Why talking to your friends can help you save money Your Money and Your Mind
Transcriber:
Changing people’s financial
behavior is difficult,
but it is possible.
[Your Money and Your Mind
with Wendy De La Rosa]
One company that was looking to reduce
energy consumption in San Diego
tried to change people’s behaviors
by using signs with one key sentence.
What exactly was that sentence?
Well, it turns out that signs
about protecting the environment
or looking out for future generations
or signs that focus on
the amount of money that people will save
were not effective in reducing
consumers' energy consumption.
Instead, the message that worked the best
was a simple one that read,
“The majority of your neighbors
are undertaking energy-saving
actions every day.”
A similar message focusing on
what our neighbors are doing
was used in the UK
to incentivize British taxpayers
to pay their taxes on time.
That simple change, pointing out
what other people are doing,
led to an increase
in collections of about 29 percent.
Psychologist Robert Cialdini,
who worked on both of these studies,
calls this phenomenon “social proof.”
He says people look to what others do
in order to guide their own behavior.
It’s no wonder, then,
that we base a lot
of our own fiscal decisions
on what other people do.
And unfortunately,
what we most easily observe
are other people’s spending behavior,
not their savings behavior.
It’s easy to notice if your friend
goes on vacation
or buys a new car
or a swanky pair of shoes.
And with social media,
you can even keep tabs
on the shopping habits
of the rich and the famous.
Now, if someone wins the lottery,
we’d expect them to spend
more money – and they do.
But what’s really interesting
is what happens to their neighbors.
A recent study found that
close neighbors of lottery winners
are more likely to borrow money,
spend more on goods
and eventually declare bankruptcy.
In fact, the larger the lottery winner,
the higher the rate of bankruptcy
among the neighbors
of the lottery winners.
Basically, the lottery winner’s behavior
is rubbing off on their neighbors.
We are always aware of consumer spending,
but what we are not aware of
are other people’s savings behavior.
So let’s lift that veil.
You can start with
just a couple of friends.
Instead of asking where
they bought their new bike
or the best time of year
to travel to France,
ask them if they paid down their mortgage
or if they have an emergency fund
or if they’ve paid off their student loan.
Tell them about your own
financial situation.
To really make this a social affair,
I encourage you to start celebrating
paying down your debts.
Maybe you’ve seen the viral video
of a happy dancing woman
who paid off more than
200,000 dollars in student debt.
She was able to achieve
this incredible milestone
because she was bold enough
to ask her colleagues
and her industry peers
how much they earned,
noting the thousands of dollars
that she was missing out on,
and finding a job that would pay her
her fair market rate.
I think that video gained notoriety
because it’s not often that we get to see
what people have saved
and how they’re doing it.
But it shouldn’t be so rare.
By having check-ins with your friends,
you can help make a trend.
I remember when I paid off
my student loan,
I wish I would have celebrated
that milestone with friends.
But at the time, I, too,
was brainwashed into thinking
that I shouldn’t talk
to my friends about money,
that it was a scary taboo subject.
Don’t be like me.
Start the conversation today.
Research has shown that
our social bonds make us healthier.
It’s time to harness your social ties
to boost your financial fitness, too.
Your future self will thank you.