Larry Swedroe: Peers Can Change Financial Behavior

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Random Walker
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Larry Swedroe: Peers Can Change Financial Behavior

Post by Random Walker » Fri Apr 12, 2019 9:19 am

https://www.etf.com/sections/index-inve ... nopaging=1

Peer pressure can be a strong influence in both the positive and negative directions. Larry spends most of the article reviewing a study that looked at changes in individual’s spending relative to peers when they learn about the spending habits of peers through a web based app. It’s good to know that consumer and investor behavior can be directed in better directions with a little education. This article shows some potentially very rewarding aspects to the work of financial advisors. It also makes us Bogleheads ponder the behavioral effects on ourselves of participating in this forum :-) Larry’s favorite subject is behavioral finance, and he finishes the article with a book recommendation on the subject.

Dave

Beliavsky
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Re: Larry Swedroe: Peers Can Change Financial Behavior

Post by Beliavsky » Fri Apr 12, 2019 10:02 am

Random Walker wrote:
Fri Apr 12, 2019 9:19 am
https://www.etf.com/sections/index-inve ... nopaging=1

Peer pressure can be a strong influence in both the positive and negative directions. Larry spends most of the article reviewing a study that looked at changes in individual’s spending relative to peers when they learn about the spending habits of peers through a web based app. It’s good to know that consumer and investor behavior can be directed in better directions with a little education. This article shows some potentially very rewarding aspects to the work of financial advisors. It also makes us Bogleheads ponder the behavioral effects on ourselves of participating in this forum :-) Larry’s favorite subject is behavioral finance, and he finishes the article with a book recommendation on the subject.

Dave
I have wondered if the "what are you up year-to-date" threads on this forum do any good. How are they actionable? When stocks are up, those with the most equity risk will be up the most, but that does not mean an individual should raise his equity allocation.

livesoft
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Re: Larry Swedroe: Peers Can Change Financial Behavior

Post by livesoft » Fri Apr 12, 2019 10:12 am

Beliavsky wrote:
Fri Apr 12, 2019 10:02 am
I have wondered if the "what are you up year-to-date" threads on this forum do any good. How are they actionable? When stocks are up, those with the most equity risk will be up the most, but that does not mean an individual should raise his equity allocation.
There were a few posts on the early retirement forum about this. Clearly, some folks liked to see such threads. But one respondent wrote the following suggesting how such threads are actionable:
There you go. If you go not get at least 10% YTD, do not ask the other fellow what he did right. Ask yourself what you did wrong. :)
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DrGoogle2017
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Re: Larry Swedroe: Peers Can Change Financial Behavior

Post by DrGoogle2017 » Fri Apr 12, 2019 10:18 am

It’s a silly comment. You get 10% if you have good enough allocation. Not the case for everybody. Unless you think it’s wrong to have 30-40% AA is wrong.

livesoft
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Re: Larry Swedroe: Peers Can Change Financial Behavior

Post by livesoft » Fri Apr 12, 2019 10:20 am

DrGoogle2017 wrote:
Fri Apr 12, 2019 10:18 am
It’s a silly comment. You get 10% if you have good enough allocation. Not the case for everybody. Unless you think it’s wrong to have 30-40% AA is wrong.
Sorry, I took the quote out of context. The point was that if you are not getting the benchmark return (which was 10% so far in 2018 for a 60/40 asset allocation), then you should figure out what you did wrong. Yes, it would be different for a different asset allocation.
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DrGoogle2017
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Re: Larry Swedroe: Peers Can Change Financial Behavior

Post by DrGoogle2017 » Fri Apr 12, 2019 10:21 am

livesoft wrote:
Fri Apr 12, 2019 10:20 am
DrGoogle2017 wrote:
Fri Apr 12, 2019 10:18 am
It’s a silly comment. You get 10% if you have good enough allocation. Not the case for everybody. Unless you think it’s wrong to have 30-40% AA is wrong.
Sorry, I took the quote out of context. The point was that if you are not getting the benchmark return (which was 10% so far in 2018 for a 60/40 asset allocation), then you should figure out what you did wrong.
Exactly. This person had a larger loss last year, so of course he’s up large this year. Did he get back to his previous high yet is the question.

livesoft
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Re: Larry Swedroe: Peers Can Change Financial Behavior

Post by livesoft » Fri Apr 12, 2019 10:23 am

DrGoogle2017 wrote:
Fri Apr 12, 2019 10:21 am
Exactly. This person had a larger loss last year, so of course he’s up large this year. Did he get back to his previous high yet is the question.
Sorry, but that's not the question at all. We are talking about "Peers Can Change Financial Behavior."
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DrGoogle2017
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Re: Larry Swedroe: Peers Can Change Financial Behavior

Post by DrGoogle2017 » Fri Apr 12, 2019 10:32 am

livesoft wrote:
Fri Apr 12, 2019 10:23 am
DrGoogle2017 wrote:
Fri Apr 12, 2019 10:21 am
Exactly. This person had a larger loss last year, so of course he’s up large this year. Did he get back to his previous high yet is the question.
Sorry, but that's not the question at all. We are talking about "Peers Can Change Financial Behavior."
Not for this thread, but for his double digit returns.

Metx
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Re: Larry Swedroe: Peers Can Change Financial Behavior

Post by Metx » Sat Apr 13, 2019 2:08 am

The participants in the mentioned Status app are self selected, motivated to have this kind of info. What would be a good control group to focus specifically on the strength of the peer awareness on their behavior? I wonder how their outcomes would compare if they were given advice driven by accepted heuristics for general personal finance instead of just relative to their (however determined) peers?

