financial comfort

Why Your Financial Reality May Not Be Reality

One of the concepts that Brad Klontz, Ted Klontz, and I discuss in our co-authored book Wired for Wealth is the financial comfort zone. This zone is our financial “neighborhood” or our financial culture—the lifestyle, income, and spending patterns that we see as normal.

Let me illustrate this with an example I read about in early 2022. Nina Strohminger, PhD, a professor of legal studies and business ethics at the University of Pennsylvania’s prestigious Wharton School of Business, asked her students to guess how much the average American worker makes in a year. While 75% of the students guessed a figure less than $100,000, the remaining 25% thought the average American made over $100,000. (One response was $800,000.) The correct answer, she said, was $45,000.

According to the Bureau of Labor Statistics, in 2020 the average wage was just over $56,000 and the median income was about $42,000. Let me clarify those terms. Let’s say we have three people with different salaries: $20,000, $40,000, and $90,000. To find the average, we add all three salaries for a total of $150,000, then divide that by three to get $50,000. The median is the middle number of the whole data sample, which in this case would be $40,000. It’s very common that the average is more than the median, because the higher numbers drive up the average.

Since the majority of Professor Strohminger’s students were reasonably close to the real numbers, what was going on with the 25% that were so far out of touch with reality?

I think the story could be that they weren’t out of touch with reality at all. If they came from wealthy backgrounds, they were doing what most of us do—assuming that their own family’s economic standing was normal. They were seeing the larger world through the perspective of their own financial comfort zone.

Most of us tend to hang out with people who share similar incomes, lifestyles, spending and saving habits, and financial values. We live in the same financial comfort zone, which typically is framed by similar money scripts. And the narrower the comfort zone, the more inflexible the money scripts are.

For people growing up in wealthy families, “normal” is likely to include private schools, international travel, live-in household help, and expectations of an Ivy League education probably followed by a high-earning career. For someone in poverty or near-poverty, “normal” might mean shopping at thrift stores, relying on public assistance, barely getting by from month to month, and seeing higher education as completely out of reach.

Whether the comfort zone is extreme wealth, extreme poverty, or some level in between, it is where we feel familiar and where our money scripts keep us with a sense of belonging and safety. When we break out of the comfort zone—either higher through financial success or lower through financial decline—we lose that sense of belonging and we unconsciously try to get back to that comfort zone.

Financial comfort zones are artificial, with boundaries that are imposed on ourselves. They’re not necessarily defined by what we can or can’t afford, and they’re not necessarily constructed in reality. But they are about what we perceive reality to be.

So the fact that 25% of the Wharton students were so inaccurate in their perception of average income is not surprising. It came from a skewed perception of reality, just as all of us have when we look out from our own financial comfort zones.

Which brings me to the question you knew was coming: What is your financial comfort zone? What is familiar to you? How do you view the world? Who are the people who share your financial culture? It’s always challenging to us to pop our heads out of our financial comfort zone, take a survey of the world and other people, and start seeing that our views are not necessarily common or not necessarily held by everybody else.

Doing this can be a hugely impactful experience in our own financial growth. As we modify and work on our money scripts, we can begin to widen our financial comfort zone and become increasingly comfortable with views and realities that don’t exactly line up with our life experience.

Check out The Financial Therapy Podcast by Rick Kahler concerning this topic.

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