How Facebook is Ruining Your Savings

The Good Old Days

Back in the days before social media and our always-connected society, the term “Keeping up with the Joneses” simply referred to comparing yourself to your neighbor or close friends.  If your friend got a new house, all of a sudden, your house didn’t seem so great and you started to think that maybe it was time to upgrade.  Of course, if you did end up buying a new house, then probably one of your other friends would start thinking it was time.

A Connected World

Enter social media.  Now in an instant, we can easily connect (and if we’re honest, probably obsess) with just about anyone.

A friend of a friend? Now you’re Facebook friends.

That guy you met at a party one time? Now you follow him on Twitter.

You can even follow the trials and tribulations of people’s pets on Instagram!

While all this connectivity can be great, it also has widened our social circle and in turn, widened the group of individuals we compare our lives to.

Keeping Up with the Digital Joneses

It should come as no surprise that the new “Keeping up with the Joneses” is now online.  There is even a new term for it: Fear of Missing Out (FOMO).  What is surprising is how much it actually influences people.

A recent study by the American Institute of CPAs found that 4 out of 10 US adults with a social media account said that seeing other people’s purchases made them look into a similar purchase themselves.  That’s 40%! Around 11% of these individuals actually ended up making the purchase.

Just let that sink in, a little over 1 in 10 people were influenced into buying something just because they saw it on social media.

The Age of Comparison

These results illustrate just how dangerous our online lives can be to our financial lives.  Fear can be a powerful motivator and now that we’re so connected, FOMO has become something of an epidemic.

Before social media, it was easier to avoid the trap of making unnecessary purchases because our circle of friends was smaller.  We never really worried about missing out

Now every minor acquaintance is a comparison.  Even worse, we now have unfiltered access to celebrities who can afford a lifestyle the average American can’t even dream of.

How is someone supposed to compete with that?  You Can’t.

The Future is Bleak

What another recent study by Go Banking Rates found, was that 62% of American have less than $1,000 in savings.  Of that 62%, 49% responded as either not having any savings or not even having a savings account!

This study illustrates 1) Americans are clearly overspending on their lifestyle and 2) those people you’re trying to keep up with probably really aren’t much better off than you.

The Downside of Social Media

Let’s start with the first point.

If you’re constantly afraid you are missing out, you won’t be paying much attention to your financial health.  The new pair of Air Jordan’s you saw on your friend might seem like a must-have in the moment, but it’s fleeting.

You’d think most people would realize that overspending today will hurt you in the future.  That’s true, but humans aren’t very good at estimating future losses.  We have a high discount rate, meaning we have a hard time delaying a reward to a future time.

When we see something on social media, all we think about is the present.  We aren’t worried about how spending money now will give us less for retirement.  Instead, we say, “Retirement’s so far away, I’ll start saving tomorrow.” This is why two-thirds of Americans don’t have $1,000.

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False Lifestyles

To my second point, if two-thirds of Americans don’t have $1,000, chances are most of those people you’re comparing yourself to online really can’t afford everything they are buying anyway.

They are probably overextending themselves financially and by copying them you will be following them down a bad financial path.

A healthy savings account doesn’t sound sexy.  But you know what does?  Being able to travel and enjoy retirement.  People who spend and spend won’t be able to do either because they’ll be working into their 80s.

Breaking the Cycle

What can you do to avoid falling into the Jones’ trap?  Realize the fear is only in your mind.

Try unplugging a bit.

This can be difficult, but even if you start with one day a week or even a few hours a day you can learn to reduce your dependency on social media. Try leaving your phone somewhere you can’t easily reach it.  That way you won’t be tempted by constant alerts.

Another tip is to just tell yourself that what you see online is really an illusion.  Next time you see a friend get a new car, just remind yourself you don’t know their financial situation.

Maybe they can afford the car or maybe they are overextended and really should not have made the purchase.  Either way, you know that you’re living within your means and in the long run, it will pay off.

Have you found yourself buying something just because you saw it on social media?  Let me know in the comments.