Following the norm?
If you’re told how much people who are similar to you typically spend on a night out, would you adjust your spending in response?
What if you were told how much people who are your age, have a similar income and live close to you tend to save from each pay packet? How much they have borrowed?
A range of research suggests that we do tend to be strongly influenced by what others do – known as following “social norms” . And managing money is no exception.
Ignore the neighbours
There is a famous example of the desire to conform to those around us that comes from the Dutch postcode lottery. Research found that when a household won a BMW in the lottery, their neighbours were significantly more likely to buy a new car themselves in the following weeks.
The phrase “keeping up with the Joneses” is often used when referring to peer effects.
I’ll do it my way
A problem with this tendency to conform is that everyone has different amounts of time and money to spend on cars, entertainment, dining out and everything else.
So if the circumstances of friends or family are significantly different to our own, “keeping up” might cause problems.
If I have less income but want to enjoy the same lifestyle as my high spending friend, I might need to save less, earn more or go into debt – a less than ideal situation.
An alternative is to take your own path, inheriting positive saving and spending habits from friends and using peer comparisons as a guide but focussing goals to suit your own circumstances.