This is a Part 3 of a Guide we are creating in the IntelligentHQ Series on Collaborative Finance. Collaborative Finance is an umbrella term that assembles together various processes of money exchange happening right now that are revolutionising finance. In the second part of this series we looked at peer to peer lending and now we will look at Social Saving.
What is Social Saving?
Saving is hard, especially for people that are not good with money, or people that do not have a lot of money that they could potentially save anyway. Social saving is a new concept that aims to help people to save through providing support to help people to achieve their goals. The idea behind it is that people are more likely to do what they say they will if a person will hold them responsible for it. As Collaborative Finance explains:
“In terms of goal setting, accountability does not need to be formal – just the fact that someone knows about my goal and will think poorly about me if I don’t complete it is enough to encourage me”.
According to Collaborative Finance this is equally true of financial goals as it is of any other goal. One example of such a service is SmartyPig. This organisation helps the saver and their friends and family to all engage in the saving process. Friends and family are informed of the saver’s goals, and the site even suggests ways in which the saver can get friends and family to donate. While this might be a bit much for some people, just the level of engagement that friends and families know what they are doing will bring appears to be of benefit, providing the pressure that the person needs to stick to their targets. Another great thing about SmartyPig is that social networking tools are offered, and savers can exchange money saving tips with one another. Even better, SmartyPig gives out rewards to those individuals that are able to meet their targets. Account holders that achieve this can, if they wish, buy gift cards that allow a cash-back reward of up to 14% to be received. This may be deposited into a new savings account or added to the card. By providing goals and rewards in this way, social saving does seem to be paying off for some. These types of approaches (goal savings) are designed for short and medium term savings rather than longer term savings plans.
Collaborative Finance also argues the case for “Savings Groups” which it believes to be a revolutionary approach. Savings Groups are explained to be groups that are self-selected of people that get together to save and borrow. Usually somewhere between 15 and 30 people are involved. This is particularly helpful for the very poor, such as people living in villages in developing societies. The Savings Group may also offer loans to members of the group through the collective savings in some scenarios. In this case usually all participants in the group have to agree with the loan and the loan is made only if the borrower is completely trusted. Collaborative Finance explains that there are limits on how much a person can borrow, and commonly this is no more than three times what that particular member has saved.
Money Go Rounds is explained by Collaborative Finance to be a social network that helps people with group saving. It shows how peer to peer services can be used. Within there are rotating savings groups (RSG) that meet and work together to save and borrow. Members contribute the same amount at each meeting, describes Collaborative Finance, and then at each meeting one member takes the whole sum. This is an interesting and innovative form of saving money. The RSG helps to provide people with the self-control needed to save, and helps to tie people in and commit them to saving.
The following video, done by Fidelity Labs explores another possible operating method of social saving connecting it with investing:
Saving through goal visualisation, social commitment and technology
Yet another approach provided by Collaborative Finance is Piggymojo. This website offers the chance to use goal visualisation, social commitments and technology to increase saving. Piggymojo focuses on stopping impulse buying and helping low income earners to increase their saving. Rather than impulse buying they are encouraged to impulse save. It does this by increasing the link between spending avoidance and savings.
In times that are economically challenging for many, encouraging saving through social saving is an important approach that can help people to improve their financial standing, and ultimately their choices and lives. Concepts being applied to social saving are relatively new but it will be interesting to see which direction these take, and if goal based saving and commitment through peer pressure really does help people to achieve their saving goals.
Guide to Collaborative Finance (part1) – What is Collaborative Finance
Guide to Collaborative Finance (part2) – Peer to Peer Lending
Guide to Collaborative Finance (part3) – What is social saving
Paula Newton is a business writer, editor and management consultant with extensive experience writing and consulting for both start-ups and long established companies. She has ten years management and leadership experience gained at BSkyB in London and Viva Travel Guides in Quito, Ecuador, giving her a depth of insight into innovation in international business. With an MBA from the University of Hull and many years of experience running her own business consultancy, Paula’s background allows her to connect with a diverse range of clients, including cutting edge technology and web-based start-ups but also multinationals in need of assistance. Paula has played a defining role in shaping organizational strategy for a wide range of different organizations, including for-profit, NGOs and charities. Paula has also served on the Board of Directors for the South American Explorers Club in Quito, Ecuador.