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| Starbucks cup. Image source. |
I recently published my review of the book "Portfolios of the Poor." Here's the follow-up post.
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I want to talk about the different ways that people think about the math involved in a household's budget. I have some possible models here; none of these models can account for everything. Some are useful in some situations, others are useful in other situations. It all depends on whether the factors that are omitted from a particular model are a big deal or not in your own situation.
I have here 6 different models for how to mathematically conceptualize the way people make choices about spending their money. This isn't "here's 6 different ways to plan your budget- pick which one works for you" because they're not all aimed at addressing the question of how to plan one's budget. They're not all about the same thing. But they're all related to how to think mathematically about the choices people make with their money.
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Model 1: Skipping your daily $5 Starbucks
Here's some financial advice I've heard many times: "It's not hard to save for retirement! Just stop spending $5 every day buying Starbucks! If you save $5 a day, multiplied by x number of years, [insert some math here], then you'll have a million dollars!"
This has always struck me as a bit ridiculous, because why on earth are they assuming everyone spends $5 at Starbucks every day? Hey, actually I already never go to Starbucks- oh my goodness, that means I am therefore a millionaire? You know, before Starbucks was founded, everyone was a millionaire.
This financial advice assumes a budget model like this: You have a certain income each month, and certain expenses, and they are very precisely calibrated to match exactly. When you make this one little change- you quit going to Starbucks- nothing else in your life will change. Therefore, the result will be that the $5 each day accumulates in your bank account, eventually adding up to thousands of dollars.
The big problem here is the assumption that nothing else will change. If you don't spend the 5 bucks at Starbucks, maybe you'll end up spending it somewhere else. This won't *feel* like a conscious choice- you won't feel like "well I didn't spend $5 on Starbucks today, therefore I will spend $5 on something else"- but who knows how the chaotic pile of experiences and thoughts you have every day will shift when you stop going to Starbucks? Who knows how that is going to shake out and the effect it will have on the amount of money you spend that day?
Honestly, I don't think people have a fixed plan of what they spend money on, where if they change 1 thing, nothing else will change. I think people don't really have a plan, but they have a vague awareness of how much money is in their bank account, and a belief about what sort of lifestyle is a match to that, and which things are "too expensive." (This model I am calling "vibes", see below.) If you stop spending money on Starbucks, and the money starts accumulating in your account, you'll end up thinking "oh yeah, sure, we can go out for a fancy dinner, I have enough money" and you won't even be thinking about "no, I can't spend that, that is the I-don't-go-to-Starbucks-anymore money."
There's so much variation in a person's spending, from one day to the next, one week to the next- it's hard to say how to even measure the difference that $5 here and there would make. (I'm really interested to know if anyone has done a randomized controlled trial of some kind.)
No, to make this "skip your daily $5 Starbucks" advice useful, you have to say it like this: "Stop spending $5 at Starbucks every day, and instead, put that money in a separate bank account that you don't touch." Or, why do we even need to mention Starbucks, why not just say to regularly transfer small amounts of money into a separate account? Or, hey, this would work too: "You can spend $5 at Starbucks every day, and also put another $5 in a separate account every day."
Why even mention the Starbucks? The Starbucks is a red herring! The actual key here is to have that money saved in a separate account, an account that is explicitly dedicated to long-term savings, and you're not going to spend it on everyday stuff just because you have a vague feeling that you can afford to do so.
(And, okay, actually, some variations of the Starbucks advice go like this: "If you stop spending $5 at Starbucks every day, and you put that in a retirement account which earns 10% interest per year, then [insert math here] and you'll be a millionaire." So yes, sometimes it does mention the idea of putting it in a separate account- but it's framed like the reason to put it in a separate account is to earn interest on it. Rather than to keep it separate from the money you spend on everyday stuff.)
I guess it would make sense if the logic is like this:
"You should transfer $5 a day into a savings account."
"$5 a day? No way, that's too much, I can't spare $5 a day."
