Collectively, we’re not all that wise
When it comes to your personal finances, don’t kowtow to social norms unless they make sense.
Following the crowd can lead to some financially illogical actions. That might be buying when markets are hot, selling after the fall, or even telling white lies to insurance companies.
Of course conformity is good in many aspects of personal life. If we conform at school we’ll probably have earned some qualifications by time we leave. If we conform on the roads we don’t get pinged for tickets and are less likely to end up dead. If we conform with the Inland Revenue Department over paying taxes we avoid a whole lot of stress.
If family and friends have money beliefs most of us will learn them. The herd mentality isn’t always good in personal finances because our flawed brains lead us to make all sorts of cognitive errors with our money.
Associate professor Carla Houkamau at Auckland University has been investigating the triggers behind our routine money decisions and found that cultural identity provides a set of rules and guidelines for living and is a very powerful driver of behaviour.
Houkamau and her peers have been analysing data from the Ma¯ ori Identity and Financial Attitudes Study study, which closed earlier this year.
More than 7000 Ma¯ ori took part in the survey, which has lessons for all Kiwis.
“Norms about your group influence your choices and the opportunities you have,” Houkamau said at a forum held by the Commission for Financial Capability.
Conformity leads to some imperfect outcomes in personal finance:
We buy too much
If our friends have a new phone we start to think we need one. behaviour of your group.