Who’s been here? You’re strolling down the street with a friend when a dress in a store window catches her eye. You both pop into the shop for a closer look—then end up leaving an hour later with an armful of new purchases. Of course, the spree was fun and had all the makings of quality time together—except for the part when you get home and realize you nearly spent your entire paycheck on that dress, perfume and boots.
No wonder “word of mouth” has been shown to be more effective than traditional advertising, with 92% of consumers saying they listen to friends’ recommendations over all other forms. And spontaneous shopping trips (and tips) aren’t the only ways our friends may be consciously--or subconsciously--affecting our ability to save. They can also influence everything from how we define success to how we measure our own worth. (Does making it mean having the same luxury car as your neighbor Joanna?)
Wonder how much your friends may be shaping your money habits? Ask yourself these 6 questions.
Do you often compare yourself to your friends?
You’ve just gotten a promotion or paid off your student loans. So, why do you feel inadequate every time you see your best friend in yet another fabulous new coat? “People try to keep up with their friends’ spending because social rank in society is comparative,” explains Michael W. Kraus, assistant professor of psychology at the University of Illinois, who studies social hierarchy and power, status and influence. “We are continually comparing ourselves to our close others. If we fall behind, we can feel like a less valuable member of society.”
The fix: Remind yourself about your own successes before you meet up with your friend. And don’t forget that even if someone seems like they’re more successful than you or seems to be able to afford more on the same paycheck, you’re probably not getting the full story. One shortcut: log onto your bank accounts before you walk out the door. Seeing all those numbers just may be the simplest route to an ego boost before that dinner.
Do you use shopping as an excuse to socialize?
Michigan State University researchers recently confirmed what we already know: women shop for reasons well beyond necessity. We often use it as a means to socialize or to lift our mood and feel the affects of “retail therapy.” That may help explain why women account for more than 80 percent of consumer spending, or about $5 trillion a year, according to the U.S. Census Bureau.
The fix: Take away the temptation to spend when you're together by hosting friends at your place, or meeting for a picnic or barbecue in the park. You’ll have fewer distractions competing for your money and attention, which means you can focus on your friends instead. You may find both the level of your bank balance and the quality of your conversations improve.
Are you spending too much time on Facebook?
Your friend's tweet about a sample sale near your office has you eying the clock. And after scrolling through those gorgeous photos your colleague just posted on Facebook of her recent trip to Santorini, you find youself Googling trips to the Greek Islands. If you find that social media is influencing how you think about spending your money, you’re not alone. One recent study by Social Commerce Today found that more than 81 percent of consumers use the advice posted by friends and family on a social media platform before making a purchase. And, apparently, we're giving a lot of advice. Another widely cited academic study found that frequent Facebook users are more likely to have credit card debt than those who use the social platform less frequently.
The fix: It's important to remember that social media only offers a glimpse into a person’s life--and a heavily edited one, at that. You have no idea how long your colleague scrimped and saved for that trip to the Greek Islands, or for how long she may be paying it off. Facebook and Twitter are also no substitute for (real) face time. Check yourself if you feel like you’re depending too much on social media to stay in touch. Picking up the phone instead of posting a message on Facebook can help you forge a stronger, and less superficial, connection with your friends (and “friends”) and give you a more realistic picture of their lives.
Can you hang out without spending money?
In a new take on how we gauge happiness, research published in Psychological Science, a journal of the Association for Psychological Science, found a link between how a person rates her overall sense of satisfaction with how much respect she gets from the people around her—not by how much money she has in the bank. A nice reminder that we’re happiest with friends who admire us for who we are and not by how we demonstrate our wealth.
The fix: The best relationships are built on mutual respect, not by what’s in your wallet. Challenge yourself to try taking spending money out of the equation completely when making plans with friends this week. Have friends over instead of going out. Train together for a road race for charity, or just take a stroll in the park together.
Do you use your friends’ advice to justify your spending?
When your best friend says to throw caution to the wind and sign that contract for the new sports car you just test drove together, think again. You may be happier savoring that urge to splurge than making the big-purchase commitment. We often get more pleasure from wanting an item than actually owning it, says a new Journal of Consumer Research study. People go into debt all the time believing that finalizing a purchase will make them as happy as the wishful thinking that preceded it. But scientists have found that those positive emotions are actually short-lived, dissipating shortly after you’ve signed on the dotted line.
The fix: Your best friend may be your #1 fan. But make sure you’re able to recognize when she’s doling out great advice and when she’s just trying to show you support in whatever decision you make.
How are your friends’ money habits?
There’s plenty of research out there that shows how your friends can be a negative influence when it comes to drinking and eating habits. But their bad money habits can also rub off on you. Just as friends may want you to drink more to justify their own drinking behavior, they may feel more justified in their spending habits if they have a friend who’s willing to splurge as well.
The fix: There’s no question we’re influenced by the behavior and habits of our close friends. But just as your friends can influence you to spend more, they can also offer crucial support to keep you on track financially. Find a few friends who want to improve their finances and work on doing it together. Or just tell your friends that you’re trying to spend less and save money for something (whether it’s your next vacation or your retirement), and ask them to support you. You might find you inspire them to do the same.