8 Observations Of People’s Behavior In Personal Finance

We are all influenced by our environment. 

I believe one’s environment is a big factor in determining one’s financial success in life.

Look no further for evidence of this than if you are fortunate to be in the United States of America, you have won life’s lottery ticket.

It’s not surprising that the average income in the US is one of the highest in the world given that the US is the strongest economic country in the world. 

According to the World Bank database, the average income per capita in the US is over 5 times as great as the average income of the world. In fact, the US average income per capita is greater than 10 times many countries around the world.

Imagine being in Peru or Thailand, both with average income per capita of $5,500 per year. Contrast that with being in the United States with $53,000 per year. Americans should have 10 times the ease in earning a dollar and accumulating wealth than someone in Peru or Thailand. 

Talk about an advantage to being an American. The environment in the US sets up a tremendous opportunity for her citizens to do well financially and to get rich. It is no wonder the average person in America is part of the global rich. 

The People Around Us Is A Great Source Of Influence

And what influences our environment more than the people around us? 

It’s been said that we are the average of the 5 people with whom we spend the most time. I don’t know how true this statement is. But certainly the people we spend the most time with have an influence with how we do in life and in our finances.

I believe that building wealth and getting rich in America involves doing things a bit differently than most of the general population.

Think about that. Doesn’t that intuitively makes sense to you? If you want average outcome, then follow the majority of Americans.

Now, keep in mind that the average outcome is still very good in America given this country is the strongest economic might in the world. There is nothing wrong with being part of the crowd. 

But if you want better results, you need to do better.

To do better often means to do things differently. Therefore, you need to build up a mental mindset that it’s okay to be an outlier or a loner. 

A lot of what you should do might not necessarily jive with the actions of most Americans. And that is okay. 

If you want average results in income and wealth, just follow what the crowd does. If you want to outperform in both income and wealth, a different approach is necessary.

What do I mean by this? Here are some examples of observations I have about how most people act and how you can do to be different from them. 

Observation #1: People Only Like To Discuss Winners In Their Investment Portfolio

Winners In Investment Portfolio

I noticed that during the late 1990’s/early 2000’s dot com bubble, my family members at family gatherings spent a lot of time talking about internet stocks. They like to focus especially on stocks they have invested in that went up tremendously. Then after the bubble burst, there were very little discussions about stocks in family gatherings in the mid 2000’s.

In 2017, there were heavy discussions about Bitcoin and other Cryptocurrencies. That was the year when Bitcoin reached its all-time high of close to $20,000 a coin. And seemingly everyone who invested in ICO got rich. But there were little discussions in the subsequent years when a majority of the small coins went bust and Bitcoin fell to around $3,000 a coin. 

More recently, I noticed more talks about stocks, especially stocks which have done well such as the FAANG and Tesla. 

The bottom line is that people like to discuss winners. But even if you didn’t participate in the winners, don’t let that get you down. 

Sometimes, among all that excitement and discussions, we can feel a sense of envy. We might even want to modify our investment approach or take some unnecessary risks because everyone else is apparently making a boatload of money investing in a particular asset. 

But people tend to be selective with what they communicate. It doesn’t matter if they have 10 losers in their portfolios; they like to talk about that 1 stock they have which tripled. It doesn’t mean they made money on the whole.

Or that they might have invested in only 10 shares of Apple which went up nicely, but the gains aren’t substantial in dollars. 

And they certainly don’t like to discuss losses when the market corrects after reaching new highs. 

Be smart with understanding that people tend to like to discuss only winners in their portfolios and stay on your own course. 

Observation #2: People Tend To Talk Themselves Up And Exaggerate

There is nothing wrong with marketing oneself in the best light. Similar to observation #1 in which people only like to discuss winners, people also tend to talk themselves up. 

They might talk up their job title, or level of responsibility. They might overinflate income or their importance to the organization.

The lower one is in the organizational hierarchy, the more one tends to exaggerate when it comes time to present on what they do. I am certainly guilty of this. 

The people who are truly the most successful don’t need to do this. Does Jeff Bezos need to talk himself up to anyone? Or Mark Zuckerberg who likes to wear the same t-shirts as evidence he doesn’t need to impress anyone. 

