The Goldilocks Zone of Personal Finance

Why Money Issues Are The Hardest for the Rich and the Poor

Photo: Walkerssk on Pixabay

Being at the bottom sucks.  I know the feeling.  Growing up as a small kid with no athletic abilities, I got used to getting picked last, or near last, for any team sport.  The experience was always stressful for me.  As Robert Sapolsky explains in Why Zebras Don’t Get Ulcers:

For a subordinate animal, life is filled with a disproportionate share not only of physical stressors but of psychological stressors as well—lack of control, of predictability, of outlets for frustration.

In the sports world, I was that subordinate animal.  I didn’t feel like I could control the outcome or get better, so I focused all of my efforts on improving in the classroom.  And It worked.  From elementary school onward, I was always near the top of my class academically.

However, riding high in the world of academics had its own pressures.  Anytime I had to prove myself to a new teacher or perform well on a standardized test, it was like being picked last for kickball all over again.  Why did I experience moments of acute stress even when I was doing well?

I recently found my answer in an experiment done by Jay Kaplan on stress and social hierarchies among monkeys.  Like prior researchers, Kaplan demonstrated that those monkeys near the bottom of the social hierarchy experienced lots of stress and had worse health outcomes than those higher up.  No surprises there.  But, Kaplan also found that under a particular set of circumstances those at the top of the hierarchy also experienced profound stress.  Sapolsky summarizes it well:

Suppose you keep the dominance system unstable by shifting the monkeys into new groups every month, so that all the animals are perpetually in the tense, uncertain stage of figuring out where they stand with respect to everyone else.  Under those circumstances, it is generally the animals precariously holding on to their places at the top of the shifting dominance hierarchy who do the most fighting and show the most behavioral and hormonal indices of stress.

Whether I was competing to stay at the top (academics) or feeling useless at the bottom (sports), stress followed.

Personal finance isn’t all that different.  Those people near the bottom experience lots of chronic, daily stress around money that impacts their whole lives.  For example, the famed Whitehall study found that even when you control for smoking, level of exercise, and other factors, lower socioeconomic status is still associated with higher cardiovascular mortality.

However, people near the top have their own set of money problems.  Tyrone Ross highlighted some of these difficulties in a video he recently posted on Twitter:

And the same people that were born into wealth, born into privilege, they shouldn’t be chastised either.  Cause guess what?  Imagine being the son or daughter of somebody that is a billionaire or worth $100 million and you got that on your back.  Listen, if I could trade it, I absolutely would.  I would trade it for where I came from, but don’t think that there is nothing hard about that either.  Trying to live up to Mommy and Daddy’s standard when you don’t wanna go to Harvard.

As I have written before, there are hidden costs associated with being wealthy such as figuring out who you can trust and dealing with the expectations of friends and family.  On a podcast episode with Russ Roberts, David Owen, author of The First National Bank of Dad, echoed this sentiment when discussing the difficulty of teaching kids about money (props to Ben Carlson for sharing this):

I think it should be said that it’s easiest to teach kids about money obviously when there’s money in the family, but not when there’s too much and not when there’s too little. I think money is the hardest where money is very tight; and in situations where money is essentially boundless. I think it’s hardest for the poor and the rich to teach their kids about money. The first because poverty is not much of a teacher. There’s not much to learn; it’s all necessity. And at the rich end, it’s hard to create the kind of artificial scarcity that you need to make decisions seem as though they mean anything. It’s easier in the middle.

Owen’s point goes beyond just teaching your children about money though.  It also applies to what level of wealth you should strive for, or what I call The Goldilocks Zone of Personal Finance:  Enough money to have comfort, security, and motivation, but not so much that you add guilt, stress, or existential longing.  It’s not too little and it’s not too much.  It’s just right.

My challenge to you is to find and stay in your Goldilocks Zone.  I can’t define exactly how much that is, since it varies from person to person, but I would wager that the amount is less than you think.

Why do I recommend this?  Because it provides the base level of security that the bottom doesn’t have while avoiding the conflicts that are common to those at the top.  It’s the best of both worlds, and a privilege that many of you (i.e. my readers) will attain in your lifetime.  The sad thing is that some of you are already in the Goldilocks Zone though you continue to crave more and don’t realize it.

You might disagree with my logic and say that there is no such thing as being too rich.  If so, please consider the warning given by Felix Dennis in How to Get Rich:

Still, let me repeat it one more time.  Becoming rich does not guarantee happiness.  In fact, it is almost certain to impose the opposite condition—if not from the stresses and strains of protecting wealth, then from the guilt that inevitably accompanies its arrival.

The Upside to Having More

Despite the difficulties associated with being rich, the one upside to having immense wealth is that you can improve lives through philanthropy and private enterprise.  The best discussion I have seen on this is from an interview with the venture capitalist Chamath Palihapitiya.  The video is long, but well worth your time if you are interested in money as an instrument of change:

So if you do decide to go beyond the Goldilocks Zone, make sure you know why, and ask yourself whether that reason will satisfy your soul.  Thank you for reading!

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This is post 127. Any code I have related to this post can be found here with the same numbering:

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24 Responses

  1. Anonymous commented on Jun 04

    An enlightening post, thank you Nick!

  2. Anonymous commented on Jun 04

    It’s hard to disagree with this idea….and I really like the PS on working towards more – only do so if you have a real why. Great post Nick. Thanks.

  3. Anonymous commented on Jun 04

    Pretty sure I’m in the Goldilocks zone myself but I still feel like one of those stressed out Sapolsky baboons. I anticipate a major cardiac event the day before retirement. At least the kids will enjoy the money I’ve been saving.

  4. Anonymous commented on Jun 09

    Balderdash! Agreed, wealth isn’t guaranteed to doesn’t buy happiness–nor does the lack of wealth guarantee happiness! (But it didn’t fit your narrative to include the later.)

    It wasn’t so long ago we weren’t wealthy, and life had much stress and strain.

    We’re wealthy. Through the 1st 4 decades of marriage, we lived below our means. I studied markets, the economy, and stocks so I could invest wisely, and I’ve earned our wealth. We don’t feel the slightest “guilt” for our success. We’ve improved our lives, and those of 3 generations of direct beneficiaries. Hopefully, before I’ve left the building, I’ll have done the same for additional generations to follow.*

    Perhaps the greatest advantage of wealth is avoidance of many of life’s ‘dissatisfiers’. Wealth buys the best healthcare; it also buys food, clothing, and safety and security in shelter; it buys transportation, travel, and entertainment, and other satisifiers.

    * Eliminating (or reducing) many of life’s dissatisfiers is legacy enough for us. There’ll be no ‘silver-spoon’ wealth. Aside from funding education, healthcare, and supplemental retirement, our trusts limit annual distributions to trust income. All are expected have their own careers and contribute to society.

  5. Anonymous commented on Jun 10

    Love this, Nick.

    Theme of post much like the following quote from a source I can’t remember, maybe Jonathan Clements:

    “When you discover you have more money than time, you should stop pursuing money and focus on getting the most out of your time.”

  6. Anonymous commented on Jun 14

    Money problem is a thing that almost everybody will suffer. Loans to finish the university, or create a business. It’s a fact.