Financial Voyeurism

Part I of the “Why is Prosper.com so Addictive?” Series

Americans don’t talk about money. To be more specific, we don’t talk about personal finances with friends and family. The only time money is discussed is usually limited to conversations revolving around the lack of it and the desire for more, but the intricacies of money management and the specifics of one’s financial situation are mostly taboo conversation in the US. Hell, I would guess many married couples are hard pressed to discuss their own finances together.

Over the past few years, popularity of personal finance bloggers has exploded. One of the reasons is that these individuals expose the inner workings of their financial life to the public. How much they make, how much they have invested, how much debt they have, how much they spent on beer last month, etc… This gives the average American the opportunity to pry into the financial life of a complete stranger and compare notes – something we’ve rarely had the chance to do before.

Some of the most popular personal finance bloggers are extremely diligent with their finances. They save and invest whenever possible, reduce expenses with passion, and are in general just a bunch of cheap and frugal bastards (you know I say this with love :) ).

A lot of Prosper lenders live very similar lifestyles, which affords them the resources to invest in the personal loan asset class such as Prosper (which should be pretty far down on the investment priority totem pole, I should add). For Prosper lenders, these personal finance bloggers are nice resources as they allow us to benchmark our own financial condition with someone that may be considered a peer.

But this peer group is only a small fraction of the financial spectrum found in America. What about the not-so-frugal types? Or those on relatively small or large incomes? Or the guy you see on the expressway with the oh-so-expensive car you’re pretty sure he can’t afford and you’re almost certain he didn’t steal?

Enter the thousands of loan listings on Prosper. A majority of Prosper loan listings are from those with less than stellar credit (I would consider that as, say, E or HR territory). Based on the credit data provided from Experian and the listing descriptions provided by the borrowers themselves, it wouldn’t be a far stretch to say most of these potential, low credit borrowers pay very little attention to the proper and careful management of their own personal finances.

And that’s what makes it so interesting for the average Prosper lender. Prosper listings give the cheap and frugal type the chance to peer into the financial life of a stranger that may have taken a very different approach to personal financial management.

Unfortunately Prosper lenders do not get to see the whole story. In the borrower description, we can only see what the borrower chooses to write, and we cannot even be sure it’s accurate or true (especially the budget numbers). The Experian data is very limited as well. So we are often left to speculate how in the world a particular borrower arrived at this point in their life. Was it a series of unfortunate events? Was it out of control spending (that fancy new car, iPod, and iPhone)? We’ll never know.

But we do know that it’s pretty intriguing to have the opportunity to peer into the financial lives of complete strangers, since we normally are not given this chance - even with friends and family. And the constant creation of Prosper listings provides an endless flow of new financial windows for peeping into, one of the reasons we can’t stay away from Prosper…

Part 2 - Tales From the Dis-Crypt-tion
Part 3 - A Lawyer, Doctor, and Statistician Walk into a Bar