"Well, stop going to Starbucks every day and put that money in a savings account instead."
But this still doesn't make sense. If someone genuinely believes they can't come up with $5 a day, then would that person really be going to Starbucks every single day?
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Model 2: Vibes
I mentioned the "vibes" model above, so I want to elaborate on it here.
I'm really curious about this, actually. Do people make decisions about spending money based on a general feeling about how much money is in their account and what sort of price range feels right for them? I think they do. Realistically, I don't think people make their purchasing decisions by consulting a carefully-planned-out budget. I mean, I think about math all the time, and I don't even base my everyday spending choices on an explicitly-planned budget. I just go on vibes. Like, yeah I can spend x amount of money on something, because it's basically in the range of what I usually spend. And when I look at my bank account, it's never a dangerously low number, so that means I'm doing fine.
To be a little more mathematical in how we define the "vibes" budgeting model, it's like this: For each type of thing you might buy, you have a *feeling* about what a normal price should be, and a *feeling* about how frequently you should buy it. When faced with a choice about buying something, you check if the price matches your feeling about what a good price would be for that thing, and you search your memory for the last time you bought it. (For example, when thinking about buying a new computer, you think "I've had my old computer for 5 years already, so it makes sense to buy a new one." When thinking about going out to eat, you think "we've already gone out to restaurants 3 times this week, we can't go again.") That's all. And every now and then, you look at your bank account balance. If it's reasonably high, then no need to do anything. If it's way lower than you expected, then you temporarily change your behavior and put off buying stuff as much as you can, until the next time you get paid and your bank account is normal again.
I feel like, this is basically what my parents did when I was growing up. There wasn't a big overarching household budget, but if I asked my mom for fruit roll-ups at the grocery store, they were "too expensive." Like, it wasn't precisely defined anywhere, but we just had a sense of what's a reasonable amount of money to pay for things, and what's "too expensive." I don't mean we literally didn't have money to afford fruit roll-ups. I mean that we had a strongly-held belief that it's just not right to pay x amount of dollars and all you get is fruit roll-ups. That is- in some absolute, objective way- not worth the money, and therefore it just feels wrong.
And sometimes something is "too expensive" but then you come up with a reason to buy it anyway, like "we're on vacation."
(My parents also had savings accounts for various long-term things, and followed all the standard good financial advice- it wasn't all "vibes." But the day-to-day stuff, the feeling of things being "too expensive" but never defining what that means- that's vibes.)
And honestly, if you aren't going to do the work of planning an actual budget, a general aversion to spending money on things that are "too expensive" probably will serve you well. Yeah, I feel like this is the strategy I internalized about money, and overall it has been a positive thing for me, though there are things I don't like about it.
But also, for some people, vibes-based budgeting is more like, "I feel like it's fine to spend money on this thing because I have more money than that in my bank account." I don't think this is good- just because you have money available to you doesn't mean it's a good idea to spend it. You should do some long-term planning and then reach a conclusion about how much money it's okay to spend on stuff you don't exactly need. Or, if you don't want to do that much work, set up an automatic transfer to move 10% of your income to a separate account every month. That's a good start.
And for my husband and I, our current strategy for the big picture is based on the envelope method (described below), but for day-to-day stuff, I just use vibes. I feel like, it's fine to spend x amount of money on dinner, because I often spend x amount of money on dinner, that's just the lifestyle I have, and it's working fine for me.
There are a few problems with "vibes" though: First of all, it doesn't apply to long-term savings goals. It's just about your feelings about your current situation, your current bank account balance, and the potential purchase that's right in front of you. People don't really have a feeling about the fact that, in order to be on track for their kid's college savings account, they need to have some certain amount saved when the kid is 5, or when the kid is 10, and so on- that's not a feeling, that's something you actually have to do the math on.
