Studies have shown that peer pressure can get you to exercise more or quit smoking. It may also help you save money.
In a recent experiment, nonprofit Commonwealth and fintech company Esusu put together eight groups of three or four friends, families, acquaintances and strangers who committed to adding between $5 and $75 each to a collective pool of emergency savings each month. If a member needed to tap the savings, the group had 24 hours to vote on if they’d allow the withdrawal.
The experiment, which took place between December 2019 and January 2021, found that when saving in a group, members sock away more: 66% of participants saved more per month on average at the end of the experiment than than they had prior to the experiment. They also felt better about where they were at with saving and their financial future.
When we make a commitment to other people, we're more likely to carry it out, says Melissa Gopnik, senior vice president at Commonwealth.
While most of us don't have a group savings pool we can contribute to and draw from when we need it, there are still psychological benefits to teaming up with others for accountability.
The history of mutual aid
Group saving is not a new concept. In a rural province of Afghanistan, village savings groups and loan associations managed by the World Bank helped thousands of budding entrepreneurs pool their savings and start micro businesses. In Ghana, Uganda and Malawi, researchers found that village savings and loans associations upped the number of businesses that households operated by 6%. Vendors in Kenya have turned to savings groups during the pandemic.
They’re closer to home too. Mission Asset Fund, for example, is a nonprofit that helps people set up what are called “lending circles,” where groups of six to 12 people make monthly payments — usually between $50 and $200 — and each month someone new in the group gets the loan, which can be as little as $300 to as high as $2,400. And you may have heard of giving circles, where a group of people save money together and then decide where to donate the money.
You don’t necessarily have to share your savings with others to benefit from the psychology of group savings. Financial services firm Equitable Advisors put savers in small groups with their peers (all young men in their early thirties and beginning a family, for example) who would support one another in milestones like increasing their savings and buying a home. It’s the same concept many of the health apps use to create community and support around achieving fitness goals, says Stephen Dunbar, an advisor at the firm. Tiffany Aliche, dubbed “The Budgetnista,” runs the Dream Catchers Facebook group, a support group for the 470,000-plus members trying to reach their financial goals.
The COVID-19 pandemic clearly showed people how important emergency savings are, with millions of people losing their jobs and struggling to pay the bills. But Gopnik says it also heightened our sense of community. Just look at how mutual aid groups have stepped up to help their communities, or the rise of neighborhood fridges.
The psychology behind group saving
You’ve probably heard the old adage about how you shouldn’t discuss money, politics or religion at the dinner table. While that might not hold up all the time, it’s true that we as humans don’t talk about money collectively — and that can lead to financial shame, says financial psychologist Danetha Doe.
But saving with a group helps with that.
“You have someone or several people to air your frustrations with, your stress with or celebrate with you,” Doe says.
Comparing your goals to your peers' goals can also help set an appropriate target. Otherwise you may just be blindly throwing darts at a target that's not even right for you, Doe says.
How to form a savings group
Reach out to communities you may already be a part of — like your town’s community center, church or workplace — to see if others want to team up, Dunbar says. Since money is such a sensitive topic, having a middle person, like a manager at your community center, may take away some of the hesitancy, he adds.
Should you do this with your family? It can be tough because families may have shared drama or baggage around money, Dunbar says. If you decide to go this route, he recommends bringing in a third party, like a financial advisor, to help facilitate.
Forming a group with friends could be easier.
“Friendships already provide a supportive environment for this kind of dialogue,” Dunbar says.
Your friend group could start with selecting a charity or nonprofit organization with a cause important to all of you, set a donation goal and save towards it together. If that goes well, you can dig into a more holistic approach to saving money together.
Or turn to your phone. Dunbar recommends the app Meetup, which allows you to join and start groups that hold events together. If joining a group is a bit overwhelming, Doe says to check out Status Money, an app that allows you to compare your finances to your peers.
When talking to your friends — or complete strangers — about your saving, you may find that you’re actually doing better than you thought.