During the Vietnam War, heroin use among American soldiers became so widespread that officials feared the country was heading toward a public health disaster. Cheap, highly pure heroin was easy to find in Vietnam. Soldiers were living in an environment filled with chronic stress, fear, isolation, boredom, and trauma — the exact conditions that can fuel addiction. Researchers estimated that a significant percentage of U.S. troops had used heroin during the war, and many showed signs of dependency. Politicians, doctors, and journalists assumed these soldiers would return home addicted for life.
But when the soldiers came back to the United States, most stopped using heroin almost immediately. They didn’t go through years of rehab. They didn’t suddenly become more disciplined people overnight.
What changed was their environment.
The cues, routines, stressors, social circles, and daily realities that surrounded their drug use in Vietnam disappeared. Back home, they were no longer in the same conditions that had reinforced the behavior. Researchers later found that the vast majority of addicted soldiers simply never relapsed.
This finding became one of the most famous examples in psychology because it demonstrated how strongly environment influences behavior.
That story reveals something uncomfortable but deeply important about human behavior: we like to believe our decisions are purely personal, but our environment shapes far more of our behavior than we realize. The same phenomenon happens with money.
Why high income doesn’t protect you from your environment
As couples move into higher income territory — $300K, $400K, $500K a year — they gain access to neighborhoods they couldn’t afford before. That feels like a reward. And in many ways it is. But what most people never anticipate is that they’ll unconsciously start to mirror the consumption habits of the people around them.
What was a simple life of home cooking, exercising on your dad’s 1980’s workout equipment in the basement, and driving 10 year old Honda accords transforms into sushi nights every week, group workouts at Life Time fitness, and driving a Porsche SUV.
If that sounds unbelievable, let me tell you about a conversation I had my friend. His wife grew up in rural Pennsylvania, living a humble life. She went to public school, ate out sparingly, and didn’t really do much shopping. After getting married, they moved to the Main Line outside of Philadelphia, where they were surrounded by surgeons, lawyers, and private equity CEOs who were members of country clubs. They also sent their kids to the nicest private schools and drove cars that cost more than most people’s salaries.
Sure enough, his wife began to get swept up into the way of life in the community. She went to yoga 3 times per week with her friends, went shopping constantly, and upgraded her car. Fast forward: they can only save a couple hundred dollars per month and the goals they had their sights on are slipping away. (Safe to say he’s not happy about it.)
The expenditure cascade
Economist Robert H. Frank’s research found that when wealthier households begin spending more, the households just below them increase their spending, too – a phenomenon that he calls an expenditure cascade. The key concept is that it’s not about what you have but rather what you have relative to others around you. It’s essentially a phD’s version of keeping up with Joneses.
Think about how this compounds over time. A family earning $400K a year in the wrong environment might save less than a family earning $180K in a lower-consumption neighborhood. Income matters, but environment often wins.
Escape velocity: what it actually takes to break free
Here’s the uncomfortable truth: the expenditure cascade is seriously difficult to escape. I think about it like Earth’s gravitational pull. For a rocket to head into orbit it has to burn enormous energy, consistently, until it reaches escape velocity. Fighting your environment works the same way. You’re applying psychological energy against a constant, invisible force.
The most effective solution is also the least convenient one: move. Change the environment entirely. If you’re surrounded by people whose spending patterns are incompatible with your goals, relocating — even to a different neighborhood in the same city — removes the unconscious pressure at the source. When you’re not seeing Porsches in every driveway, you stop wanting one.
If a move isn’t realistic, the next best thing is redesigning your financial environment — what I call your Financial Operating System. The goal is to make spending harder and more deliberate. Cut up the credit cards. Set up your bank accounts so that your spending account holds only your designated budget for the pay period. If you and your partner take home $5,000 every two weeks and that’s your spending budget, that $5,000 goes into the visible account. Everything else moves somewhere you can’t easily see or access. Out of sight genuinely does mean out of mind.
If you’re house-hunting right now, use this as a lens. Walk the neighborhood. What cars are in the driveways? What restaurants are nearby? What are the stores within a mile radius? Picking up these details gives you more awareness about the consumption culture you’re about to be immersed in. Choosing a neighborhood is a financial decision, not just a lifestyle one.
The expenditure cascade doesn’t care how smart you are or how strong your intentions are. It works on surgeons, lawyers, and financial professionals alike. The people who beat it aren’t necessarily more disciplined. Rather, they’ve just built an environment that stops making it so easy to lose.
Frequently Asked Questions
What is the expenditure cascade and how does it affect spending?
The expenditure cascade is an economic phenomenon, documented by economist Robert H. Frank, where higher spending by wealthier households triggers increased spending in the households just below them on the income ladder. It’s driven by relative comparisons rather than absolute need, meaning people spend more not because they can afford it but because their neighbors do. It’s essentially a measurable, research-backed version of keeping up with the Joneses.
How does the environment impact the ability of high-income couples to save?
High income often comes with access to higher-consumption neighborhoods and social circles, which unconsciously shifts spending norms. Even disciplined people can find their baseline expectations — for cars, dining, fitness, and housing — quietly rising to match the environment around them. The expenditure cascade means that earning more doesn’t automatically translate into saving more if the surrounding environment is pushing spending upward.
How can I stop spending money to keep up with my neighbors?
The most effective method is changing your environment — moving to a neighborhood with lower consumption norms removes the unconscious pressure entirely. If that’s not practical, restructuring your financial accounts so that only your budgeted spending money is visible and accessible can reduce impulse spending significantly. The goal is to make the default behavior saving, not spending, by engineering friction into the process.
Does where you live really affect how much money you spend?
Yes, significantly. Research on the expenditure cascade shows that neighborhood consumption norms shape individual spending behavior in measurable ways, independent of income level. A household earning $400K in a high-consumption neighborhood may save less than one earning half that in a modest community, because the environment constantly resets what feels like a “normal” level of spending.
