How Facebook Could Cure Overspending

Tim Ferriss recently wrote about an idea for a gym that would get incredible results.  He claimed that it would have higher attendance rates than any other gym created.  This would then lead to major health improvements.  The members simply had to agree to a few requirements when they signed up.

The first requirement is that when you register for a membership, you must submit a picture of yourself in your underwear.   You must also sign a form that allows the gym to place the picture on their website if you do not show up a set number of times to exercise (e.g. three times a week).

The second requirement was that at the beginning of each month, you would pay an extremely high membership fee.  This would be something like $600.  The gym would then gradually pay you back throughout the month as you came.  For example, the gym would return $50 to your account each time you came to exercise until your total reached a normal membership fee of $50.  Therefore, you make the initial commitment at the beginning of the month and then you are forced to come after that.

The point that Tim Ferriss was trying to make is that negative social pressure can be used as a positive tool.  It might sound a little strange, but we can use public humiliation and fear of financial loss to remove bad habits from our lives.

I began to wonder if this principle could be applied to personal finance.  Could we use negative social pressure in order to create a system where people would save more and also be more strategic with their spending?  Given our current financial situation, I think this would be extremely beneficial.

“I’m living so far beyond my income that we almost may be said to be living apart.” ~ E. E. Cummings

This brought me to the simple idea of placing people’s basic financial information in a public forum like Facebook.  You would not be able to see the person’s individual purchases, but a basic summary.  This could be as simple as only showing their monthly income, expenses, and retirement contribution.  This could still leave out a large portion of a person’s financial situation.  However, it will provide enough exposure to create social pressure for the majority of people.

This could be accomplished by linking a personal finance account on a program like Mint with your Facebook profile.

This is obviously hypothetical, and would only work if it was required.  Very few people would opt-in for this sort of situation since financial information is so personal.  However, I think there would be three huge benefits from requiring people to expose their basic financial situation to the public.

1) People would save more – People can now easily see the difference between your monthly income and monthly expenses.  Those two numbers would create enough social pressure to cause people to lower their monthly expenses by eliminating unnecessary items.

2) People would spend less on their image – We often buy with the intent to create an image for ourselves.  We want to impress those around us so we purchase a certain size house, type of car and style of clothes.  If people could easily see that you were not able to afford those fancy items, then it would make you look foolish to have them.  It would create the opposite effect of its original intent.  Social pressure once again creates a positive effect.  (How many lines of clothes, purses, jewelry, cars, etc. can you think of that are strictly created to improve a person’s image?)

3) People would be admired for saving – People would begin to admire others based on their financial situation instead of their image.  People would no longer depend on how they are PERCEIVED.  Everyone could instantly tell if they are faking it.  Those who live frugally and spend smartly would be admired for these traits.  Could people actually gain social status by saving?

This concept created a ripple effect of questions based on other financial issues in our society:

Would people stop buying houses that they can’t afford?

Would people buy more economic cars since they are no longer contributing to their image?

Would changes be put into effect to shrink the gap between the wealthy and poor as the actual numbers are exposed in an easily accessible format?

Would people become more financially literate since it would allow them to earn a higher social status?

I also understand that we have a right to privacy and that this would be a huge violation of that.  However, the benefits could be potentially worth the alteration to our privacy.  It makes you start to wonder if we can find a line between maintaining privacy and creating positive change.  It is amazing the types of personal information people expose to the public right now.  Could two or three numbers about a person cause a huge transition in our culture?  Interesting to think about.

“Without frugality none can be rich, and with it very few would be poor.” -Samuel Johnson

I think this could create a huge shift against greed and toward giving.  Could this actually work? What negatives and positives do you see in creating a system like this?

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