Also, the vibes model has no mechanism to match your income to your expenses. It's just about what "feels" like the right amount of money to spend on things- but in reality, there is no "absolute truth" about the right amount of money to spend on things. It should be based on how much income you have. If you're using vibes and your feelings are miscalibrated and you're always spending too much and then panicking when you look at your bank account, well that's not good- that could be avoided if you planned things out better. And if you're using vibes and you're very frugal, you won't need to panic about your bank account being low, but you're missing out on things that your extra money could be used for (investment, charity, buying nice stuff that makes you happy), if you had a more clear plan about it.
Another problem: The "vibes" strategy is extremely vulnerable to lifestyle creep. You say "oh I can't buy that, it's too expensive" and then at some point later you say "well just this one time it's fine" and gradually your feelings about what's "too expensive" completely change.
Another problem with vibes is you're not able to figure out which things give you better value for your money. For example, let's say you often spend $20 for dinner, and you often spend $20 to buy a bunch of snacks at the grocery store, and you often spend $20 for whatever other things. In the vibes model, all of those feel about the same, because all of them are within the normal range of what you spend money on. But there may be a huge difference in how much benefit you're getting out of them. Maybe the $20 is just 1 dinner, but if you spend the $20 on snacks from the grocery store instead, you can get a huge amount, and that will last you for weeks- a way better use of money than just 1 meal at a restaurant.
I think it would be really useful to have a budgeting strategy which could help you pinpoint which things you're spending money on but aren't really giving you much value- and then you can eliminate those and it will make a big difference. I don't know of any budgeting strategy that does a good job at this- you would have to assign some kind of score to every single thing you buy, it would be an incredible amount of work, and I can't even imagine how one would come up with a standardized scale for that- but surely the vibes model is the worst one if that's your goal.
And another thing about vibes: Have you ever heard "people spend less when they pay for things with cash instead of a credit card"? There are some financial advice people really walking around saying "you should NEVER use a credit card, you should pay cash for EVERYTHING" because of this supposed "fact." I have my doubts about this- I haven't tracked down whatever scientific study this supposedly comes from, but I feel like it would depend on a lot of things, and it just doesn't make sense to claim that this is true about *everyone*.
But anyway, this idea that people spend more when they are using a credit card than with cash, this makes sense in a "vibes" model. Having access to as much money as you want, via your credit card, is a different "vibe" than having access to only the limited amount of cash in your wallet.
If someone follows a "monthly limits" or "envelope" model (both described below), and they do just fine with planning their budget in that way, then the "use cash instead of a credit card" tactic won't make any difference to them. It only really makes sense in a "vibes" model.
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Model 3: Monthly limits
In the "monthly limits" model, you have a bunch of categories of things to spend money on, and for each one, you set a limit of how much you can spend on it each month.
This is similar to the "skip your daily $5 Starbucks" model. The difference is, "skip your daily $5 Starbucks" assumes everyone has this kind of "monthly limits" model going on subconsciously in the background, whereas the "monthly limits" model as I'm describing it here means you actually made a detailed plan about how each category is defined and how much money you can spend per month.
For example, each month you can spend up to w dollars on rent, x dollars on car insurance, y dollars on clothes, z dollars on groceries, etc. When you add up all the limits, it must be less than or equal to your income. You make a plan which sets these limits for yourself. Every month, ideally you should be under the limit in each category. If you go over the limit in some categories, that means you're not sticking to your budget. That's bad.
Note that this is a different thing than if you asked someone to describe their monthly budget and they said "I spend w dollars on rent, x dollars on car insurance" and so on. They're just telling you what the averages are. That's different from the "monthly limits" budgeting strategy, because in the "monthly limits" budgeting strategy, it's not about averages, it's about making rules for yourself, and if you break those rules sometimes, this model doesn't really have any way to deal with that.
