As a new parent, I joined a parenting group where a father next to me casually mentioned that he allocates $130 each month to his daughter’s 529 college savings plan. At that point, I had just initiated a 529 account for my infant son with a contribution from his grandparents, but I hadn’t considered setting up a monthly contribution. After reviewing our budget, I confirmed we could allocate $130 per month and arranged for an automatic transfer.
Fast forward over seven years, and that monthly contribution is still active. When my second son was born, we managed to establish a similar monthly transfer for his 529 account.
The parent who made the comment likely had no idea how much impact his casual remark would have on my children’s college savings, but it showed me that wanting to match others’ financial habits can lead to positive outcomes. Inspired by his example, I ensured that my savings habits aligned with his.
Though the phrase “keeping up with the Joneses” often carries a negative connotation, this type of financial comparison can be effective in promoting good savings behaviors and better financial decisions. Here are some strategies to harness this phenomenon for your benefit.
Understanding the Concept of Anchoring
One reason why the financial behaviors of others can strongly influence our spending choices—positively or negatively—is due to a cognitive bias known as anchoring. This bias leads us to treat the first figure or price we encounter as the standard or reference point for future comparisons.
In my case of 529 contributions, hearing the other parent mention $130 a month led me to view that amount as the optimal figure for my own contributions. If he had indicated a contribution of $30 or $350, my mental anchor would have adjusted to that alternative figure instead.
Anchoring can also backfire when it comes to financial health. For instance, had I been discussing monthly car payments instead and someone claimed to spend $650 a month, that figure might have set my expectation for what a car payment should be. As a result, I could have ended up taking on a loan larger than my budget could handle due to that inflated mental benchmark. (Refer to: 8 Ways to Enhance Your Financial Self-Esteem)
Making Comparisons Work for You
If observing how others save or spend can set our benchmark for what is considered typical, here are two effective methods to ensure these comparisons work in your favor rather than to your detriment.
Identify Financial Role Models
Behavioral scientist Sarah Newcomb, Ph.D., author of The Comparison Trap: How Social Comparisons Affect Our Financial Well-Being, argues that measuring yourself against someone you admire—especially if their financial journey is relatable—helps shift your perception. Instead of feeling inadequate next to someone more affluent, you can engage in an aspirational comparison, focusing on how to emulate their positive financial behaviors. (Also see: 4 Money Insights You Can Gain from the Joneses)
Assess Average Spending Among Peers
The platform Status Money enables you to compare your financial situation against that of your peers discreetly. This insight allows you to see where you might be overspending relative to what is considered average instead of basing your budget on individual comparisons. Observing overall peer averages will provide a clearer understanding of prudent spending.
Choose Your Social Circles Thoughtfully
We all have friends who treat their finances recklessly, and it can be tempting to feel that we need to keep pace with their habits. Equally, some friends may encourage unnecessary purchasing.
While maintaining friendships with such spenders is perfectly fine, it’s crucial to acknowledge the influence they can have on your finances and act accordingly. Consider meeting these friends in money-free environments—like potlucks or outdoor activities—where the pressure to overspend is alleviated.
Instead, surround yourself with individuals whose financial habits you admire. Doing so aligns your savings goals with your social life, reducing the conflict between your desire to be fiscally responsible and the need to enjoy social interactions. (Also see: 5 Types of Friends That Can Strain Your Finances)
The Joneses as a Benchmark
While trying to match the perceived spending levels of the Joneses can lead to unhealthy competition, being aware of how others save or spend can serve as a useful metric for your own financial management. The key is to know when to draw inspiration from the Joneses and when to disregard their influence.
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