Don’t compare your savings to that of your peers

Would you save more for retirement if you knew your co-workers were saving more than you were? New research suggests you probably wouldn’t.

Showing people how their retirement finances stack up against those of peers doesn’t motivate them to save more and, in some cases, can actually backfire—that is, discourage people from participating in a 401(k) altogether—according to a paper I recently published in the Journal of Finance in collaboration with researchers from Harvard University and the University of Pennsylvania’s Wharton School.

Such results are surprising, considering peer-comparison strategies are being used successfully in other domains to get people to change their behavior. The findings also raise questions about whether financial companies are on the right track in creating tools that allow customers to see how much others are saving. Part of a movement known as social-norms marketing, the tools are based on the idea that much of human behavior is influenced by what people consider to be “normal,” so if you can correct misperceptions about what normal behavior is, you can motivate the underperformers to move closer to the norm.
The strategy seems to work in certain situations. Some utilities, for example, have managed to persuade customers to conserve electricity by showing them how their energy use compares with that of neighbors.

Source: Don’t compare your savings to that of your peers - MarketWatch

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.