And I'm struck at the apparent trusting nature of people in this information age, handing over their financial info to just whom exactly? :)

I don't think I would alter my approach to my finances based on what the population in general were doing, even if they are called my peers.

CurlyDave
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Re: Larry Swedroe: Peers Can Change Financial Behavior

Post by CurlyDave » Sun Apr 14, 2019 10:14 am

Metx wrote:
Sat Apr 13, 2019 2:08 am
The participants in the mentioned Status app are self selected, motivated to have this kind of info. What would be a good control group to focus specifically on the strength of the peer awareness on their behavior? I wonder how their outcomes would compare if they were given advice driven by accepted heuristics for general personal finance instead of just relative to their (however determined) peers?

And I'm struck at the apparent trusting nature of people in this information age, handing over their financial info to just whom exactly? :)

I don't think I would alter my approach to my finances based on what the population in general were doing, even if they are called my peers.
The closest to a control group I can think of is the county workers in Galveston, TX. The county opted out of Social Security in ~1981 and substituted a "privatized" alternative. Everyone who is a county worker has "skin in the game", and the reports I have read in the past are that their financial literacy is much higher than average for the US. They also have much better returns than SS.

Sadly, media stories on this group have been lacking for a number of years. But, Google is your friend, and you can still find a few older articles.

The reason I think this is a valid control group is that the county workers share break rooms and have discussions about their retirement plan among themselves. A pretty decent approximation of a peer group.

From memory, one of the immediate take-aways in the days before universal internet was that in many workplaces the break rooms were dominated by newspaper sports pages. In Galveston there was a noticeable difference. As many financial pages as sports.

Metx
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Re: Larry Swedroe: Peers Can Change Financial Behavior

Post by Metx » Mon Apr 15, 2019 11:46 pm

CurlyDave wrote:
Sun Apr 14, 2019 10:14 am
The closest to a control group I can think of is the county workers in Galveston, TX. The county opted out of Social Security in ~1981 and substituted a "privatized" alternative. Everyone who is a county worker has "skin in the game", and the reports I have read in the past are that their financial literacy is much higher than average for the US. They also have much better returns than SS.

Sadly, media stories on this group have been lacking for a number of years. But, Google is your friend, and you can still find a few older articles.

The reason I think this is a valid control group is that the county workers share break rooms and have discussions about their retirement plan among themselves. A pretty decent approximation of a peer group.

From memory, one of the immediate take-aways in the days before universal internet was that in many workplaces the break rooms were dominated by newspaper sports pages. In Galveston there was a noticeable difference. As many financial pages as sports.
Well, it sounds promising from your info. If as a general rule greater knowledge of peer group financial behavior positively impacts each person's own outcomes, then it might be implemented as a suitable 'nudge' for helping people improve their finances.

heyyou
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Re: Larry Swedroe: Peers Can Change Financial Behavior

Post by heyyou » Tue Apr 16, 2019 1:59 am

Morgan Housel: "Most people are not good at managing money, so to have more money, you should not do what most people do with it."

Larry is right, my peers did influence my saving. I tried to do the opposite of their excessive spending.

AlohaJoe
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Re: Larry Swedroe: Peers Can Change Financial Behavior

Post by AlohaJoe » Tue Apr 16, 2019 2:23 am

CurlyDave wrote:
Sun Apr 14, 2019 10:14 am
The closest to a control group I can think of is the county workers in Galveston, TX. The county opted out of Social Security in ~1981 and substituted a "privatized" alternative. Everyone who is a county worker has "skin in the game", and the reports I have read in the past are that their financial literacy is much higher than average for the US. They also have much better returns than SS.
Somewhat appropriately, the first article I found mentions that one of original major proponents of the "Alternate Plan" in Galveston mismanaged his Alternate Plan account, it has run out of money, and he now gets by on Social Security benefits (that he accrued before switching over).

CurlyDave
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Re: Larry Swedroe: Peers Can Change Financial Behavior

Post by CurlyDave » Tue Apr 16, 2019 9:24 am

AlohaJoe wrote:
Tue Apr 16, 2019 2:23 am
CurlyDave wrote:
Sun Apr 14, 2019 10:14 am
The closest to a control group I can think of is the county workers in Galveston, TX. The county opted out of Social Security in ~1981 and substituted a "privatized" alternative. Everyone who is a county worker has "skin in the game", and the reports I have read in the past are that their financial literacy is much higher than average for the US. They also have much better returns than SS.
Somewhat appropriately, the first article I found mentions that one of original major proponents of the "Alternate Plan" in Galveston mismanaged his Alternate Plan account, it has run out of money, and he now gets by on Social Security benefits (that he accrued before switching over).
Well, the other side of that coin is that I personally was born in 1945, grew up and spent much of my working career in the pre-internet, pre-Bogleheads days. The media was much more conservative in those days, and I read several articles about the Galveston experiment which convinced me that counting on SS for my retirement would lead to living on dog food in my later years.

While I now read about people with higher savings rates, when 401(k) plans were invented my savings rate was about 20%. There were very few of us back then.

But, I did get into an informal investment group at work -- if we saw each other in the cafeteria we would sit together and discuss our strategies. This provided a lot of peer support.

* * * * * * * * * * * *

I do not believe it is possible for a US citizen to run out of money. We have a friend who always worked under the table and has no SS credits. He was disabled several years ago and can not work. He gets $771 per month in SSI benefits, which increase every year. He also gets food stamps. Not a life of luxury by any means, but he gets by and is happy.

nguy44
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Re: Larry Swedroe: Peers Can Change Financial Behavior

Post by nguy44 » Tue Apr 16, 2019 3:36 pm

This seems related to the old saying "show me your friends and I'll show you your future".

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