Does Social Media Encourage Bad Spending Habits?

By the look of things on social media, you really can have it all.

A new pair of designer shoes … a champagne toast over brunch … swimming in a private infinity pool with a view of the ocean … you want it? Come get it!

In reality, most U.S. adults cannot afford to live that dream. Sixty-one percent of Americans report living paycheck-to-paycheck, and even some of those who make over $250,000 are spending every dollar they earn between pay periods.

Credit Karma says that 20% of Gen Z’ers said they don’t save money, not because they earn too little, but because they’re spending more on things like shopping, travel and concerts.

It might seem like a stretch to blame social media for careless spending habits, but there’s a wealth of evidence pointing toward the stories, reels and posts in our social media feeds that cost us money.

Three Ways Social Media Enables Bad Spending Habits

Social media is causing us to spend a lot of money we don’t have. Here’s how:

1. The Myth That Luxury Is Affordable

Scroll through TikTok or YouTube for just a few minutes, and you can see a dozen videos that feature trendy clothes, expensive beauty products and high-end hotels.

It might seem like everyone else is enjoying top-of-the-line products and vacations while you’re struggling to pay rent, but reality is quite different:

• Over a third of people admit they overspend in order to keep up with the fun they see their friends having on social media.
• 40% of Gen Z’ers are willing to spend more on experiences than necessities, while 28% say they’re unable to save money.
• Nearly 30% of 18-25 year-olds live with a parent, as well as a quarter of people aged 25-34. These age groups are also the two largest audiences for Facebook ads.

2. Financing the Fantasy

So, what do you do if you can’t afford that trendy new outfit or the latest iPhone?

Social media influencers might encourage you to cover the bill with a buy now pay later (BNPL) service, like Affirm, Afterpay, Klarna or PayPal. What they don’t mention is that BNPL turns your purchases into loans, with interest rates as high as 30%.

According to a report from DebtHammer, more than 45% of U.S. adults have signed up for at least one BNPL plan, and in 2021 they spent more than $20 billion using BNPL services. Just over a fourth of those people told The Ascent that they first heard about BNPL through social media.

Here’s what people report about their experiences with BNPL:

• 45% use the services to make purchases that don’t fit in their budgets
• 55% spend more when using BNPL
• 30% have struggled to make their payments
• 20% of people who had a BNPL loan missed a payment in January 2022

3. A Breeding Ground for Bad Financial Advice

Turning purchases into loans isn’t the only bad advice influencers are handing out to followers. Want to learn how to flip houses or make money by day trading? You can find unqualified advice for that, too.

In a 2021 survey, more than 50% of Gen Z’ers said they went to TikTok to discuss financial planning and to Instagram for financial advice. More than a third of teens also report learning about money from social media. Unfortunately, they may be getting bad information.

The problem of financial misinformation got so out-of-hand that in 2021, TikTok banned the promotion of cryptocurrency, loans, pyramid schemes and other financial products and services on the platform. Meta— formerly Facebook—once held a similar policy but has become less restrictive over time.

Unfortunately, many people are still suffering the consequences of bad investment advice, and the cryptocurrency hype in-particular:

• In 2021, 26% of millennials said they saved for retirement with cryptocurrencies, but the most popular crypto (Bitcoin) lost more than half of its value between January and July of 2022.
• Since 2021, the Federal Trade Commission (FTC) has received reports of over $1 billion in consumer losses to crypto scams, and nearly half of the incidents started with an ad, post, or message on a social media platform.

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How to Avoid the Influence

Not only does social media promote overspending, but it can harm your mental health. If you want to improve your financial habits and your overall well-being, there are a few things you can do:

• Clean up your feed: Unfollow accounts and unsubscribe from channels that promote expensive products and lifestyles.
• Screen your influencers: Check the credentials of anyone offering financial advice. Find out if they’re paid to promote products and services that could impact the advice they give. When in doubt, run financial advice by a qualified professional before taking action. Credit counseling is a good place to start.
• Automate your savings: Prioritize savings over clothes, dining out and other non-necessities. Start by setting up an automatic monthly deposit to a savings account, for roughly the same amount you would spend on one meal or one retail purchase.