&l;p&g;&l;img class=&q;size-large wp-image-1736&q; src=&q;http://blogs-images.forbes.com/elizabethharris/files/2018/05/Majd-Headshot-2-1200×800.jpg?width=960&q; alt=&q;&q; data-height=&q;800&q; data-width=&q;1200&q;&g; Before&a;nbsp;co-founding&a;nbsp;the website Status Money, CEO Majd Maksad,&a;nbsp;became curious about the question,&a;nbsp;&l;span&g;&a;lsquo;How do you get people to change behavior?&a;rsquo;&a;nbsp;&l;/span&g;An early look at the increased savings of users of the website suggests the powerful influence that watching others in a similar situation can have on our own decisions.
In the depths of the Great Recession, Majd Maksad, a data analyst was examining reams of data on Americans&a;rsquo; finances as an analyst for Citi, when he made a surprising observation. Even as many economists, pundits and individuals&a;nbsp;credited the financial crisis and its aftermath for ushering in a new era of greater frugality and leading to what many heralded as a healthy deleveraging of household balance sheets, Maksad didn&a;rsquo;t see that in the data. Instead, around 2010,&a;nbsp;his analysis&a;nbsp;showed continued spending. And while there was deleveraging,&a;nbsp;Maksad found&a;nbsp;that&a;nbsp;it was driven largely by writing off bad debts through foreclosures and personal bankruptcies, not necessarily personal choice.
&a;ldquo;It wasn&a;rsquo;t a change in behavior that was occurring,&a;rdquo; Maksad&a;nbsp;says. &a;ldquo;And that raised the question: &a;lsquo;How do you get people to change behavior?&a;rsquo;&a;rdquo;
The next natural question, perhaps for a data scientist became: what if everyone could have the benefit of such transparency? Could seeing what other people in a similar situation were actually doing help you make better choices? The culmination of that effort, along with his business partner Korash Hernandez, is the website &l;a href=&q;https://statusmoney.com/&q; target=&q;_blank&q;&g;Status Money&l;/a&g;, launched last fall, aiming to match individuals to an appropriate, deidentified peer group based on several factors including income, geography and age to compare their finances.
The notion that promoting social norms can encourage all kinds of desired behavior, from &l;a href=&q;https://e360.yale.edu/features/how_data_and_social_pressure_can_reduce_home_energy_use&q; target=&q;_blank&q;&g;reducing energy costs&l;/a&g; to even &l;a href=&q;http://www.forbes.com/sites/elizabethharris/2016/10/26/memo-to-trump-and-clinton-heres-the-psychological-secret-to-pumping-up-voter-turnout/&q;&g;voting&l;/a&g; has been observed for some time. But spending and saving patterns are so specific to where we live, our profession, age, etc., one challenge is to find a truly similar peer group. Then there are the financial privacy and transparency questions &a;mdash; how do you find a large enough group to be able to spot patterns and comparisons? If you are a teacher in your 30s, living and working in the Boston area, how much &l;em&g;do&l;/em&g; other people in similar circumstances spend on rent? Or on entertainment and restaurants? What about savings? What are their interest rates? And if you could really take a close look at what was really happening, would that change your own choices?
&l;a href=&q;https://statusmoney.app.box.com/s/u88n61o9rhb57s6aiybt29g03syl1php&q; target=&q;_blank&q;&g;A first look at the behavior of early users&l;/a&g; suggests that comparing to peer groups (a minimum of 5,000 people) could have a significant influence on such choices. This review of over 6,000 Status Money users between September 2017 and April 2018, showed a decline in spending by a substantial $600 a month, according to an analysis conducted by Professor Michael Weber at the University of Chicago Booth School of Business and Professors Alberto Rossi and Francesco D&s;Acunto at the Smith School of Business of the University of Maryland. The magnitude of the spending cuts surprised even the researchers.
&a;ldquo;I was not expecting this much of an effect,&a;rdquo; Rossi says. Granted, this is an initial glimpse into how behavior may change, and the researchers intend to continue studying to see what the effect may be longer term and as the site grows. It&a;rsquo;s also not clear at this point whether the savings is then being invested or used to reduce debt. But the potential for making significant gains toward long-term goals is promising, particularly since unlike cutting back on energy savings, this could have a larger effect on an individual or household&a;rsquo;s budget, they say.
&a;ldquo;In this case the type of decisions that people make have really important effects on the long run and their ability to accumulate wealth,&a;rdquo; D&a;rsquo;Acunto says. &a;ldquo;We&a;rsquo;re talking not only about the size of the effect, but also cutting consumption today means increasing the amount of savings over time may be able to accumulate.&a;rdquo;
Status, which is free, not only allows peer comparisons across spending categories from shopping to restaurants and even commuting costs, its algorithms analyze users&a;rsquo; accounts and suggest recommendations for further savings, according to the company. The idea behind it is that showing relevant comparisons helps&a;nbsp;people &a;ldquo;benchmark&a;rdquo; their finances to quickly identify areas where they may be spending too much or not saving enough or getting noncompetitive interest rates.
&l;!–nextpage–&g;&l;p class=&q;tweet_line&q;&g;&a;ldquo;The absence of information doesn&a;rsquo;t facilitate good decisions,&a;rdquo; Maksad says.
The site, which has 40,000 users and is growing, up from 10,000 in January, doesn&a;rsquo;t compare those users to each other, but to the spending habits of over one million unique peer groups across the country, according to Maksad. This was a significant challenge to find enough data to enable accurate comparisons. In this case, aided by information from large data companies, Maksad declined to identify, which provide anonymized transactions &a;mdash; scrubbed of any personal information &a;mdash; of more than 15 million people, updated daily.
Clearly anyone who is motivated to sign up with Status Money (named as a nod to the two founders&a;rsquo; statistics background, hence &a;ldquo;stat&a;rdquo; and to the greater community of all of &a;ldquo;us&a;rdquo; rather than to evoke any &l;a href=&q;https://www.washingtonpost.com/lifestyle/magazine/in-1987-oliver-stones-wall-street-hit-theaters/2017/12/04/908c556e-bd82-11e7-8444-a0d4f04b89eb_story.html?noredirect=on&a;amp;utm_term=.3ad59ffb3f86&q; target=&q;_blank&q;&g;Gordon-Gekkoish&l;/a&g; &a;ldquo;greed is good status&a;rdquo;) may be a self-selecting group. The first 10,000 users were &a;ldquo;quite savvy&a;rdquo; as Maksad said, with higher incomes, more than double the average income, most over $100,000, with credit scores over 700 and tending to live in urban areas. Their early remarks, through feedback and support lines showed, &a;ldquo;they&a;rsquo;re actually impressed by how well they&a;rsquo;re doing,&a;rdquo; Maksad says.
Maksad himself says that even he has benefitted from the exercise. When stacked up against his peer group in New York City &a;mdash; two areas quickly stood out that he and his wife could improve: their primary savings account was earning a paltry 10 basis points (1/10 of 1%). And second, spending on travel and restaurants was much higher than their peer average ($586 a month at the time) and far above the national average ($257 a month). This&a;nbsp;motivated them to make a few changes, moving savings to a high-yield online account and setting trackers to help curb restaurant spending.
&l;p class=&q;tweet_line&q;&g;&a;ldquo;Full transparency is nice &a;mdash; it&a;rsquo;s a nice buzz word but it has to be useful,&a;rdquo; Maksad says. &a;ldquo;And in order for it to be useful, it has to be relevant.&a;rdquo;&l;/p&g;