This is what I always thought it meant, when people said "you should have a budget." And at various times in my life, I tried this, but I find it really doesn't work well for me, for the following reasons:
First of all, every month I'm all over the place in terms of which categories I was under the limit, and which categories I was over the limit. And then the next month, I'm again all over the place, but in a different way. So how do I judge whether I'm doing okay or not? Obviously if you're always under the limit in every single category, then you're not in danger of running out of money (at least in the short term). But if you're over the limit in some categories, and under the limit in others, well, that seems like it should also be fine, right? But how do you quantify that? Well you could just add them all up and see if it's a positive or negative number. But then what was the point of breaking things down into separate categories?
(I mean, one possible benefit of breaking things down into categories is that you will realize if you spend more than you expected to in some categories. Like "oh crap, every month I'm spending xyz dollars on taxis? Wow, I don't think it makes sense to spend that much, let's stop doing that." Maybe when you figure out in which categories the reality is very different from the plan, that can help you know how to change your behavior to spend money on the things you actually feel are worth it.)
A second drawback of the "monthly limits" strategy is that it doesn't have a mechanism for long-term planning. In a given month, you spend however much you spend, and then the slate is wiped clean for the next month. But you could modify this strategy to add long-term planning in this way: Maybe one of your budget categories is something you're saving up for, like your kid's college education, and you set some "monthly limit" for it, and every month you "spend" that money (equal to the monthly limit) by transferring it to a dedicated account for your kid's college education. (This would then be a hybrid between the "monthly limit" model and "envelope" model, which I describe below.)
And a third issue is, let's say you're really good at sticking to your plan, and every month you are under the limit in every category. So, as a result, your bank account is always accumulating more and more money (equal to the difference between the limit and how much you actually spent). And then, what? How much savings do you have, and what are you doing with it? This budgeting model can't address those questions at all.
Really, it doesn't make sense to say that you're always supposed to be under the limit in every single category. Then you'll always be accumulating the extra, and not doing anything with it. Wouldn't it make more sense to have a plan for what to do with that extra? Rather than just wiping the slate clean every month. That money still exists in your bank account, but your budget strategy is not keeping track of it anywhere.
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Model 4: Envelope
The envelope model might, at first, look the same as the monthly limits model. In both models, you have a bunch of categories, and you decide how much money should be spent for each category every month.
The difference is this: In the "monthly limits" model, the number for each category represents the maximum that you feel you should spend for that category. It's sort of a goal, a hypothetical. In reality, your spending might end up being less than that number, or more, but this result isn't really used for anything, except making yourself feel worried if it goes over the limit.
But in the "envelope" model, you decide how much money goes to each category, and then the money *is* in that category. In your bank account, every dollar is allocated to one of the categories. "Every dollar has a job," is how I've heard the envelope budgeting method described. And then when the next month begins, whatever unspent money remains in each category simply rolls over to the next month.
This is the budgeting strategy that I have set up for me and my husband. We have a few big categories, and I've calculated the expected cost per year for each one, and divided it by 12 to get the average for each month, and then every month we allocate our salary money to the categories.
The great thing about this is it doesn't make any kind of distinction between short-term and long-term budgeting. You have short-term stuff, like "how much do we pay for daycare every month?" and longer-term stuff like "how much do we spend on Christmas gifts every year, divide that by 12" and really long-term stuff like "let's save up for both of our kids to go to college." It doesn't matter at what frequency you will actually *spend* the money from each category- they're all treated the same. For each one, calculate how much it works out to on average per month. (For example, for the kids' college savings, it's like "if we want to save x dollars before the kid is 18, how much do we need to save every month?")
When I first heard about the envelope model, and how "every dollar has a job", I thought it meant you have to spend every dollar, every month. I thought "wow that sounds like a bad idea, what about savings?" But it's not about spending, it's about allocating. And then when it comes time to spend, whenever that may be, whether it's now or 18 years in the future, you withdraw from the applicable category.
(See also: Here's How We Do Our Budget, where I wrote about the monthly limits model and the envelope model.)
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Model 5: Priority list
In the "priority list" model, you always have a list of urgent expenses, and when you get paid, you use the money to pay for the items on the list, sorted by which is the most urgent. The sorting is necessary because this model would be used by people whose income is not really high enough to actually pay for everything they need. So there will always be things that they have to say no to, because they just don't have the money for it.
