Two of the concepts that contribute to the debt problem in the United States are relative position and miswanting. Cass Sunstein, a prominent expert in behavioral economics, points out that relative position is how you perceive your economic place in relation to others. When you look at others’ possessions and then try to keep pace—or even compete—with what others have, you will end up in debt if you have limited financial resources.
Miswanting and relative position describe borrowing to finance purchases of things that do not promote welfare, but may reflect people’s competition with others for relative position. To the extent that people use credit to fund miswanted purchases, they end up incurring debts without any offsetting increase in utility.
Rationality, Revolving, and Rewards: An Analysis of Revolving Behavior on New Credit Cards
Credit cards have made our society more materialistic than it has ever been before. We like our “stuff,” and we constantly need new stuff. We look at others and feel as though we “need” or “deserve” what they have. We also feel that our relative position and status are lessened if we do not have the same material possessions as others. Miswanting occurs when we believe that some specific object or lifestyle will give us pleasure, but in reality, the item doesn’t provide any long-lasting emotional and physical benefits (Gilbert, T.D.).
When you view material possessions as a status symbol then acquiring things becomes your goal. If you try to keep up with others, especially those with more financial resources, you will go into debt. You cannot always compete with the financial resources that others have at their disposal. As a result, you will use credit cards until you are in debt.
The key is to stop comparing yourself to others. Instead, consider what you have and learn to appreciate that. Do you have a loving family? Do you get to enjoy going out once month? Find reasons to be happy with a lifestyle you can afford. Remember that things cannot replace loved ones and experiences. Miswanting usually only leads to dissatisfaction. Change your focus, and you will no longer worry about relative position. You will also put less on your credit cards.
Next: Why We Get in Debt, Part 7: Know Yourself and Your Limitations
Previous: Why We Get in Debt, Part 5: Unrealistic Optimism
All posts in this series:
Why We Get in Debt, Part 1: Behavioral Economics and 5 Types of Apathy
Why We Get in Debt, Part 2: Lack of Self-control
Why We Get in Debt, Part 3: Cumulative Cost Neglect
Why We Get in Debt, Part 4: Procrastination
Why We Get in Debt, Part 5: Unrealistic Optimism
Why We Get in Debt, Part 6: Keeping Up with the Joneses
Why We Get in Debt, Part 7: Know Yourself and Your Limitations
