Peer pres­sure fi­nance

How your peers can help you make bet­ter fi­nan­cial choices.

Austin American-Statesman Sunday - - MONEY & MARKETS EXTRA -

When you're train­ing for a fitness goal, a work­out buddy can be your best as­set.

When you're work­ing to reach a fi­nan­cial goal, friends can be equally help­ful. Peers can in­flu­ence how much you save for re­tire­ment and even shame peo­ple into pay­ing their taxes, stud­ies show.

Dean Kar­lan, a Yale econ­o­mist who has stud­ied in­cen­tives and ac­count­abil­ity, and two col­leagues cre­ated, a goal-set­ting web­site that uses peer sup­port to help peo­ple stick to fi­nan­cial goals. As­sign­ing a “ref­eree” to keep you hon­est dou­bles your chance of suc­cess, ac­cord­ing to an anal­y­sis of Stickk's users.

1 Let peers mo­ti­vate, not

dis­cour­age If your peers are mak­ing re­spon­si­ble fi­nan­cial choices that you're un­able to match, don't lose heart, says Lara Lamb, a cer­ti­fied fi­nan­cial plan­ner at Aba­cus Wealth Part­ners in Los An­ge­les. In­stead, use it as mo­ti­va­tion to get started. The feel­ing of progress will keep you go­ing, she says.

What if your peers are do­ing the op­po­site, say, spend­ing money on things you can't af­ford? Lamb says fo­cus on your long-term goals to avoid temp­ta­tion. 2 Have the money talk Debt is an es­pe­cially dif­fi­cult sub­ject, says David We­liver, who chron­i­cled his suc­cess­ful ef­forts to pay off $80,000 in debt on his blog Money Un­der 30. We­liver says he wasn't com­fort­able talk­ing about his debt with friends or fam­ily, but he found a sup­port­ive com­mu­nity on­line. “Pay­ing down debt is a lot like try­ing to lose weight,” he says. "Read­ing other peo­ple's sto­ries gave me the mo­ti­va­tion I needed to take those steps day after day.”

3 Give and re­ceive tough love

Choose a friend or fam­ily mem­ber who will give you hon­est feedback about your money habits, and be pre­pared to take it.

“Peo­ple get guarded about money be­cause they're afraid of be­ing judged, but no­body's per­fect,” We­liver says.

4 Trust, but ver­ify While friends and fam­ily can be great for mo­ti­va­tion, you shouldn't nec­es­sar­ily rely on them for fi­nan­cial guid­ance.

Tak­ing ba­sic ad­vice like sav­ing for re­tire­ment or open­ing a col­lege fund for your child is OK, says Byrke Sestok, a cer­ti­fied fi­nan­cial plan­ner at New York-based Rightire­ment Wealth Part­ners. He rec­om­mends do­ing your own re­search for de­ci­sions about in­vest­ments or re­tire­ment con­tri­bu­tions, which are more per­sonal.

Peo­ple tend to trust fi­nan­cial ad­vice from their par­ents and friends, but they should ver­ify what they've learned with an ex­pert source, Sestok says.

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