Save More Through Peer Pressure
Having inadequate savings is a big concern for many Americans. In fact, nearly 20% will cite not saving enough as their biggest financial regret. There are endless reasons why we fail to save, but a new study suggests an unconventional strategy to succeed in setting a little something aside: save with friends.
Researchers from the National Bureau of Economic Research recently issued a working paper titled, “Under-Savers Anonymous: Evidence on Self-Help Groups and Peer Pressure as a Savings Commitment Device.” In it they examine saving practices through a series of experiments involving 2,687 low-income micro-entrepreneurs in Chile.
The entrepreneurs were divided into three groups; one with high-interest savings accounts of 5%, another with accounts that yielded 0.3% and a treatment group that would save and announce their progress regularly within the group. The most successful group? “Participants assigned to the Peer Group Treatment deposited 3.5 times more often into the savings account,” the paper reported. In addition, their average savings balance was nearly twice that of those with accounts with minimal yield, the same for those with higher yields. Why? As shown in other studies, regular accountability and follow-up played an important role in sticking to good habits. If you want to see this effect in your own financial life, there are steps you can take.
Join the Club
Before the days of big banks, savings clubs were a popular means of building a nest egg. Called susu, tontine, or stokvel in different cultures and periods, people have been successful at pooling money historically. Establishing a savings club among a small group of trusted friends can be productive, especially if the savings is attached to a goal like a group trip. Get your family in on it. Goals like saving for a young relative’s education is something everyone can get behind and contribute to through the establishment of a fund, for example. Following the National Bureau of Economic Research’s model, the club would work best with regular meetings among members, goals and transparency to hold everyone accountable.
Go Digital
Online programs stickK, 43 Things, Lifetick, and Mint all have features that encourage individual accountability if groups aren’t your thing. With stickK, for example, you can take your saving social by listing your goals, then assigning a team member to track your progress. StickK gives you the option to share your progress through Facebook and Twitter where your team members can cheer you on. It also allows you to kick it up a notch with penalties. Let’s say you plan to save 10% of your monthly earnings. Once team members and deadlines are set, you can assign a referee to monitor your progress. Finally, connect the commitment to your bank account and every time you miss a goal, there’s a payday for your team. How’s that for incentive?
Photo Courtesy, 401(K) 2012.