(Disclaimer, I don't have any experience with this myself, so I may be missing some key factors about what it's really like.)A long time ago I read an article about being poor, which mentioned something like this- "There are sitcoms about families that are supposedly poor, but they're not realistic at all. In one episode, someone made a huge scratch in their wall, and in the next episode, it was gone. It was fixed. That's so not what it's like when you grow up in a poor household. That scratch would have stayed there forever, because you never have the money available to fix it." This fits with the idea of the "priority list"- you never have enough money for all the things you want/need, so you might have things which languish on the list forever, never a high enough priority to actually get paid for.
Similarly, people talk about how, when you're poor, smaller problems can snowball into bigger problems because you don't have the money to fix them right away. For example, maybe something is wrong with your car, and you should get it fixed, so this is on your list but there are always other things which have a higher priority. Until the car problem gets worse, and the car is so bad you can't even drive it any more, and so it moves way up to the top of the list, but it costs a huge amount of money to fix it, much more than if you had just gotten it fixed at the beginning. Same thing for health problems- spending a little money on preventative health care can save a huge amount of money in the long run, but there are always other things which are more urgent, so you keep putting off the health care.
Another example: If you loan someone money, as a friend, it's likely that they'll be more slow to pay you back, compared to how fast they pay back their loans from a bank. Because you're their friend, it feels less urgent. And so if they don't have enough money for everything on their priority list, it's likely they will put off repaying you. Actually, in "Portfolios of the Poor," it said some people actually prefer to take loans which require them to pay interest, because this pushes them to pay it back faster. Yeah, under the "priority list" model, it might actually make sense to artificially increase the urgency of a potential expense, in order to force it to actually get done.
I once read something on the internet about buying paper towels in bulk, and now it lives in my head rent-free, as the kids are saying. It was about how it's so difficult to save money by buying in bulk if your income is low. And maybe you get a group of friends to all pitch in on the bulk paper towels purchase- that could work! But the risk is, what if your friends flake out, and you have paid for the whole huge package of paper towels yourself?
I read that and it didn't make any sense to me, because I was imagining a "monthly limits" model. I imagined that this internet person had a line item in their budget for how much they spend on paper towels every month, and even though their friends didn't come through and pay their share, it's okay because then this buyer gets to keep all the paper towels, so then next month they will continue to use them, and save the money that was in the "paper towels" budget category. And every month thereafter, they can accumulate the money budgeted for paper towels, and then buy in bulk again when they need more- they're off to a great start in getting their whole financial situation turned around, through their bulk paper towel savings. I couldn't understand why this person on the internet was saying it's a problem to buy the whole bulk package.
But, no, how about this: It's a priority list. If they are out of paper towels, then paper towels are on the list. If they have a good supply of paper towels, then they're not even thinking about that at all, because they have much more urgent money problems to deal with. There is no budget line item for paper towels. There is no "wow I'm spending so much less than expected on paper towels." It's nice that they don't have to worry about buying more paper towels, but they have so many other things that they're worried about because they can't afford them- they don't really have the bandwidth to realize "wow it's so nice that I don't need to buy more paper towels."
For people whose incomes are too low to afford all the things that they need to have a decent lifestyle, they're pretty much forced to use the priority list budgeting method. You can't judge them for that.
And then, every once in a while, they get paid and they don't really have an extremely urgent thing on their priority list. So finally, FINALLY, they can buy something nice for themself.
There will definitely be people who would judge them for that, and say "you're always struggling because you don't have enough money, and now you finally have some- you should put it in a savings account, to be ready for the next emergency. It's irresponsible to use it to buy something you don't need." But... when you're forced to live with this priority list model, I can imagine that when you happen to have money and don't have anything urgent you need to use it for, it probably feels like "the future will be full of financial emergencies, regardless of whether I put this money in a savings account or not. But right now, I finally have a chance to take a break from that, and just buy something nice that I can enjoy." We shouldn't judge them for that.
