Craving your best friend's Versace wardrobe? Dreaming it was you who took your sister's vacations to the Virgin Islands?
It's insidious, this urge to live high, but financial peer pressure doesn't have to wreck your finances. In fact, it can make you richer.
The effect of peer pressure on finances comes partly from a natural desire – psychologists call it in-group bias – to fit in with those we admire, says Jason Hull, a Fort Worth, Texas, financial planner.
“When we don't drive a flashy car or wear nice clothes or drop $500 on a bar tab one night, we might feel like we're not in that in-group,” Hull says.
Following these seven steps can help you ensure that natural tendency doesn't bust your budget — and help you put it to work in your favor.
1. Examine your core values. One important question to start with: What do I value? Values can help guide your spending and saving decisions, says Kit Yarrow, a consumer psychologist at Golden Gate University in San Francisco. It's natural to look at what others have – but don't measure yourself against them, she says.
“You can stop and say, 'Wait a minute. Just because other people have certain things doesn't mean they have what my values say I should have — more time or no student loan or being debt free,'” Yarrow says. “It's just knowing yourself.”
2. Look inward: Is it really peer pressure? In many cases, peer pressure isn't something real that comes from others – instead, it comes from within, Yarrow says. For example, that neighbor who drives a shiny BMW convertible probably doesn't make rude remarks about your old Corolla. But, when she drives by, you might think she's judging you, Yarrow says.
“What you think is peer pressure might really be envy,” Yarrow says.
3. Remember that you don't have all the facts. When you do start to feel envious of someone else's stuff, remind yourself that you don't know the full story, Hull says.
“That person who's driving a fancy car could have an enormous car payment and be in debt up to their eyeballs,” Hull says.
4. Rethink friendships that don't work. Sometimes money issues can be a good reason to take a hard look at a friendship, Yarrow says.
“It sounds crass to say you'd bail on a friend because you spend money differently, but sometimes it's just not a match,” Yarrow says. For example, Yarrow says she used to have a wealthy friend who wanted only to go shopping. Eventually, she decided to stop spending time (and money) with the woman.
“We were too different, and our spending patterns made me realize that,” she says.
5. Talk to close friends to reconcile differences. On the other hand, maybe you have a close friend who's an important part of your life, but there's friction around finances. Maybe your friend favors filet mignon, but your budget can only handle pizza by the slice, Yarrow says. In that case, have a talk. When Yarrow once faced a similar scenario with a close friend years ago, they agreed to stop eating together.
“We'd eat separately, then get together and do something else,” she says. “We had a lot of fun.”
6. Look for creative solutions. With a whole group of friends, though, the pressure can be hard to resist.
“That's a real, genuine peer pressure,” Yarrow says. “People will spend a big amount of money and even go into debt to go where the cool action is.”
One solution: Make a pact with your friends to come up with offbeat, affordable activities. Simplicity blog Tiny Buddha suggests trading iPods with friends for a walk or hike or hosting an ugly dessert party (each person brings a sweet, the group votes on whose is ugliest).
7. Create a positive peer pressure group. You can even use peer pressure to your advantage, Hull says. Here's how: Find a group of friends who also are interested in making smart financial choices and then push each other to meet goals. A 2012 study from the Institute for the Study of Labor in Bonn, Germany, found that savers who met weekly with a group of peers to talk about their goals and progress saved 3.5 times more money than those not in a group. If you don't have time, quick check-ins with your group via text message are almost as effective, Hull says. Your group can help in other ways too, he says. For example, say you and nine friends want to fully fund your IRAs this year. Each person could kick in $50 into a pot, then the group could hold a drawing at the end of the year. Only those who met the goal are eligible to win the jackpot. Looking forward to kudos from your pals will help you stick to your goals, Hull says.
Nervous about sharing your worries about financial peer pressure with those close to you? If you open up, you might find that they'd also really like to start spending less and saving more, Yarrow says.
“Deep down inside,” she says, “I think most people want to feel in control of money more than anything.”