It’s reasonably well established that people don’t tend to save enough for their retirement. Research from BerkeleyHaas suggests that the lives our peers present to us on social media may be one factor that’s putting us off.
“Our neighbors don’t put out a sign showing how much they’ve set aside for retirement, but it’s easy to see the new car sitting in their driveway,” the researchers explain. “The fact is, observations of someone consuming are more salient than observations of someone saving, and so we observe more of those signals, and we give them more weight in our own decision-making.”
Put off
The researchers found that our friends and family influence us to spend more and save less for retirement.
In the U.S., it’s estimated that people are falling short of their retirement savings by nearly $3.7 trillion. For some, it’s not because they choose not to save – they simply don’t have enough income. But that’s not the whole story.
The researchers talk about something called “visibility bias.” Essentially, people don’t openly share how much money they’re saving, so we get the wrong idea about what others are doing. We tend to think our friends are spending more than they actually are, and this makes us feel okay about spending more ourselves.
Incomplete picture
Unlike the idea of trying to “keep up with the Joneses,” where we compete with others, visibility bias happens because we don’t have the full picture of how much others are spending.
The researchers also found that this pattern keeps repeating itself. As we see our friends spending more, we decide to spend more too. Then, they see us spending more and do the same, and it goes on, making it harder for us to save money.
They also say that having more friends and connections can make this problem worse. People in cities, where there are lots of connections, are more likely to struggle to save for retirement. And with social media, where we can see what others are buying, this issue might get even worse. The researchers didn’t run their experiments, but they suggest some ways to figure out more about visibility bias.
Lastly, the kind of people in our social circle can make a difference. If our friends are good with money or older, they tend to spend less. So, having financially savvy or older friends might help us save more for retirement.
Making things better
Luckily, it seems we can tackle the way social media and our tendency to follow what others do influence how much stuff we buy. Fixing this might not be too complicated with the right policies.
The researchers suggest two easy approaches, both focusing on sharing info. First, the government could spread the word about the risks tied to economic problems, like job losses or health costs. But there’s a catch – people find it hard to understand and remember the chances of these things happening. So, this might not be the best way.
A better plan could be sharing details about how much people save and spend in our social circles. Officials or advertisers could launch campaigns to show off smart saving habits and reveal what’s a normal amount to spend. A study in 2020 found that if people who spend too much get info about what others normally spend, they cut down on their spending by 3%.
But, there’s a twist. People often think others spend more than they actually do. So, just putting out general info about savings and spending might not work well. The trick is to consider social networks and who’s in which group – like highlighting how older adults handle their money. This way, we can fight the influence of social media and make better choices about what we buy.
