4 Ways Social Pressure Influences Financial Decisions & 7 Ways to Limit it

By Chika


Last Updated: March 25, 2023


When we talk about social pressure, we usually assume that it is something that happens to teenagers (and most adults nowadays) to conform to certain standards which their peers have set in order for them to look cool.  

According to a study by Credit Karma, 27% of millennials find it uncomfortable saying “no” to a friend when the issue of spending comes up.

39% have gone into debt to keep up with their friends' spending habits, while two-thirds regret spending more on social situations than they had planned.

The fear of being left out is not a behavioral need that is exclusive to teenagers and young people. Adults are also susceptible to this type of behavior. Most people tailor their financial needs to the expectations of society. 

Social pressure can have a significant influence on financial decisions. People are often more likely to make decisions that will make them appear successful in the eyes of their peers, even if it means sacrificing financial security.

This can lead them to make investments that are more likely to bring social recognition than financial returns.

Some examples could be: 

  • buying a house without considering tax implications
  • buying crypto to fit into the narrative of breaking away from the matrix of traditional finance

However, social pressure can have a detrimental effect on financial decisions. It is important to be aware of it and take steps to make sure it does not have an undue influence. In this article, we explore ways society can influence your financial decisions and how you can guard against them. 



4 Ways Social Pressure Pushes Us Into Making Financial Decisions

#1. News/social media 

The news can exert pressure on investors to interpret data in a specific way, which influences their financial decisions. Whether you get your news from a newspaper or social media, it can be hard to sort through the dramatic stories and figure out what's really important.

We often read sensational headlines of how the stock market has "dived," "collapsed," or "plummeted" after a short drop.

Even knowledgeable investors depend on the media to get financial information. These could all affect your choices:

  • reports of the state of the economy
  • which sectors are growing quickly
  • areas in which consumer or government spending is increasing or decreasing

Yet, though the media portrays itself as being independent of bias, you should realize that they are commercial enterprises. As a result, they resort to sensationalized headlines to attract your attention to their publications. 


#2. Herding

Herding is the tendency to adopt the financial moves of others follow without conducting your own research and analysis. A herd is often driven by fear and greed, as traders don't want to miss out on opportunities that others are taking. 

This is a growing trend among other traders and investors due to the exponential growth of social media. This has been exemplified by the rush into investments such as cryptos, stocks, SPACs, etc. 

However, taking financial decisions on herd mentality can lead to errors. Herding can lead to bubbles and crashes if financial decisions are not based on analysis.

An example of this is the recent crypto meltdown and the dot-com bubble of the 1990s to 2000s. Traders were going 'all in' into the market, because 'everyone was doing it', but then the bubble burst, leaving a lot of people with severe financial consequences.


#3. Competition

Competition is the drive to make more money or accumulate more assets than others.

The need to outdo your supposed competitors can lead you to make financial decisions that are not favorable to you in the long term. Unhealthy competition can make a trader pick up bad habits, like a "win at all costs" attitude, which can lead to bad feelings and rash trading choices. 


#4. Rumors

With the emergence of social media, the spread of rumors and fake news has grown in quantum leaps.

The consequences of speculation and decision-making based on unfounded assertions could be costly for your investments. The expectation of an event creates a much deeper impression on financial decisions than the event itself.

In stock investing, rumors can cause changes in stock prices. In fact, among traders there is a mantra, "buy the rumor, sell the news". This implies that traders can make moves based on rumors or speculations.



7 Ways to Limit the Effect of Social Pressure When Making Financial Decisions

#1. Develop a financial plan

Creating a financial plan can help you stay on track with your financial goals and help you make choices that are best for you, even if other people try to push you in a different direction. Make sure to list clear goals and plans for how to reach them.


#2. Conduct due diligence

Thorough investigation of the economic, legal, fiscal, and financial circumstances of a business can make you make more informed financial decisions. It also gives you the confidence to stick to your conclusions and not follow the crowd. 


#3. Understand your financial situation

Everyone's financial situation is different. As such, not all investments will be suitable for everyone.

Understanding where you are in your financial journey will enable you to concentrate on those assets/investments that would have a better impact on you. For example, if you are close to retirement, you should avoid high-risk assets such as cryptos. 


#4. Rely on professional advice

Working with a financial advisor can help you make choices that are good for you and based on what you know.

A professional can give you useful help that takes your personal goals and financial position into account. However, it is also imperative that you undertake due diligence yourself. Research the background of the financial advisor and also the financial advice they are giving you. 


#5. Set boundaries

If you’re feeling overwhelmed by pressure from family or friends to make certain financial decisions, it’s important to set boundaries and stick to them.

This is why having a plan is imperative. It prevents you from veering off track when pressured by friends and family. 


#6. Avoid impulsive decisions

Most of the time, rash choices lead to sorrow and financial trouble.

If you feel pressured or tempted to make a money choice, step back and think about how it will affect you in the long run.


#7. Avoid competition

As an investor or trader, you shouldn't compete with another, even with yourself. Understand that this is a journey, not a sprint.

Your focus should be to get better with each financial decision you take. This way you continue to refine your strategy and improve yourself. This in turn leads to making profitable financial decisions in the long term. 



Don't Let Social Pressure Affect Your Financial Decisions

Financial peer pressure is real and if not recognized, could lead to poor financial decisions.

You have to realize that your financial journey is a personal one, so you need to have the final say in how you invest your money.

However, the choices you take should not be influenced by the actions of others. You may seek the opinions of others, but this should be backed up by your own research and analysis.

Photo by Afta Putta Gunawan


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