Sydney Sekese, CFP® professional and member of the Financial Planning Institute
Dear fellow readers, I am currently reading a very interesting book by James Clear called “Atomic Habits”. This book talks about the power of small habits to create lasting changes in your life. In one of the chapters, James takes us through the novel concept of the “Diderot Effect”. This topic resonates with my regular articles on financial planning and habits.
The Diderot effect, named after the 18th-century French philosopher Denis Diderot, describes how a new possession can create a spiral of consumption, leading to a never-ending cycle of desire and debt. This phenomenon has significant implications for financial planning, as it can derail even the best-laid plans.
The Diderot effect occurs when a person acquires a new possession, which then creates a sense of dissatisfaction with other possessions. This dissatisfaction leads to a desire for more and better things, triggering a chain reaction of consumption. For example, buying a new car might make you dissatisfied with your old phone, leading you to upgrade to a newer model, which in turn makes you want a better laptop, and so on.
How does the Diderot Effect Affect Financial Planning?
The Diderot effect can wreak havoc on financial planning by:
1. Encouraging overspending and debt
2. Creating a culture of disposability and waste
3. Distracting from long-term financial goals
4. Fostering a mindset of constant dissatisfaction
Are there more examples of this concept?
There are more examples of the Diderot effect all around us: We buy a new shirt or dress… and immediately begin looking for new shoes to match, instead of maintaining a minimalist wardrobe. We bring home a new couch, and suddenly the end tables in our living room appear old and shabby, needing replacement.
Tips for Minimizing the Diderot effect:
1. Practice mindful consumption: Be aware of your purchases and ask if they align with your financial goals.
2. Embrace the 30-day rule: Wait 30 days before buying something non-essential to assess if the desire passes.
3. Focus on experiences: invest in memories, not material possessions.
4. Cultivate gratitude: appreciate what you already have.
5. Set clear financial goals: prioritize saving and investing over conspicuous consumption.
6. Avoid social comparison: Focus on your own financial journey, not others’.
7. Embrace minimalism: simplify your life and reduce clutter.
Conclusion
The Diderot effect is a powerful force that can undermine financial planning if left unchecked. By understanding its influence and implementing strategies to minimize its impact, you can break the cycle of consumption and achieve your long-term financial goals. Remember, true wealth lies in the freedom to pursue your passions, not in the accumulation of possessions.
