According to Pew Research Center, 72% of the American population are active on social platforms, including YouTube, Facebook, Twitter, Pinterest, Instagram or LinkedIn. Or, Global WebIndex says, all of the above: people spend an average of 2 hours and 24 minutes per day multinetworking across an average of 8 social networks and messaging apps. The reasons why we can’t seem to resist social media are legion. One of the most important being that it gives us endless opportunities to engage in our favourite pastime: comparing ourselves to others.
Yes, we all do it. In fact, we’ve been doing it since well before Facebook. Social comparison theory was first proposed by Leon Festinger in 1954. According to the late social psychologist, humans have an innate drive to measure themselves against others to gain a better idea of their own abilities, traits and opinions. In other words, to define their social and personal worth based on how they measure up against their peers. Social comparison is what helps us navigate and thrive in our highly complex and deeply interconnected world. It starts at a very young age and never really ends. As much as 10% of our thoughts revolve around comparisons of some kind, research says.
As much as 10% of our thoughts revolve around comparisons of some kind.PshychologyToday.com
But what does this all mean when it comes to our finances? Can comparing our own financial situation to others help us become savvier with money? And how can banks use the power of social comparison to foster financial responsibility?
These were the questions that have inspired us to develop W.UP’s peer comparison feature, and here’s why I think it might be a powerful ally for banks – and banking customers – in building healthier financial habits.
When we’re looking for benchmarks to evaluate ourselves against, we tend to choose comparison targets that are similar to us. Which makes sense, because this is how we can end up with the most accurate “diagnostic information” possible. With finances, however, this gets tricky fast. First of all, we don’t have a huge pool of individuals, besides those around us, who we can compare ourselves to. But even if we did, we would hardly have the capacity or means to obtain and objectively analyse relevant information for self-evaluation and self-improvement.
Banks, however, have both. They collect massive amounts of customer data, from transactional through card usage to geolocation information and can leverage AI and ML technology to identify people with similar earning and spending patterns. Then show opt-in customers how their behaviours compare to those of their peers.
The benefits of taking a data-first, algorithm-based approach to peer comparison is twofold. It offers clean, reliable benchmarks based on large and comprehensive datasets. And it does so without any input needed from customers. Peer comparison functions first popped up in PFM tools in the mid-2000s. The main reason why they didn’t become mainstream is that it was the user who had to manually choose comparison criteria from a very limited selection.
Using our personalisation platform, for example, banks have the ability to show customers how their – and their peers’ – budgets compare to the ideal 50/30/20 budgeting rule. They can also highlight categories where people overspend or undersave and give them pointers on where to shave off expenses. Or keep them up-to-date with ever-changing spending trends, in and outside of their own households.
In the end, they might turn social comparison from something instinct-driven into data-driven. And a vital tool for building financial stability for the future.