Peer pressure finance
How your peers can help you make better financial choices.
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 Stickk.com, 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.