The lifestyle trap

As the cost of living increases, many are tempted to break the law to keep up with the Joneses.

The lifestyle trapReaders may be aware of the recent arrest of financial adviser Thomas Stringfellow on fraud charges. He was arrested on allegations that he misappropriated R100 million in client funds. The Financial Sector Conduct Authority (FSCA) is also investigating allegations that Stringfellow recommended his clients to invest in unregulated investments. This included loan agreements to fund the South African franchise of the Australian sportswear brand Lorna Jane of which he is MD. The business appears to have foreclosed and investors who were promised guaranteed returns of 14% per annum will most likely lose their money.

While the details are yet to emerge as to what Stringfellow did with the money he took from investors, his story came to mind while I was attending a presentation by credit bureau TransUnion on their Lifestyle Assessment service.

The Lifestyle Assessment is a service that TransUnion offers its corporate and government clients that helps them root out fraud and corruption in their organisations.

According to TransUnion, 77% of South African organisations have experienced economic crime ‒ that is 28% higher than the global average.

Increase in crime by senior management

What is particularly concerning is an increase in senior management being implicated as the source of fraud since 2016, according to a PWC Global Economic Crime and Fraud survey.

This is not about putting food on the table, but rather trying to keep up an unaffordable lifestyle. During his presentation, Keith Wardell, director of fraud, ID and analytics at TransUnion, said in many cases the reasons for senior managers crossing the line was because they could not make the tough choices of selling their luxury cars, downsizing their homes or taking their children out of private schools.

Increases in private school fees have well outstripped salary increases and parents are struggling to keep their children in the school of their choice. At the same time, they may be trapped in unaffordable car finance schemes, or simply unwilling to admit to friends that they cannot keep up their lifestyles.

Rather than admitting they can no longer stay on the spending trajectory, many take on more credit, or worse, become vulnerable to opportunities to commit fraud.

Stringfellow may have found himself in a similar situation. By all accounts he was a high-flying adviser with investment funds that had won awards. People who knew him said he lived a lavish and extravagant lifestyle. Possibly when the clothing business started taking strain and he was faced with creditors and cashflow constraints, he started funneling clients’ money to plug the holes, believing that “it would come right” and he could pay everyone back eventually.

Many Ponzi schemes start off in a similar way. There may be a genuine investment case, but as the returns dwindle or fail, rather than facing the reality of the situation, the investment manager starts using new inflows to pay investors rather than using investment returns. They always believe that it will come right soon – the markets will turn, the business will recover, etc.

Money doesn’t buy happiness

The main lesson to learn from these stories is the danger of the lifestyle trap. If we start to believe that our self-worth is tied up in the objects we own, clothes we wear, restaurants we are seen at or the champagne we drink, we are likely to get caught in the lifestyle trap.

In the book How Much is Enough, author Andrew Bradley argues that while wealth has risen exponentially in the last 50 years, happiness levels have not changed. “Many of us have learnt to evaluate our well-being by looking outward, at what we can buy and own, instead of inward, at the kind of people we are. And it’s simply not making us feel better. The quest for material possessions can be likened to taking an illicit drug. Once the latest “hit” wears off, an even bigger dose is required to get the same effect.”

Richard Eckersley of Australian National University observes that consumerism constantly seeks ways to “colonise our consciousness and as consumerism spreads, the goal of marketing becomes not only to make us dissatisfied with what we have, but also with who we are. We focus on the blind accumulation of more, on the assumption that this will somehow make us happier. Consumerism both fosters and exploits the restless, insatiable expectation that there has to be more to life.”

Once we become addicted to the external self-worth, it becomes harder to make the necessary adjustments to our lifestyle when the economy, or our personal circumstances change.

This usually leads us to taking on more credit than we can afford. Once you have creditors on your back you start to feel even more desperate. It is hard enough to tell your kids they must change schools but declaring yourself over-indebted and getting help is even harder for most people. We become more vulnerable to taking short-cuts or making unethical decisions. Once you have taken a bribe or done something that will get you in trouble you no longer sleep well, your stress levels increase, and you live in fear of being caught. All this because we simply over-value other people’s opinions of us.

How to avoid the trap

The first prize is not to enter this cycle in the first place:

  • Before you sign your children up for a private school, do the maths – with 10% annual fee increases and increasing fees as your child moves up the grades, what will you be paying in five years’ time? Can you afford it? Have you been saving towards it? If not, find other ways to supplement your child’s education.
  • Don’t sign up for a car repayment that will put pressure on your finances, and certainly not one with a residual or balloon payment that will keep you locked into finance forever.
  • Don’t buy clothes that you have to pay off on your credit card. Put money away to buy with cash.

And if you are already caught in the lifestyle trap, then do some deep thinking and reflecting. I can tell you from personal experience and from friends who have made those changes that there is nothing more liberating than saying, “Sorry, I’m on a budget, I can’t join you,” or “I want my money to work for me, not the other way round.”

Have conversations with those friends around you. You may be surprised to discover they are in the same situation. Maybe now is the time to start a “get real” club and downsize our lifestyles. Remember: flash but broke is never cool.

This article first appeared in City Press.

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