When you're training for a fitness goal, a workout buddy can be your best asset. She's the one who cheers you on good days and pushes you on bad days.
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When you're working to reach a financial goal, friends can be equally helpful. Peers can influence how much you save for retirement, determine when you choose to retire and even shame people into paying their taxes , studies show.
People don't change their habits when the stakes are low, says Dean Karlan, a Yale economist who has studied incentives and accountability. Placing your money or reputation on the line with a goal raises the cost of failure, which acts as a motivator, he says.
That's why Karlan and two colleagues created Stickk.com, a goal-setting website that uses peer support to help people stick to goals, including financial ones. Assigning a "referee" to keep you honest doubles your chance of success, according to an analysis of Stickk's users. Other apps like Lifetick and Coach.me offer similar goal-setting plans that can be shared with others.
LET PEERS MOTIVATE, NOT DISCOURAGE
On the flip side, peers' money habits can undermine your own, whether or not they're sound choices.
In a study published in 2011 by the National Bureau of Economic Research, employees at a manufacturing firm who either hadn't participated in their company's 401(k) plan or contributed enough to get the company match received letters encouraging them to do so. The letters also noted how many of their colleagues had already made those good financial moves.
In both cases, employees who received this information were less likely to enroll in the plan themselves or increase their contributions to get the match. The researchers determined that when employees compared themselves to others, they were discouraged about their own choices.
If your peers are making responsible financial choices that you're unable to match, don't lose heart, says Lara Lamb, a certified financial planner at Abacus Wealth Partners in Los Angeles. Instead, use it as motivation to get started. The feeling of progress will keep you going, she says.
What if your peers are doing the opposite — spending money on things you can't afford? Lamb says focus on your long-term goals to avoid temptation.
Think about the effect that splurging today will have on your goals tomorrow, she says.
Here are some tips on using peer support to make smart financial decisions:
HAVE THE MONEY TALK
"There's a lot of shame and cultural sensitivity in the United States about talking about your financial status," says Rebecca Rouse, director of the Financial Inclusion Program at Innovations for Poverty Action, a nonprofit based in New Haven, Connecticut, that promotes solutions for global poverty.
Debt is an especially difficult subject, says David Weliver, who chronicled his successful efforts to pay off $80,000 in debt on his blog Money Under 30. Weliver says he wasn't comfortable talking about his debt with friends or family, but he found a supportive community online.
"Paying down debt is a lot like trying to lose weight," he says. "Reading other people's stories gave me the motivation I needed to take those steps day after day."
Weliver's tip: Even if it's a tough conversation, talk to a loved one about your financial goals. You could pick up helpful ideas or gain the support you need to keep going.
GIVE AND RECEIVE TOUGH LOVE
Choose a friend or family member who will give you honest feedback about your money habits — and be prepared to take it.
"People get guarded about money because they're afraid of being judged, but nobody's perfect," Weliver says.
If you're the one people turn to for support, be compassionate but also show them some tough love, he says.
TRUST, BUT VERIFY
While friends and family can be great for motivation, you shouldn't necessarily rely on them for financial guidance.
Taking basic advice like saving for retirement or opening a college fund for your child is OK, says Byrke Sestok, a certified financial planner at New York-based Rightirement Wealth Partners. He recommends doing your own research for decisions about investments or retirement contributions, which are more personal.
People tend to trust financial advice from their parents and friends, but they should verify what they've learned with an expert source, Sestok says.
For example, the Consumer Financial Protection Bureau provides information about financial products and consumers' rights. You can also search for local nonprofit credit counselors for a free consultation about topics such as budgeting and managing your debt.
This article was provided to The Associated Press by the personal finance website NerdWallet. Email staff writer Amrita Jayakumar: email@example.com. Twitter: @ajbombay.
How I Ditched Debt: Money Under 30
Shaming Tax Delinquents: Evidence from a Field Experiment in the United States
Who Determines When You Retire: Peer Effects and Retirement