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For happiness, money's a tool, not yardstick -- Page 2

This is the good life?
The Wall Street Journal ran an article last week about the deep divisions running between old money and the nouveau riche in Palm Beach, Fla. It seems that a rather flamboyant entrepreneur who donated $750,000 to a particular cause was named chairman of the charity ball that benefited that cause. Chagrinned that an upstart was put in charge, the old-money crowd snubbed the event, attending instead another charity ball that was deliberately scheduled on the same night. The showy entrepreneur publicly declared his ball a great success by comparing it favorably to the previous year's event: This year's event raised $2 million vs. $1 million last year.

There's that comparison thing again -- how gauche! The socialites in Palm Beach representing both old and new money also keep score -- and have enough grist to keep the gossip mill going until next year's event.

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The trap of normal folks
The well-to-do may have their own petty grievances to deal with, but they can take their minds off unpleasant situations by making extravagant purchases of diamond necklaces without worrying too much about how it might affect their budgets.

It is a problem when regular folks who earn modest salaries or wages indulge in material things as though they have a limitless supply of cash. Many just can't resist the latest new gadget or fashion item and they keep spending nonstop until one day they find themselves in too deep.

Revolving credit balances -- from credit cards issued by retailers and banks -- have increased by nearly 108 percent over the last 10 years, according to figures from the Federal Reserve.

Research by Arthur Kennickell, a senior economist with the Federal Reserve, shows how debt is distributed among the haves and have-nots in America. In 2001, the richest 1 percent held 6 percent of the nation's debt and 33 percent of its wealth. Meanwhile, Americans in the bottom 90 percent held 70 percent of the nation's debt and 30 percent of its wealth, according to a report in the Wall Street Journal.

The rich are different ...
The rich use debt strategically -- in a way that will generate more money for themselves through investments, for example. Their strategies might backfire, but they're in a better position to bail themselves out if necessary. The average American uses debt to buy things that he otherwise could not afford.

"Once upon a time, status was conferred upon people by their class and birth," writes Rowley. "Nowadays, we tend to use money to compete for rank. Immersed in a consumer culture of mind-boggling choice, we define ourselves by style and aesthetics."

So rather than purchase a car for the purpose of transportation, keeping in mind long-term financial goals, consumers may get seduced into buying a status vehicle, a Lexus instead of a Toyota, as an outward indicator of prosperity. It looks good in the driveway, and is a real smooth ride.

The availability of credit has made it all too easy for Americans to commit future earnings for stuff they may not really need today. Barraged by advertisements for flashy cars and big-screen TVs and loads of other consumer goods, we can lose sight of the difference between our immediate desires (which are emotion-based) and our long-term goals (which are values-driven). And all too often we may feel the need to prove something, whether to ourselves or to our imaginary competition, that we are worthy enough to get a certain product at whim if that's what we want.

That tendency to try to satiate our hunger for immediate gratification will result in happiness that is short-lived and could produce long-term financial problems. Rowley implores us to look within and list those things that are really important to us and align our financial goals accordingly.

"If you want to be happy with your money, never measure your financial achievements against anything except your own goals," she says. "We can banish envy by returning to values -- thinking about what you really desire in your own life, and organizing your financial house to get those things, or at least the most important of them. Because when you get what you truly want, why would you want what someone else has?"

Why, indeed?

Longtime financial journalist Barbara Mlotek Whelehan earned a certificate of specialization in financial planning.

If you have a comment or suggestion, write to Boomer Bucks. If you have a particular financial problem that you would like addressed, please send your queries to Dr. Don, Tax Talk, the Real Estate Adviser or the Debt Adviser.

-- Posted: May 25, 2005




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