However, there are people who use a "priority list" model when they really shouldn't- their income is high enough that if they planned it better, they *would* be able to afford everything needed to have a decent lifestyle. But they get paid and they feel that their priority list doesn't have anything urgent (you can also view this as using the vibes model), so they decide "let's go out and party" and then a week later when the rent is due, it comes as a TOTAL SHOCK, and they're like "where did my money go?" Yeah, not cool to think you can just spend your money on whatever, just because you don't have any bills due at that exact moment. Maybe plan better!
(Or maybe we could say, this hypothetical bad planner can still use the priority list model, but the first priority on the list should be putting aside the money they will need for rent/ bills/ normal expenses that month.)
It's not good to be using a priority list budget model, because it means you're not really making intentional choices about what you're spending money on- you just spend money on whatever's most urgent, until you run out of money, and for the remaining things, however urgent they may be, well, too bad. It's not good, and you should avoid it if you can, but if your income isn't enough to realistically live on, then you're forced into this.
Here's another example: Let's say that you're giving money to someone (maybe a family member) for some expense coming up in the future. You give them the money, tell them to use it for this specific thing in the future, and then time passes, and then it's time for them to pay for that thing, and they tell you they don't have money. So you're like "What? I gave you money for this. You spent it? How could you be so irresponsible?" You're imagining it like an envelope model, where it's clearly stated that this money is for this thing, and so obviously it doesn't get spent on anything else. But maybe they are using a priority list model, and they feel like you are being really unrealistic for expecting a big sum of money to just sit there untouched for a few months. So really the ideal thing to do here would be give them the money at the point in time they need it to pay for the thing- at that specific point in time, that thing is the most urgent on the priority list.
And there are other variations that you could conceptualize as a priority list, though they're a little different than what I've been describing so far. For example, I've heard of Christians saying "when you get paid, the first thing you should do is set aside 10% to give to the church. And then live on the rest. Our responsibility to tithe should be our first priority, not something we do at the end if we have money left over." This advice seems to assume a "priority list" model- because in the "monthly limits" and "envelope" budgeting strategies, it's not really meaningful to say which category is "first"- you make a plan that includes all the categories, and tweak all of them until the plan fits your income. (Or you could say that this advice falls under the vibes model; one of the inputs to the vibes model is the amount of money you have in your bank account, so you remove that money from your bank account immediately, so your "vibes" don't make you feel like it's okay to spend it.)
Or, you could even conceptualize the envelope model as a priority list model, like "when I get paid, first I allocate x dollars to this category, then I allocate y dollars to this category..." But since the order doesn't change, and you have enough money that you don't run out partway down the list, I feel the "priority list" model is not the ideal way to view it.
See, that's the thing with models- the same situation can be described using several different models. No model is going to be ideal for every situation. Each model emphasizes certain things, and has certain assumptions about your income and about human behavior. It's not that a model is "true" or "not true" of a particular situation, it's that a model may be more or less helpful in understanding someone's choices in a given situation.
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Model 6: Giving your neighbors a feast
I read this blog post a while ago, Collections: Bread, How Did They Make It? Part I: Farmers! (by Bret Devereaux). It's about subsistence farmers throughout history, and the strategies they used to not starve to death if they occasionally had a bad harvest or other problems which affected their ability to farm. Check out this part:
The answer was often to invest in relationships rather than in money. ...
The most immediate of these are the horizontal relationships: friends, family, marriage ties and neighbors. While some high-risk disasters are likely to strike an entire village at once (like a large raid or a general drought), most of the disasters that might befall one farming family (an essential worker being conscripted, harvest failure, robbery and so on) would just strike that one household. So farmers tended to build these reciprocal relationships with each other: I help you when things are bad for you, so you help me when things are bad for me. But those relationships don’t stop merely when there is a disaster, because – for the relationship to work – both parties need to spend the good times signalling their commitment to the relationship, so that they can trust that the social safety net will be there when they need it.
