what you make and earn compared to those around you. Option 2 is the obvious choice, right? You would want more money independent of what everyone else had. But the study found that more than half the people chose option one.
In this podcast, we talk about the dangers of benchmarking yourself against others. We provide tips for focusing on what you can control to avoid making potentially harmful decisions based on what you would think somebody else would want you to do.
Watch the full video on YouTube:
Benjamin Haas 00:02
Hi everyone, and welcome to A/B Conversations, where we will help you CFP your way out of it. A podcast where you get into the minds of a couple of Certified Financial Planners on how we think and feel about everyday financial planning questions, and what should really matter most to you. A healthier financial life starts...now! now.
Adam Werner 00:25
Hey, Ben, how are you?
Benjamin Haas 00:29
Doing very well.
Adam Werner 00:31
Yeah. So for those listening at home, or in their car, or on a run or a walk wherever they're wherever they listen to this. Today while we're recording is the 10-year anniversary from when you left the Ameriprise Island and went independent.
Benjamin Haas 00:54
You are correct. That is today.
Adam Werner 00:57
I'm now picturing from for anybody who watches or watched The Office, Dwight Schrute, in celebrating people's birthdays it was it is your birthday. That was the card that he gave that wasn't happy birthday, it was just an acknowledgement of the fact that it is. So yeah, I know. You're downplaying it. But could you imagine 10 years ago being where we're at today? I mean, podcasts were a thing back then. But the fact that we have one, we're recording one, people supposedly listen to it.
Benjamin Haas 01:31
Yeah, look, I very much appreciate you bringing this to light. It is you get a lot of reflection in a day like today, a lot has certainly changed. And it is certainly a testament to survival. Not all businesses make it. And that alone should be something worth celebrating. But we've got great relationships with great clients. We love what we do. It's not always easy. So yes, I'm certainly a little balder than when I was 10 years ago.
Adam Werner 02:02
Benjamin Haas 02:03
I've got some battle wounds that I try to hide. But it's all it's all good a thing. So thank you, thank you for roll in it.
Adam Werner 02:11
So then, in transitioning to our topic today, which it intrigues me to no end. The idea of clients benchmarking themselves against just people around them. And where we saw it come to light, more recently, it was a client of ours who is in retirement, seeing a friend of theirs who is also in retirement, living a very different lifestyle from them. And just feeling I don't know, just feeling like, why is that not me? Why did they get to this is their lifestyle. I wish that could be me. And it's it just brought to light, just the whole idea of the dangers of comparing yourself to others. And obviously, we're looking through planning and financial lens. But I think that's a broad based kind of idea to just not compare yourself to other people.
Benjamin Haas 03:13
Yeah, so number one, it's very much a human trait to do that. We do that all the time in all these different places. We are competitive beings, like, I want to be better, or I want to have more. Very natural, right. And that's why we're going to talk about why this is so dangerous and how we want to help. Yeah, but the second, the second thing that we should share is when people do that, they're often maybe they don't know it, but they're making a lot of assumptions. The irony in this situation is we know the other person that the client was talking about. And there are different circumstances that maybe them having other properties or a beach, like it didn't mean they didn't have debt with that. Or, you know, hey, these people are doing all this traveling. Maybe they got an inheritance, right? It doesn't have to be on you to go, I should have done all these things different. I'm looking in the rearview mirror, and I'm just feeling really bad about it. Because I want more. I don't feel like I have enough.
Adam Werner 04:10
Yeah. And I was what what just popped into my head is I almost liken that to kind of how we how I see social media. I was talking to someone this weekend. And it's what you see, mostly on social media, when people put their, you know, personal posts on there. It's all the positive.
Benjamin Haas 04:30
Yeah, that's the best version of things.
Adam Werner 04:32
That's right, right. No, I shouldn't say no one. But a lot of people don't go out in real life or on social media to share the little negatives that we all deal with. But yeah, I think to that point, I think, yes. When when people see someone in their life taking an extravagant trip, or buying another property or whatever it may be. It's very easy to say good for them. But why am I why can I go do that? Or why am I not doing that? It's just again, like you said, it is such a natural human trait of ours to do I mean, I'm sure you do too. It's a see that my kids, well, this, this person gets to do this, or they have a phone, but I don't. Its inherent in us.
