The psychology behind why few of us feel rich

It's human nature to compare ourselves to others and when it comes to money, social psychologists say most people have a big blind spot — we only compare upward to those who have more than us.

And that's a losing game in a climate of increasing income inequality where the paycheques of top earners reach into the stratosphere, leading average people to feel like they're falling behind, said Keith Payne, a social psychology professor at the University of North Carolina.

"It turns out that what people consider rich is about three times what they currently make," said Payne, who is also author of the book The Broken Ladder: How inequality affects the way we think, live and die. "If somebody is making $20,000, they say 'I'm going to be rich someday, because one day I'll make $60,000.'"

It's understandable that someone earning so little would feel flush with cash if given a raise to $60,000. The trouble is we keep moving the goal posts, redefining what it would take for us to feel financially set, said Payne.

"We know the dollar amount that we need to pay our rent and pay our bills, but at a larger level, whether we have enough to feel satisfied is a very subjective and ambiguous judgment," he said. To make that judgment, we look at what other people have.

People tend to earn more money as they become more established in their careers, said Payne. When all your friends are also making entry-level salaries those first years in the workforce, you feel pretty good about your circumstances.

"But if you're making that same amount in your 50s, and the people around you are making much more, then it's a very different subjective experience."

The hedonic treadmill

In contrast, if you and your peers move up the income ladder at around the same pace, your new economic advantages can be kind of invisible to you.

Sam Wordley/Shutterstock
Sam Wordley/Shutterstock

There are a number of reasons why this is the case. A big one is the way we quickly adapt to new circumstances. Psychologists refer to this as "hedonic adaptation" or "the hedonic treadmill."

"The basic idea is that we adapt to things that feel either good or bad at first, and after a while they start to seem more normal," said Payne.

"If you're working to get ahead by getting raises, for example, at first you get a raise and that feels great. But then once you get that raise, you start spending more, buy nicer things, find a more expensive place to live, and then after a while that feels like the new normal," he said.

That's a problem for anyone who is trying to make themselves happier by earning more money or buying more stuff, because we adapt to it so quickly, said Payne.

Rising income inequality

Income inequality is also part of the picture, he said.

"As inequality increases, some people are getting much richer at the top of the distribution, so that makes the average person feel like they're falling behind."

For many Canadians faced with skyrocketing costs of living and salaries that haven't kept up, falling behind economically is more than just a feeling. Between 1982 and 2010, income for Canadian taxpayers grew 13.5 per cent, but the gains were mostly at the top, according to a report from the Institute for Research on Public Policy, a non-profit organization based in Montreal

If the Joneses that you're trying to keep up to are doing substantially better than you are due to income inequality, then in a relative sense you may feel much worse about your status. - David MacDonald, senior economist, Canadian Centre for Policy Alternatives

Across the bottom 90 per cent, earnings increased by just two per cent. The top 10 per cent saw incomes rise more than 75 per cent, and the top 0.01 per cent by a whopping 160 per cent.

David MacDonald, a senior economist at the Canadian Centre for Policy Alternatives in Ottawa, said this growing wealth disparity has a big impact on our lives as well as our perceptions of how we're faring economically.

"If the Joneses that you're trying to keep up to are doing substantially better than you are due to income inequality, then in a relative sense you may feel much worse about your status even if your wages or income are higher, say, than your parents' were," he said.

Gloomy prospects

The way we feel about our economic circumstances is also informed by how we perceive our prospects for better income in the future, said MacDonald.

Despite record low unemployment rates in Canada, Canadians haven't seen the wage increases that typically accompany a tight labour market, he said.

"So for most Canadians, they don't expect a raise in their near future — and with good reason. As a result, even if they're doing OK at present, they don't feel like their economic circumstances are improving substantially."

Supplied by Penguin Random House
Supplied by Penguin Random House

The fix? A shift in perspective

Those who struggle to make ends meet need solutions that address the complex issues of poverty and a dwindling middle class.

But for those who are financially comfortable to get off the treadmill of constantly contrasting economic circumstances to those who have more, Holli-Anne Passmore, a positive psychologist and PhD candidate from the University of British Columbia Okanagan in Kelowna, B.C., said it helps to recognize the social pressures that contribute to the problem.

"We're bombarded with these messages that you if buy all these things, you're going to be happy," said Passmore. Not only are we subjected to far more forms of advertising than ever before, the advent of social media has woven social comparison far deeper into the fabric of our lives.

"We're always comparing ourselves to everybody on social media, not only to our friends — who are only posting the best shots — but to celebrities. We're bombarded by materialistic values."

To break this cycle, it helps to moderate social media use and focus on small daily sources of pleasure, said Passmore — time spent with family, or enjoying the outdoors, for example.

Keith Payne said we should make a point of comparing our circumstances to those who have less than us, instead of only those who have more. It can be powerful to consider that "if you earn $50,000 a year, you're in the top one per cent globally," he said.

"It feels like a relief to compare downward and remind yourself of how much you have and how fortunate you are. And that can also be really good for us psychologically."