So what do our farmers do during a good harvest to prepare for a bad one? They banquet their neighbors, contribute to village festivals, marry off their sons and daughters with the best dowry they can manage, and try to pay back any favors they called in from friends recently. I stress these not merely because they are survival strategies (though they are) but because these sorts of activities end up (along with market days and the seasonal cycles) defining a great deal of life in these villages. But these events also built that social capital which can be ‘cashed out’ in an emergency. And they are a good survival strategy. Grain rots and money can be stolen, but your neighbor is far likelier to still be your neighbor in a year, especially because these relationships are (if maintained) almost always heritable and apply to entire households rather than individuals, making them able to endure deaths and the cycles of generations.
The farmers described here used this kind of strategy: When you have a good harvest, you should have a feast and invite your neighbors. This way, you are investing in relationships with your neighbors, and if you have hard times later, they will help you.
I think there are likely people today who are in a similar kind of situation- where the best way to protect yourself from financial hardship is not necessarily to save your money in an individual savings account, but to spend it on social connections, with people you can rely on to come through if you ever need help.
Related to this, here's what Jesus said in Luke 14:12-14,
Then Jesus said to his host, “When you give a luncheon or dinner, do not invite your friends, your brothers or sisters, your relatives, or your rich neighbors; if you do, they may invite you back and so you will be repaid. But when you give a banquet, invite the poor, the crippled, the lame, the blind, and you will be blessed. Although they cannot repay you, you will be repaid at the resurrection of the righteous.”
As an American, I had always read this passage and found it confusing- what does Jesus mean about being "repaid"? When I invite people to go somewhere, it just means I'm inviting them to go somewhere- there's not really more to it than that. I don't really think about being "repaid."
But now that I've read Bret Devereaux's article about giving a banquet to one's neighbors, I'm thinking maybe Jesus was speaking to a culture that had this sort of perspective: When you invite people to a feast, that creates very real social obligations. One of the key reasons to hold such a feast is so that your guests will be obligated to help you in the future. But Jesus is saying here, you should invite "the poor, the crippled, the lame, the blind" because they aren't able to repay you in that way. You invite them solely as a way to be kind to them.
And even in Chinese culture, we have this to some extent. If someone gives you a hongbao (a red envelope full of cash) as a gift, you're obligated to give them an equivalent hongbao at some point in the future. Chinese people really keep track of these things. I've heard people say, "We didn't want to have a big wedding, but my parents said we needed to, so they could get back all the hongbaos they've given to people over the years- we invited all my parents' friends, and my parents kept all the hongbaos that people gave us at the wedding."
My husband (who is Chinese) finds it very uncomfortable to have that kind of obligation to people- he tries to avoid it as much as possible. When our first child was 100 days old, and traditionally you would have a party to celebrate, he only invited a couple relatives, and took them out to eat dinner. He didn't want to invite a ton of people, because then they would all give us hongbaos, and we would have to keep track of it, and find some occasion in the future to give them equivalent hongbaos, like maybe for their kid's birthday. Sounds exhausting.
Related to this, it's common that if people come from a poor background and then get a good education and well-paying job, they will be obligated to send some of their money to help their family members. Especially family members who made sacrifices in order to help them pay for their education. The financial advice I always heard assumes you're just an individual, and you're able to freely make choices about what to spend your money on- but that's not true for everyone. For some people, it would be wrong to not send money to help their poorer family members who need it, because those family members helped them get to where they are.
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In this post, I've described 6 different models for how people decide what to spend their money on. Each model is incomplete, and is based on certain background assumptions- therefore this can't be a "one size fits all" thing- it depends on your own specific circumstances. I grew up around a lot of Republicans who had the opinion that "you should be responsible, save your money, have a 6-month emergency fund, if you're not doing all of that, then it's your own fault that you're poor (and you should stop going to Starbucks so much)." But actually, it's more complicated than that.
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