How rich friends make you feel poor

Adam remembers watching a reality show ("that really had nothing to do with reality") called "The Hills." It was about life in Los Angeles and featured 20-somethings living in spectacular apartments that they supposedly could afford on their internship salaries.

"Stuff like that perpetuated this fantasy," Adam says. "That's what makes people spend money. You see these things and think, 'Why can't I do that, too?' "

Other people's money

Some of you might think that sounds like using Paris Hilton as a defense for overspending.

But economic research supports the notion that other people's wealth can be a terrific source of misery -- and perhaps some bad financial habits.

A 2005 study by Glenn Firebaugh of Pennsylvania State University and Laura Tach of Harvard University said people were most unhappy when they were living around those who were richer.

In other words, it's not how much you have but how your earning power measures up to the relative wealth of your peers. An income of $100,000 may sound sweet, and if your friends tend to earn less than you do, you'll be pretty happy with life, Firebaugh and Tach reported.

But your life will look a lot less rosy if people your age are earning $200,000.

• Talk back: Does being around wealthier people cause you problems?

As Firebaugh and Tach noted: "This finding implies that working-age families must earn more and more over time to maintain a constant level of happiness."

Or, as many of us might hesitate to admit, you strive to buy your way into the lifestyle of Mr. and Mrs. Jones, even when you can't afford it.

5 ways to cope

But, to paraphrase one of Shakespeare's great lines from "Julius Caesar," when it comes to debt, the fault lies not with the Joneses but with ourselves.

The task is to find a way to cope. Even if your best friend's new BMW doesn't send you speeding to a car dealership, it's important to note how even small acts of financial self-deception can take a toll, says Amy Weik, a bookkeeper in northern Virginia.

When Weik was in her 20s and earning about $26,000 a year, she could barely afford her rent but overspent to dress well for work and go out with people in order to make friends. "None of these things were big or glamorous, but all the tiny things added up," she says.

Here are some tips about staying financially grounded when rich friends or family might lead you into temptation:

• Crunch your own numbers. Though it's easy to get distracted when someone else can afford the life of Riley, "one of the ways I stay grounded is that I'm anal about watching my own accounts," says Tricia. "I check them every day."
• Measure the playing field. "One of the mistakes I made when I relocated after college was not researching the fact that I was moving into a much higher cost-of-living area," Weik says. You'll develop a better financial game plan when you know the lay of the land.

• Try on some bifocals. As Tricia noted, being around rich people tends to skew your own view of money. I compare it to having bifocal glasses. Use one lens to keep wealthier people's lives in perspective; shift to the other so you can see your own situation clearly and still enjoy it.

• Admit Mom was right. Adam says,"My mother always said, 'Never compare yourself to other people; you don't know what goes on behind closed doors' -- and now I know how right she was." Adam once worked with a woman who had "lived the good life" but was so broke at age 46 that her parents refinanced their home to bail her out. "I said to myself, 'I don't want to end up like that at 46, with nothing to show for all the money I spent,' " Adam says.
• Make new friends. When I posted this issue on the Woman in Red message board, I was surprised by how many people suggested that one way to avoid the financial fallout from hanging out with well-heeled pals is to avoid them. Adam says it was hard to relinquish some of her free-spending buddies, but admitting that her family is more important has helped. "I have different priorities now."

Last, I'll put in a plug for moving to a place that's in line with your own financial abilities and values. I had always found living in New York City stressful. But I assumed it was the noise, the pace, the craziness.

Now that I'm living far, far from that madding crowd, I realize it's also the money. Without the magnetic pull of the rich and famous tugging at my soul and my wallet, life is much more pleasant, let me tell you.

Published Aug. 22, 2007

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