STUDY: SOCIAL MEDIA POSTS MAKE YOU SPEND MORE MONEY TALKING POINT SOCIAL MEDIA

The savings situation

American families don’t save money like they used to. In 2018 the personal saving rate hovered somewhere around 7 percent. That’s up from an all-time low of 3 percent right before the Great Recession hit, but it’s well below the rate of a few decades ago.

Why aren’t we saving?

There are a lot of potential explanations. Wage growth has slowed while necessities like housing and medical care have grown more expensive, taking a big chunk out of personal income. The rise of easy credit has made spending beyond our means easier than ever. Pension plans have been replaced by 401(k)s, which are much easier to draw down on in a pinch — even if it’s usually a bad idea. But now a team of American and Canadian economists has proposed a new explanation for the declining savings rate, one rooted in individual psychology. At its heart is a simple observation: Personal spending is a lot more visible to others than not spending. Changes in the media landscape have made other people’s spending more visible than ever. That, in turn, is making all of us spend even more and save less.

The perception

Humans are social creatures, and we have a tendency to evaluate our own standing in life relative to how friends and neighbors are doing. When we see other people spending money we have a tendency to believe that we can — or should — be spending, too. These signals from other people are particularly powerful in part because many of us have considerable uncertainty about how much we should be spending. “There is a great deal of evidence suggesting that people are indeed often ‘grasping at straws’ in their savings decisions, which suggests that they may look to social cues for help,” the authors write.

How to fix it

One of the implications of their research is that finding ways to make non-spending more visible might help individuals develop more realistic views of overall spending and saving behavior.“To decide if you’re overconsuming, make a special effort to notice when your friends do something that is frugal, such as having a staycation or holding on to their 15-year-old car,” said David Hirshleifer, one of the authors of the study.“If you’re going to compare yourself to others, try to make it realistic.”