Benjamin Haas 05:22
Yeah. And it's funny, you bring up the kids, because I have that thought, like, it's my two younger ones are always in competition. And yes, competition can be healthy. But I think part of what we want to share in the podcast kind of moving to how we might be able to help, it really just is not great, and many facets of life to focus on things that don't serve you. And we should start by saying, you need to benchmark against your own life and goals by kind of being able to understand what makes you content and how you're fulfilled. So we ask, I won't go too deep down into this, because it feels like a different podcast, and that we probably had, but when we ask people what matters most to them, right? We're asking that for a reason. We typically hear like, time spent with friends and family, having experiences. It's not like we hear fame and status, and I gotta beat my neighbor, I gotta, you know, I gotta be better than, right. That's, that's not what they say. And I know, again, we have that competitive nature, we do compare, but it just is really important to focus on what is enough for you so that your resources, what's the purpose of money in your life, it's to live this life that you want to live, and not worry, and hopefully not compare yourself to whatever anybody else is doing.
Adam Werner 06:38
Yeah, yeah, I think we so I'm sure, I know, for a fact we've covered the Kinder questions. Those are what's most important to you? If, money was not an object, what would your life look like? All of those types of questions that really, hopefully get to the heart of what is really important to me in my life? Where do I value actually spending my money? What do I hope for it to accomplish? Yes. And I feel like we've we've done other iterations of that, too, as you mentioned, like just the call it the enough exercise. At what point do I have what I what I want and need to fulfill whatever goals or values that I have. There's different ways to go about that. But I thought just through the lens of taking your life, now comparing it to someone else, just on face value, again, happens all the time. We get questions, even in meetings with clients that we've worked with, for long periods of time, at the end of the meeting about well, how am I doing to the rest of your clients? And the answer is, doesn't matter. It's completely irrelevant.
Benjamin Haas 07:50
Right. And I, the other thing, that kind of, I don't want to be lost in this conversation. When somebody is comparing themselves to somebody else, it's really important for them to know what is possible for them. Right? And I think sometimes that frustration of well, they're doing all this travel, or they can do that. Why can't I? Maybe it's not that you can't, it's that we haven't explored that together. And if that's really meaningful to you, if that truly is a list of things that would be fulfilling to you, then in this case, the client situation we're thinking about, then do it, yeah, you can absolutely like gift, or the situation was take your family on a trip. And if you can't get everybody together, then you give them these gifts, like part of this is still just to understand what's possible for you. And yes, that may feel like it changes from time to time. And when you see other people doing things, you're going to start to question again. But that continuous reevaluation of what you can do, and what is possible, is important in all of this.
Adam Werner 08:47
yeah. And you know, this, this shouldn't like come as a surprise to us at this point. But the thought that just crossed my mind is in that situation, it's very easy for any individual to dismiss that concern, and say, don't worry about it. Their life is not your life. But I think it puts more of the pressure a little bit on us to ask why. What are they focused on in that comparison, because that may lead to exactly what you said, which is, well, because I want to be able to take a trip with my family, because that's where I see the value, but I'm not sure that I can afford it and not impact the longevity of hopefully not outliving my money. But if you got to the crux of what was truly kind of that trigger, then that's really where we can hopefully bridge that gap and start to connect those dots for people that they can live the life they want to lead. And knowing that money is just a tool in all of them.
Benjamin Haas 09:47
Right and it's why we need to get better and continue to hone our own skills on asking better questions because what is shared on the surface or what we believe that we're hearing is probably not the root of what's going on here, right? Right. It's, it's, it's probably not jealousy. Right? It's probably not some superficial status thing. It's probably more deeply rooted in really what matters to them and how they want to go about exploring that to be more fulfilled to be more content. So anyway, I want you if we could, because I find this so interesting. Go through go through this Harvard research that really hammered home a point here.
Adam Werner 10:29
Yeah, so to be fair, I did not read the research report, or the paper or whatever was put out there. But one of the, say, our industry experts, his name is Carl Richards shared this recently in a newsletter. But there was an experiment that was conducted at Harvard, their researchers gave, I don't know how many people were involved in this study, but a good amount. They gave people two options. Number one, you could earn $50,000 a year, but everybody else in the world around you only earns $25,000. Option two, you could earn $100,000, but everybody else around you was earning $200,000. Now in those two scenarios, everything is equal. The gallon of gas, same price, cars, same price, home costs, same price, everything is equal. So it's not like, okay, great. You're earning 100 grand, but now everything else costs more. No, it's all the same, except for what you make and earn compared to those around you. And you would think, I don't know how you would answer that. Maybe I'll ask how would you answer that question, then?
Benjamin Haas 11:43
$100,000 of income for my family sounds like a lot more than $50,000.
Adam Werner 11:47
Right. And I assumed the same that the answer that would typically come through that research was, yeah, if I'm going to, like essentially double my income, $50,000 versus $100,000? Why would I care what everyone else is doing. But what the status that the study found is more than half the people chose option one. So it wasn't like, you know, 90% said, option two, I want to earn more, but everyone else around me can earn more. It really was still focused on the relative standing around yourself compared to those around you, which completely blew my mind that there's more than half of the people in this study. And you can extrapolate that out to the rest of the country that are focused on the comparison and not their own individual situation.
