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Why talking to your friends can help you save money

created Feb 28th 2021, 08:19 by Meo


3


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444 words
59 completed
00:00
Changing people's financial behavior is difficult, but it is possible.  
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.  
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.  

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