Why talking to your friends can help you save money | Your Money and Your Mind

Transcriber:

Changing people's financial behavior is difficult,

but it is possible.

[Your Money and Your Mind with Wendy De La Rosa]

One company that was looking to reduce energy consumption in San Diego

tried to change people's behaviors

by using signs with one key sentence.

What exactly was that sentence?

Well, it turns out that signs about protecting the environment

or looking out for future generations

or signs that focus on the amount of money that people will save

were not effective in reducing consumers' energy consumption.

Instead, the message that worked the best

was a simple one that read,

"The majority of your neighbors

are undertaking energy-saving actions every day.”

A similar message focusing on what our neighbors are doing

was used in the UK to incentivize British taxpayers

to pay their taxes on time.

That simple change, pointing out what other people are doing,

led to an increase in collections of about 29 percent.

Psychologist Robert Cialdini, who worked on both of these studies,

calls this phenomenon "social proof."

He says people look to what others do

in order to guide their own behavior.

It's no wonder, then,

that we base a lot of our own fiscal decisions

on what other people do.

And unfortunately, what we most easily observe

are other people's spending behavior,

not their savings behavior.

It's easy to notice if your friend goes on vacation

or buys a new car or a swanky pair of shoes.

And with social media, you can even keep tabs

on the shopping habits of the rich and the famous.

Now, if someone wins the lottery,

we'd expect them to spend more money -- and they do.

But what's really interesting

is what happens to their neighbors.

A recent study found that close neighbors of lottery winners

are more likely to borrow money, spend more on goods

and eventually declare bankruptcy.

In fact, the larger the lottery winner,

the higher the rate of bankruptcy

among the neighbors of the lottery winners.

Basically, the lottery winner's behavior

is rubbing off on their neighbors.

We are always aware of consumer spending,

but what we are not aware of

are other people's savings behavior.

So let's lift that veil.

You can start with just a couple of friends.

Instead of asking where they bought their new bike

or the best time of year to travel to France,

ask them if they paid down their mortgage

or if they have an emergency fund

or if they've paid off their student loan.

Tell them about your own financial situation.

To really make this a social affair,

I encourage you to start celebrating paying down your debts.

Maybe you've seen the viral video of a happy dancing woman

who paid off more than 200,000 dollars in student debt.

She was able to achieve this incredible milestone

because she was bold enough to ask her colleagues

and her industry peers

how much they earned,

noting the thousands of dollars that she was missing out on,

and finding a job that would pay her her fair market rate.

I think that video gained notoriety

because it's not often that we get to see what people have saved

and how they're doing it.

But it shouldn't be so rare.

By having check-ins with your friends,

you can help make a trend.

I remember when I paid off my student loan,

I wish I would have celebrated that milestone with friends.

But at the time, I, too, was brainwashed into thinking

that I shouldn't talk to my friends about money,

that it was a scary taboo subject.

Don't be like me.

Start the conversation today.

Research has shown that our social bonds make us healthier.

It's time to harness your social ties

to boost your financial fitness, too.

Your future self will thank you.