If you want to know where people stand, just apply a discount to what they say.

“I just completed a project which saved my company $2 million.” Translation – you were part of a team who worked on a project led by a senior member and saved the company some money which can in the best case scenario end up being $2 million.

If someone is willing to disclose their income number to you, then discount that number as well.

“I make $300,000 a year.” Translation – I really make only $250,000 a year but it seems more impressive if I round that number up to the nearest hundred thousand.

Observation #3: People Who Drive Fancy Cars Don’t Necessarily Have Money

I remember the first couple of years working. I have a little saved and wanted to get into real estate.

I thought that with my little pot of savings, there was no way I would be able to buy a rental property near my home in New York City.

Unsurprisingly, I decided to look for real estate in towns and cities a few hours from NYC because money would go a lot further at those places. 

I was checking out houses in the under $100,000 range with many in the under $50,000 range. One day, I remember my real estate agent pointing across the street on our way to checking out another property and commented “that guy is pulling out of the house with his Hummer. That’s funny because his car costs more than that house.”

Hummer

That was when it struck me that people who drive fancy cars don’t necessarily have money. 

Prematurely buying an expensive car is a great destroyer of wealth building. Luxury cars lose 40% of value during the first five years.

Now contrast that with investing in the S&P 500 which on average returned 10%. Take the price of a luxury car at $70,000. After 5 years of usage, that luxury car is now worth only $42,000, a loss of $28,000. 

What if you took the same amount and invested it in the S&P 500? Assuming the average annual return rate for those 5 years, you have $112,000. That is a difference of $70,000. 

Imagine doing this over the course of 20 or 30 years. That is a big financial nut wasted on a fancy car. 

Observation #4: People Can’t Say I Don’t Know And Will Make Up Answers

This one I tend to see more in the corporate environment. 

When confronted with a question in which the person doesn’t know the answer, the average person will try to make up an answer or dance around the question. It is very difficult for a person to just say “I don’t know”. This is another one I’ve been guilty of doing before.

This is why experience and knowledge are so important. Once you have a strong base of experience and knowledge, you can start to sniff out BS answers from people.

This also happens a lot with real estate agents. When I check out a property, I like to inquire about how much the property can rent for. I’ve dealt with agents who have little sense of the rental market or are just not too familiar with that one particular area. Instead of saying just that and let me do some research, they made up the answer.

Don’t try to provide a BS answer. If the questioner is smart, that person can sniff out your made up answer and your reputation will take a hit.  

It is okay to say “I don’t know” to a question and then offer to look it up. That will help save time for you and the person asking the question instead of trying to BS your way through the question with a made up answer.

Observation #5: People Tend To Like To Offer Up Advices Even When Their Advices Are Unsolicited Or Not Worth Much 

People like to volunteer answers or advices, even when unsolicited. It happens all the time, especially with family members or friends.

Sometimes even strangers don’t feel afraid to share their two cents like ones I’ve experienced when dealing with crying children in public.

Those people might mean well, especially parents who offer advice. I get investment advices all the time from my parents who always have things they want to advise me on even though they have very little expertise or experience.

“Buy Bitcoin.” “You can’t lose if you buy more rental properties.” “Don’t buy stocks since they are so volatile and you can lose all your money.”

I know their advices come from a good place of wanting to help me with guidance. But I need to assess the validity of their advices to see if they hold water.

Would I rely on Jeff Bezos to perform a root canal or have Warren Buffett replace the brake pads on my car? I won’t have much comfort in them doing those things because I don’t believe they have expertise in them.

Why, then, would it be different if someone close to me offer me advice as well? 

You should still assess the value of someone’s feedback or advice. If that person has mastered or exceled in that topic, then by all means, listen to that person.


But if you know that person offering advice has little or no experience or expertise, then the advice isn’t worth much. 

Observation #6: People Are Envious So Practice Stealth Wealth

You know the old saying “misery loves company.” This is so true in personal finance as well. 

I think people are psychologically wired to compare themselves with others. The feeling of envy kicks in pretty quickly if they realize someone is doing better than them.

That is the reason why, despite being globally well off, Americans are still generally unhappy compared to other countries because everyone else in America is doing well. We only compare ourselves to people we see day in and day out.

