Keeping up with the Joneses

Keeping up with the Joneses means spending to match the people around you. The neighbors renovate, a friend buys a new car, a colleague takes a better vacation, and your own perfectly adequate things start to look like a step behind. Nobody has said anything. The standard simply moved, and it moved because of what someone else bought. A good deal of household spending is aimed less at what we need than at not falling behind the people we notice.

A comic strip and three big ideas

The phrase comes from a comic strip. In 1913 the cartoonist Arthur R. “Pop” Momand launched Keeping Up with the Joneses, a newspaper strip about a family forever straining to match the neighbors. It ran until 1938 in newspapers across the United States and Canada, and the Joneses themselves never appeared. Momand drew on his own life: he and his wife had lived beyond their means trying to keep pace with wealthier neighbors in Cedarhurst, on Long Island, before retreating to a cheaper apartment in Manhattan.

The idea is older. In 1899 the economist Thorstein Veblen published The Theory of the Leisure Class, which gave the world the phrase conspicuous consumption. Veblen argued that people spend to show their standing, and that the comparison never settles. People who fall short of their community’s standard stay discontented, he wrote, and those who reach it at once want to pull ahead.

In 1949 the economist James Duesenberry put the same idea into the theory of saving. He called it the demonstration effect. Someone used to one set of goods, he argued, starts to find them wanting once shown something better, and he asked readers to recall how they felt after looking at a friend’s new car or a house better than their own. Frequent contact with superior goods, he argued, is what pushes spending up.

And in 1954 the psychologist Leon Festinger proposed his theory of social comparison. When there is no objective yardstick, people judge their abilities and opinions by comparing themselves with others, usually others who are similar to them. For abilities, he added, there is a drive upward: we want to do a little better than the people we compare ourselves with.

What lotteries reveal

Comparison is hard to study, because people choose their neighbors and friends. Lotteries solve that problem by handing money to some households at random. In the Dutch Postcode Lottery, a postal code is drawn each week, and players there receive cash and a new BMW. Economists Peter Kuhn, Peter Kooreman, Adriaan Soetevent and Arie Kapteyn found that next-door neighbors of winners who had not played spent significantly more on cars than other nonplayers did. A neighbor’s windfall showed up in their own driveway.

A study of a Canadian province by Sumit Agarwal, Vyacheslav Mikhed and Barry Scholnick, published as a Federal Reserve Bank of Philadelphia working paper in 2018, found a darker side. The bigger a lottery prize, the more bankruptcies followed among the winner’s close neighbors. A win the size of a median year’s income was linked to a 6.59 percent rise in neighbors’ bankruptcies over the next three years, compared with the average rate. The neighbors who went bankrupt held more of the assets other people can see, such as houses and cars, but not more of those they cannot, such as furniture.

Why comparison drives spending

We judge our circumstances relative to a reference point, and the people around us are the most convenient one. Possessions are easy to compare because they are visible, while savings, debt and stress are not. That asymmetry pushes comparisons toward the things people can see. Status matters too: in Veblen’s account, goods are a way of telling others where you stand, and falling behind feels like losing ground.

How a neighbor starts a chain

Your neighbors build a cedar deck. Your concrete patio, which seemed fine all summer, now looks bare. You put in a $9,000 deck of your own. An empty deck looks unfinished, so $2,500 of outdoor furniture follows, then a $900 grill, then string lights and planters. By the time friends come over to admire it, a project set off by someone else’s purchase has passed $12,500.

How sellers keep the comparison going

• People like you. Advertising shows the upgrade in the hands of someone in your situation, so it reads as the new normal.
• Visibility. Logos, distinctive designs and colors make a purchase easy to recognize from across the street.
• Monthly prices. Financing turns a car or a kitchen into a payment, which makes matching a neighbor feel affordable.
• Status tiers. Levels and badges make standing explicit and give you a next rung to reach.

How to choose your own yardstick

1. Pick your comparison group. Festinger’s insight cuts both ways. If you will compare yourself with someone, choose people who share your goals, such as being debt-free or retiring early, not the nearest driveway.
2. Remember the hidden column. You can see your neighbors’ deck but not their balance sheet. The Canadian bankruptcy data are a reminder that visible spending can rest on debt.
3. Spend where it counts to you. Decide which categories matter to you, and let the others be ordinary on purpose.
4. Delay borrowed wants. When a purchase was set off by someone else’s, give it a waiting period such as the 30-day rule, and price the whole project first with our Chain Cost Calculator.

Where it meets the Diderot effect

Keeping up with the Joneses starts a chain from outside your home; the Diderot effect carries it through the inside. The neighbor’s purchase makes one of your things look behind, and once you replace it, the new piece makes the rest of the set look behind too. Economists have described the same pressure moving through whole communities, as our page on the Diderot effect in economics explains. The closely related bandwagon effect covers what happens when the crowd is larger than the street.