Have you ever felt compelled by your buddies to spend money? Whether it was a new car that you could not afford or an expensive group outing that blew your spending plan, you have been victim of financial peer pressure.
Financial peer pressure is, in its simplest explanation, “influenced to act in a certain way by others (your peers) that affect your well-being”. It can have both positive and negative effects on a person’s finances. Financial peer pressure is harder for people with debt or trying to build savings. Friends and elderly people may be a source of knowledge, but they can also inadvertently pressure you to make poor professional and financial choices.
While positive financial peer pressure can encourage you to reach greater financial heights, negative financial peer pressure can instead leave a significant dent in your finances. Or worse, it could lean to the loss of a well-meaning friend who had no ill intention but gave unwise comments.
So, how do you steer negative peer pressure from hurting your finances?
Step 1 – Determine whether the item/event is worth your time and money?
Once in a while, it is okay to deviate from your budget to spend on something worthwhile, provided that:
- You have a proper spending plan,
- Your emergency fund is in place, and
- You are still able to invest 20% of your income monthly.
After the above, can you still afford it?
- If your answer is No, then move on to Step 2.
- If your answer is Yes, then it doesn’t hurt to reconsider all the factors that color your decision.
- If your answer is Maybe, then it is time to consider your financial priorities and decide whether and where this item can fit in.
For example, your buddies are going on a road trip around the country. This has been the shared dream since your college days and they are insisting you join them. You love travelling so this is a perfect opportunity for you. Unfortunately, you did not budget for it! What factors do you consider? Here are some examples:
- Is it wise to stretch my budget this month for this?
- Have I been making other financial sacrifices that disrupted my budget recently?
- What other high priority items do I want to use the money for this month?
- Does this really weigh more in priority than other things I want to purchase/save/invest this month?
- What are my alternative options?
- Is this a one time thing that I will regret forever?
- and the list goes on….
Whenever you get the urge to spend money on things you have not budgeted for, stop! Play with the idea a bit and let it linger for a while. Ask yourself whether there is a real need to spend. Take time to mull over the various factors that would influence your decision. Think about the consequences of your choices. Can you truly afford to spend on it now? If the answer is no, what can you do?
Step 2 – Realizing and accepting that you cannot afford it.
The fact that you recognize your affordable limitations is the first step to making a wiser choice. A good habit of successful people!
Don’t get upset or be sour grapes because you are unable to take part. It is natural that there would be some degree of resentment, envy, or anger because you can’t join in whereas your friends seem to have all the money in the world.
However, pull yourself together and show some maturity. If your decision is for the best based on your financial situation, why get emotional? Let facts be facts. Not all friends have the same money goals as yours. Just because you can’t afford it, doesn’t mean they too can’t afford it. Make peace with yourself and accept that this is your situation, not their situation.
Step 3 – Responding to your friends with your decision.
Peer pressure sometimes can make you feel embarrassed or humiliated to admit you cannot live up to perceived expectations. However, would you rather lose an ounce of pride or a bucket of wealth?
Toughen up and inform your friends that although you would love to partake in the activity but you finances cannot cater for it. Maybe your budget is already stretched, you have other priorities to pay for, or you really need to save money right now. True friends would miss not having you join in but they would also be able to respect your decision. It pays to realize that even if your friends try to cajole you to join them, if your decision is well thought through by you, you would be able to stand firm with your decision.
You may also choose to propose low-cost alternative options, but be prepared that these ideas may not be well accepted when your friends are excited over something else. Be patient and propose your ideas again at a later date.
Step 4 – Future planning: Expanding your budget
Create a specific allocation for your social spending. Take the budgeted amount in cash only and leave the credit cards in the freezer at home. Be conscious about your spending.
You don’t have to say no all the time. You can choose to opt out occasionally. For example, your friends meet-up every Friday night for happy hour. It can be costly. Instead of every week, you can join on a Friday after your payday. Redefine your budget for next month onward and add this consideration in.
Everyone needs friends. Yes, you may save a lot of money by foregoing social time with friends. But who are you spending the money on later?
- A true friend takes into account your financial and emotional well-being. He or she won’t judge you, will accept your differences and be supportive of your endeavors.
- If a friend always tries to derail your money goals, it’s time to assess the relationship. This is a good time to pull away from your friendship or relationship to take things into account.
- On the other hand, if you always refuse to join, are you being a real friend to your friends? Or do you need to consider hanging out with new people in your life?
It’s essential to recognize that peer pressures are often internal. No matter what your friends say or imply, it still boils down to our own choices. When you realize you don’t have to spend to impress your friends, a great deal of pressure is lost.
Be the sole guardian of your own financial future. Don’t expect someone else to do it for you.
Is there any other peer pressure you have encountered? Please share.
He has 25 years working experience in different finance-related jobs. He is now a consultant, and personal finance and business writer. His main goal is to help and educate non-finance professionals to understand and solve their personal finances problems. He believes everyone should be financially literate because everything we do has money implications!
Eric currently resides in Kuala Lumpur, Malaysia with his wife and two young children.