A rational economic actor would not spend more than she takes in. Yet, other factors—from limited income, to financial illiteracy, to the urge to keep up with friends or peers—all create frictions between the advice to spend and save wisely and the opposing reality.
Research by Boston College’s Francesco D’Acunto, Georgetown’s Alberto G. Rossi, and Chicago Booth’s Michael Weber suggests a way to bridge that gap, by using a combination of crowdsourced information and peer pressure.
The researchers made use of a free fintech application, Status, which requires users to plug in their age, location, income, credit score, and homeownership status. The app crunches these data and sorts users into peer groups of at least 5,000 other users who share similar financial profiles. Status then shows users how their average monthly spending stacks up against their peers’, with the intention of motivating people to improve their spending habits.
“On average, users that overspend relative to peers reduce their seasonally-adjusted spending by $237 per month. . . . Users that underspend increase their seasonally-adjusted consumption spending by $71,” write the researchers, who analyzed data from almost 18,000 Status users between September 2017 and October 2018.