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Who you hang out with could be inadvertently impacting how much money you save

AP/Gautam Singh
Peer pressure can be used for good.
By Shelly Banjo
Published Last updated This article is more than 2 years old.

Peer pressure is often blamed for driving us to spend money we don’t have—on a pricier handbag, a lavish wedding, or a new car to keep up appearances.

But peer pressure can work the other way, helping us to manage our money more responsibly, according to a new NBER working paper by Columbia University’s Emily Breza and Stanford University’s Arun G. Chandrasekhar. The researchers set out to measure whether we might save more money if someone in our community was tracking and monitoring our progress, and whether who that person was would make a difference in how much we saved.

The pair, who conducted a field experiment with 1,300 people across 30 villages in India, found that when someone monitored how much money a villager saved, the monitored person ended up saving more money. And the closer the monitor was to the saver (based on how direct their relationship was), or the more prominent the monitor was is in the saver’s social circle (based on a set of criteria about their role in the community), the more money the saver ended up putting away.

When a person’s savings progress was monitored by another villager biweekly for six months, the researchers found that a person’s savings increased an average 35%. When monitors were closer to a saver or more central to a saver’s social circle, the researchers saw savings increase 14% and 16%, respectively. They also observed that the short intervention had a lasting impact on how much a person saved for the long-term, extending out more than a year after the experiment.

Based on data drawn from interviews with the monitors and savers, the researchers concluded that the outcomes were driven in large part by savers feeling that the people monitoring their bank account balances would gab to other villagers about their progress, and that they wanted to come across as responsible to their friends, coworkers, and communities.

The researchers found that 60% of monitors spoke to other people in the village about savers’ progress and 40% of the people saving money reported hearing gossip about themselves and their savings habits through back channels.

“A large fraction of villagers indeed want to save more, that reputation is tied to self-set goals, and that showing one can save more is a sign of responsibility,” the researchers wrote.

The reason comes back to the innate need to impress others, especially friends and community members. “Reputation in whose eyes also matters,” the researchers wrote, pointing out that savers wanted to impress the people monitoring their progress “because, in the future, they might need to rely either on the monitor directly or on parties who have come to learn about from the monitor.”

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