The average person would probably feel resentful if they just lost their job but their best friend just got a raise and is financially thriving. 

The average person would probably feel better about himself if his best friend lost his job as well. 

This sense of jealousy is why there are people out there saying billionaires shouldn’t exist or that all rich people must have lied or schemed their way into riches.

That is also why people protested the folks who worked at Wall Street in the Occupy Wall Street movement. It also happened in San Francisco back in 2013 when people protested the tech buses. 

It is also why people say the rich are not contributing enough in income taxes or that millionaires need to be taxed a lot more.

Therefore, to protect yourself against envious thoughts from those around you, practice stealth wealth.

The key to stealth wealth is to downplay your income and wealth.

Practice-Stealth-Wealth

Observation #7: People Who Name Drops A Lot Are Out To Sell You Something

Be wary of people who name drops a lot. Celebrities so and so are my clients. 

I’ve been to a party with so and so who play for the NY Knicks. 

Usually when people name drop, especially if they don’t know you that well, they are probably out to sell you something. They think that by dropping those names of famous people, they can impress you and to be able to cheaply develop credibility with you.

I have been burned by people like this in the past. Who wouldn’t be comfortable with a contractor who has worked on the homes of pro-athletes such as a few New York Giants players?

He described in some details the work he has done for a few NY Giant players’ homes to build trust with me early on. Eventually, he turned out to be a fraud and a con. He ended up taking my money and doing only half the work.

I am now very wary when I encounter people who like to name drop. Now, I put up my guard when I hear that which I’m sure is the opposite effect the name dropper wants. 

Observation #8: People Tend To Advertise On Social Media A Lifestyle They Can’t Afford

People tend to show off only the positives of their life on social media. They only upload the best shot to look better. They might upload only the best pictures to present a vacation that looks better than how it went.

This observation goes back to the need for people to want to come across as a winner. They tend to present a fake image on social media.

Just remember that someone’s social media account is a filtered version of their life. No one can have an extraordinarily happy life day in and day out. There are always ups and downs in life. 

Look no further than some celebrities and their social media accounts. Some present extravagant vacations jet setting around the world and living in mega mansions. Then you find out later that those celebrities are running into financial trouble or in the process of declaring bankruptcy.

Or celebrities who confess how fortunate they are to have found the love of their life just to announce a divorce later on after a few years of marriage.

Don’t compare your own life to ones you see on social media, no matter if that person is a friend, family member, a celebrity or a random stranger.

To The Audience: Are there other observations of people’s behavior you have noticed? Do you agree with my observations? Are there any of the observations you disagree with?

Related Posts

Evolution Of My Money Beliefs 

Financial Rant: Americans, We Can Do Better Financially

Financial Tough Love And A Dose Of Reality

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6 thoughts on “8 Observations Of People’s Behavior In Personal Finance”

  1. Hey new reader…just wanted to say your blog and WSP content is phenomenal!

    At 24 with low income would you suggest going down the RE path (brrr & flips) or DCA as much as possible into 401k, IRA, & Brokerage?

    Reply
  2. Stealth Wealth is the way to go. So far I am plenty stealthy–without the wealth! And you’re right–social media is the exact opposite of that practice. It’s sort of a lifestyle version of buying a fancy car in that it doesn’t usually reflect the nuts and bolts of the situation. Good list!

    Reply
  3. Very interesting article, thanks. You are 100% right that people in other countries (not the USA) are less fortunate. I live in Ukraine and we have an income of 6-8 thousand dollars a year (!) Is considered very good. It should be noted that the standard of living is lower here. The fact that you can buy in your USA for 500 dollars (products) is available in our country for 50)))) But nevertheless, you are completely right. The way out of this situation is investing in stocks or ETFs, real estate. This helps our countries to reach a good level of income.
    The only thing I don’t quite agree with is “stealth”. I think that the main thing is to be rich with a clear conscience, but there is no need to deliberately hide and “be poor”. Envy harms only the one who envies, “eating away” him from the inside)))
    Thanks again!

    Reply
    • Stealth wealth certainly isn’t for everyone. But I do believe in the benefits of stealth wealth. I think if you don’t need to act rich in front of others (which is probably driven by a need to seek acknowledgement from others), you are probably content with your own situation.

      Reply

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