How Peer Pressure Can Wreck Your Finances

By Mike Peterson
In May 20, 2013

When you think “peer pressure,” you probably think of kids: High school students pushing each other to make dumb decisions, or catty junior high cliques making fun of classmates who don’t have the “right” clothing, interests, looks, and so on. 

The good news is, most of us have matured a bit since high school.  As adults, we’re more secure in who we are and what we believe in, and, in general, we care less about what others think.  That said, we’re still influenced by our peers – and when it comes to money, we may be letting the people we know have too much influence. 

If you’ve ever felt pressured into spending money – whether it was on a new car you couldn’t actually afford or a pricy group outing that blew your budget – you’ve experienced financial peer pressure firsthand.  This kind of peer pressure can be especially difficult for folks trying to pay down credit card debt or save for the future.

So how do you put a stop to financial peer pressure?  Keep reading.

Stop Trying to Keep Up

Your neighbor buys a shiny new convertible – and all of a sudden your practical, ordinary, not-so-new sedan looks old and outdated.  Your brother-in-law has filled his Facebook timeline with photos of his newly remodeled kitchen – and you think of those photos every time you open your beige, 1980s-era refrigerator. 

Any of those scenarios sound familiar?  When people fall into the financial peer pressure trap, it’s often because they want to keep up with their friends (or neighbors, or coworkers).

This is not an especially new or rare phenomenon, but if you’re trying to pay down (or avoid) debt, stick to a budget, or build up your emergency fund, trying to keep up with your friends and neighbors is a dangerous, expensive game.  Sure, you might feel a twinge of envy every time you see your neighbors’ new car or your friend’s gourmet kitchen — but that’s not an excuse to start spending money you don’t have.

The next time you find yourself tempted to make a purchase just to keep up with someone else, remember this:  Things aren’t always what they seem.  The neighbor with the new car might be eyeballs-deep in debt.  Your brother-in-law might not have a dime set aside for retirement.  And who knows?  Maybe they felt pressured into those big purchases by their friends, neighbors, or relatives.

See what I’m getting at?  You can’t let others influence how you spend your money.  Focus on your goals, and stop trying to keep up with other people.

Honesty is the Best Policy

A good friend asks you to be in her wedding.  You’d love to do it, but you know that as a member of the bridal party, you’ll be expected to fork over a few hundred bucks for a dress, shoes, and an untold number of extras along the way to the big day.  You don’t want to hurt her feelings, though – and you’re a little embarrassed about your money situation – so you say yes.  You finance the whole thing with your credit card, and the thought of all that high-interest debt makes it difficult to enjoy the wedding-related festivities.

Have you ever said “yes” to a pricy invitation that you really couldn’t afford?  It’s hard to say “no” to friends – and this is why so many otherwise rational, responsible folks end up spending way too much money on social activities.   This is a type of financial peer pressure that I think of as “social spending.”  It’s what happens when you end up spending money you don’t really have on social events like vacations, gifts, or parties. 

When it comes to your friends, I think honestly really is the best policy.  Now, I’m not saying that every friend who invites you to a too-expensive restaurant needs to hear every detail about your struggle with credit card debt.  But you can bow out gracefully with a few simple words of explanation, like:

“Sorry, but I’m on a budget these days.”

“I’d love to, but I money’s a little tight right now.”

“Thanks, but we’re trying to save up for XX.”

“No thanks.  We’re really watching our spending – but we’d love to have you over for dinner sometime.”

 

In today’s economy, who isn’t trying to manage their money a little better?  A true friend will understand and appreciate your honesty.  Who knows?  You might even inspire someone to reevaluate their own spending habits.

Tips for Smart Social Spending

On a budget?  You don’t have to kiss your social life goodbye.  With a little planning and creativity, you can have fun – without breaking the bank:

  • Include social events in your monthly budget.  A good budget should help you handle all types of expenses – including things like gifts, events, and the occasional dinner with friends. 
  • Be honest – but not preachy.  It’s one thing to tell your friends that you’re trying to get your finances in better shape.  It’s another to spend hours droning on about financial responsibility or judging your friends for overspending.
  • Come up with free (or low-cost) alternatives.  Fun doesn’t have to cost a lot.  Instead of going to the movies, ask friends to bring a favorite DVD and have a movie marathon.  Instead of going out for dinner, invite everyone to your place for dinner, drinks, and board games.
  • Focus on your long-term goals.  Eventually, you’ll probably be tempted to keep up with “the Joneses” or attend a social event you can’t really afford.  When that happens, the best thing to do is remember why you started budgeting in the first place.  Focus on the freedom of being 100% debt-free or the peace of mind you get from having three months’ salary set aside for emergencies – and stay the course!

Mike Peterson

Mike is the author of “Reality Millionaire: Proven Tips to Retire Rich” and he has been published in a variety of local and national publications including Entrepreneur Magazine, Deseret Morning News, LDS Living Magazine, and Physicians Money Digest. He holds a B.S. in business administration from the University of Phoenix.