Benjamin Haas 12:42
Yeah. And I would be so very curious to talk to people that answered that way, and ask that question that you did earlier. Why is that? Why is that? Because there, there clearly is some sort of disconnect, on again, the role that money is supposed to play in your life, which is why it's so important for us as planners to work through that with people. But yeah, I just find it super compelling. And super dangerous. I mean, oh, yeah. Call it what it is. When you when you are in that situation where you've got this, like fear that you're missing out on something that somebody else did. I think we did a podcast on the concept of FOMO. Before really we were doing it around investing, but I think it fits here too.
Adam Werner 13:20
Benjamin Haas 13:21
Other studies, I'm not going to quote one right now. Sorry, compliance, but like it has been, it has been kind of proven that that that fear of missing out just leads to deeper anxiety and potential depressions. Because, again, you're not focused on things that you can control. You're focused on things that you can't, and that's dangerous.
Adam Werner 13:43
Yeah. So on that note, one of one of the potential exercises that can come out of that thought process, it's the what is enough for kind of tracking, where you spend. So the thought being, for whatever period of time, call it a month, a couple of months, whatever works for somebody, if they truly want to kind of go down this road, is to just make a note on when you spend money. Make a note of what you're spending on and how you felt after you spent the money. And not that it needs to be any big project. But really just to start to, well, the questions being did that bring me the joy I expected? Did it make me happier? Did it make my life better? And would I do it again? So the idea being you can start to see the bigger patterns maybe? You're not necessarily having to beat ourselves up for I went and I spent $50 at, I don't know. You went out and got lunch but that day I could have packed my lunch because I had leftovers in the fridge. Don't don't beat yourself up for it but just notice, hopefully the bigger picture of where you place the value on your money. What are those things that you hope to get out of spending money and just and see how that starts to inform maybe different decision making moving forward so that you can align your values with your wealth.
Benjamin Haas 15:11
Yeah, and I hope maybe in wrapping some of this up, I hope the realization that listeners probably have today is, again, they're two very important parts to quote unquote, managing money and being financial planners. There is the math side of this, right, where we can put an equation together that says, if this is what you want to spend, here's how much you need and how much you spend calculator math, blah, blah, blah, blah, blah. There is just this behavioral side to how people look at these things. And where they can go down dark rabbit holes that they don't need to go by. And that's where we just want to be like a thought partner with you to make sure that the things that you are focused on, are things that you should be focused on. And if they're not really healthy for you, then let's help reframe that and give you these exercises like you just shared to kind of better understand how you're thinking and feeling.
Adam Werner 16:08
Benjamin Haas 16:13
Adam Werner 16:14
Is that it?
Benjamin Haas 16:15
Adam Werner 16:17
Oh, I should share this last point. It's somewhat anecdotal. But I've seen it pop up in a couple different places. It was and I'll just point out the the most common one that was shared. So from it was hospice nurses. So people on their quote unquote deathbeds, near the end of their life, it was sharing things that they had learned or things that they hoped would have gone differently. And the most common regret near the end of life was that I wish I'd had the courage to live a life true to myself and not a life that others expected of me. So the whole idea again, yeah, that's a heavy one. Yeah, to be true to yourself. Focus on what you can control, as you said earlier, and not be so focused on what everyone else is doing, and comparing yourself to others or, you know, potentially making decisions based on what you would think somebody else would want you to do.
Benjamin Haas 17:16
I love that. I love that a lot. Because that's every everything that we talk about is creating some sort of balance. You need to save for the future in order to have that money when you need it. At the same time. You don't want to pass away with all this money that didn't serve you in the way that you wanted. So it's just this wonderful exercise of just being able to make sure hey, I'm gonna say what I need but then I'm going to live the life I want to live. The phone keeps ringing...
Adam Werner 17:52
It's 10 years. People know. They're calling in to talk to you.
Benjamin Haas 17:56
I love you all. All right. Thank you so much. Love the concept: danger of benchmarking. We'll do it again soon.
Adam Werner 18:06
You got it.
Benjamin Haas 18:21
Hey, everyone, Adam and I really appreciate you tuning in. Please note that the opinions we voiced in the show are for general information only, and are not intended to provide specific recommendations for any individual to determine which strategies or investments may be most appropriate for you. Consult with your accountant, your accountant and financial advisor or tax advisor prior to making any decisions or investing. Thanks for listening!
Investment advice offered through Great Valley Advisor Group, a Registered Investment Advisor. Great Valley Advisor Group and Haas Financial Group are separate entities. This is not intended to be used as tax or legal advice. Please consult a tax or legal professional for specific information and advice.
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