Posted by Mike Smith :: December 27, 2007 @ 7:33 am

In my recent post about financial advice from friends and family, I discussed how those around you are the most likely sources of your financial advice. These people are also the ones who will influence your spending and savings habits.

This happens because your friends are usually your basis for defining what is “normal.” Seeing the majority of your friends act a certain way will probably lead you to believe that the majority of all people act in that way. While large groups tend to be indicative of smaller groups of average people, the reverse is seldom true.

This idea is especially true when we consider our most influential financial role models: our parents. I have a friend who assumes that everyone is a hyper-spender mired in credit card debt because that’s the way her parents live. She can’t understand why we don’t spend more money, despite repeatedly being told that we have everything we need without overspending. Not surprisingly, my friend is not in a very good financial position. Luckily for me, it’s just my one friend who lives this way, so her influence on me is balanced by that of other, more fiscally responsible, friends.

Your friends also form the basis of your support group. If they don’t understand the importance of setting a budget, for instance, then they likely won’t be supportive when you cite your budget as the reason for not spending. If they see more value in appearing affluent than becoming affluent, then they won’t understand your rationale. Similarly, if your friends are spending every penny they make (or more), then financially responsible investments like social lending on Lending Club are going to be way outside their line of thinking.

These types of discrepancies in thinking will likely either weaken the friendship or force one of you to change. Since applying financial discipline is more difficult than the alternative, it will likely be you that will change if you’re not vigilant about maintaining this discipline. This is especially true if it’s a “you against many friends” scenario.

By not changing to your friend’s financially irresponsible ways, you’re left with the alternative of the friendship weakening. While even good friends can surely disagree, allowing yourself to adopt a friend's poor financial habits may not be worth the value of the friendship.