Believing that you need the latest fashion and luxury items is a financial fallacy for several reasons. Foremost, it feeds into the concept of ‘hedonic adaptation,’ where a person’s level of happiness temporarily increases with a new purchase, but quickly returns to a baseline level as he or she acclimates to the new item. This triggers a cycle of continuous spending in pursuit of happiness, forming a destructive habit.
Second, it builds upon the misleading notion that self-worth is tied to material possessions, commonly known as ‘materialism.’ It can lead to unnecessary financial stress and debt as people try to keep up with growing and changing trends.
Third, it doesn’t account for the crucial concept of ‘opportunity cost,’ meaning the lost potential gain from other options when one alternative is chosen. In simple words, the money we spend on these items could have been used for investments, savings, or other purchases that can add long-term value.
People might fall for this fallacy due to societal pressures, advertising campaigns and a natural desire to fit in and feel admired. There is nothing inherently wrong with wanting to feel good about oneself, and for some, designer leathers or fancy cars provide that. However, problems arise when we allow these desires to dictate our spending patterns, especially when it leads to credit card debt, loans, or insufficient savings for emergencies, retirement and other life goals.
An appropriate financial practice would be one more focused on long-term financial health and happiness instead of short-term pleasures. This involves creating a budget, making wise investments, setting financial goals, and realizing that material possessions do not lead to lasting happiness nor determine your self-worth.
Further readings:
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“Spent: Sex, Evolution, and Consumer Behavior” by Geoffrey Miller. Book Link. A book that explores the evolution of consumer behavior and materialism.
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“Luxury Fever: Why Money Fails to Satisfy in an Era of Excess” by Robert H. Frank. Book Link. A deep dive into consumer habits and the pursuit of luxury, looking at its economic and personal consequences.
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“The High Price of Materialism” by Tim Kasser. Book Link A book outlining how a focus on materialistic values can lead to reduced wellbeing and increased social and ecological problems.
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“The Psychology of Overeating” by Kima Cargill. Book Link While primarily focusing on overeating, the book also explores the culture of consumerism and its impact on our lives.
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“Plenitude: The New Economics of True Wealth” by Juliet B. Schor. Book Link This book explores how conventional ideas of growth and wealth can actually hinder our capacity for happiness and overall wellbeing.
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Hedonic adaptation. Wiki Link
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“Happyness” by Steve Cutts. Video Link The story of a rodent’s unrelenting quest for happiness and fulfillment.