Planning for your financial future? Give your plans a boost with information tailored for you
Start Choosing Here »

Submit to Peer Pressure, Double Your Savings

ATM friendsBy Jill Krasny

A fascinating new working paper by Felipe Kast, Stephan Meier and Dina Pomeranz explores the idea of whether peer pressure is effective at motivating people to ramp up their savings.

We've seen this trend evolve rapidly over the years with the onslaught of commitment devices and web tools like ING's CompareMe, which lets savers see how their entire financial picture stacks up against peers.

Sometimes this kind of pressure works, sometimes it doesn't, so the researchers decided to find out for sure.

Conducting a randomized field experiment with 2,682 micro entrepreneurs, the researchers assigned 196 groups to one of three types of savings accounts: basic savings with a real annual interest rate of 0.3%; an account similar to the basic account but tied to a support group that checked members' savings progress once every week; and an account with a 5% real interest rate that researchers claimed to be the best on the market.

Tracking the groups for a year turned up surprising results: The groups randomly assigned to the self-help group made almost four times as many deposits as the people who weren't. This held especially true in the first few months when groups were initially formed. And though self help group's activity tapered off over time, the researchers found their number of deposits was "still 3.5 times higher compared to the control group." What's more, they almost doubled their average savings balance.

Wrote the researchers:

"The effect is particularly strong if the peers know each other well, i.e. they have experienced past interactions and expect future interactions. If peer pressure is the main factor driving the impact of self-help peer groups, then physical meetings may be key to the success of peer groups. At a minimum, the behavior of an individual has to be observed by at least one other peer."

But that's not the only reason peer pressure works. As the researchers said, "(self help groups) provide information, trigger a competitive trait to win or function as a reminder ... that observing others who stick to their plan can be motivating."

H/T Freakonomics

More from Business Insider
People Who Occasionally Work in Their PJs Are Earning More Money Than You
Seven Essential Ways to Save on Halloween Spending
Prepaid Debit Cards Are Getting Better All the Time

Increase your money and finance knowledge from home

Getting out of debt

Everyone hates debt. Get out of it.

View Course »

Introduction to Preferred Shares

Learn the difference between preferred and common shares.

View Course »

Add a Comment

*0 / 3000 Character Maximum


Filter by:

Jill this is a very interesting article, P2P saving is a great way to overcome self-control problems, and it’s a great commitment device. There is a site that helps you creating a saving circle and saving together with friends or family members.

November 28 2012 at 10:12 AM Report abuse +1 rate up rate down Reply

This should work really well amongst the welfare scum.

October 19 2012 at 2:26 PM Report abuse -1 rate up rate down Reply

If I submitted to peer pressure, like Huffington Post's idiots and left wing Obama supporters, I woule take out multiple loans and spend money that I never could pay back, like Bernake.

October 19 2012 at 12:06 PM Report abuse +1 rate up rate down Reply