July 20, 2024
When users are constantly exposed to stories of overnight millionaires, luxury-lifestyle influencers and displays of extravagant spending, they are bound to feel negatively about their own financial situation

René Bennett | (TNS) Bankrate.com

Social media platforms have become powerful forces in shaping our perceptions, behaviors and financial aspirations. Whether it’s scrolling through Instagram’s lavish travel posts, digesting bite-sized financial tips on X (formerly Twitter) or watching TikTok influencer content, social media impacts our financial lives and how we feel about ourselves in more ways than we might realize.

One effect of social media that’s been highlighted by several Bankrate surveys is how it impacts expectations of financial stability and success, particularly among younger people. When users are constantly exposed to stories of overnight millionaires, luxury-lifestyle influencers and displays of extravagant spending, they are bound to feel negatively about their own financial situation.

As users strive to emulate the lifestyles they see on their screens, they can fall into unhealthy money habits like impulse spending. The attempt to live up to the digitally curated ideal can distract consumers from healthy steps toward financial wellness, such as budgeting and saving.

“Social media can essentially be the new roadside billboard, only it accomplishes traditional advertising’s goal in a much savvier way: It decorates seemingly normal, everyday people in those vacations, outfits or products on the market,” writes Sarah Foster, Bankrate principal U.S. economy reporter. “But we see in our Bankrate surveys that those purchases — especially impulsive ones — harm our finances more than benefit our lifestyles.”

Social media and money statistics

—Over a third (34%) of U.S. adults who use social media say it’s made them feel negatively about their finances. (Bankrate’s social media survey)

—Younger generations are the most affected by social media — 47% of Generation Z and 46% of millennials say they’ve felt negatively about finances due to social media. (Bankrate’s social media survey)

—Social media frequently leads to impulsive spending: 49% of social media users said it led to them making an impulse purchase, and 64% of those regretted it. (Bankrate’s social media survey)

—A majority (62%) of social media users say they believe people they follow post things to make themselves look successful. (Bankrate’s social media survey)

—Only 28% of U.S. adults say they are financially secure. (Bankrate’s financial freedom survey)

—As of the beginning of 2023, 88.6% of U.S. consumers ages 18 and over use some form of social media. (DataReportal’s Digital 2023 report)

How social media impacts views on finances

The all-too-familiar narrative of financial success portrayed on social media platforms often leads to an unrealistic perception of wealth. Much of this has to do with the comparison that results from constant exposure to the lives of those seemingly more prosperous.

More than 1 in 3 American social media users say they’ve felt negatively about their finances after seeing others’ posts, according to Bankrate’s social media survey. This discontent can lead to irrational financial decisions, like overspending or taking on unmanageable debt to match the perceived success of others.

The exposure to carefully curated depictions of success and happiness can also impact our perception of what we need to be financially comfortable. Bankrate’s financial freedom survey found that, on average, Americans believe they would need a lofty yearly income of about $233,000 to feel financially comfortable. While this amount can be influenced by various factors, it’s impossible to ignore the role of social media in inflating these expectations.

It’s crucial to remember that social media platforms predominantly showcase people’s highlights rather than their struggles or average days.

This “game” often pushes users to aspire toward a lifestyle beyond their means, fueling dissatisfaction and stress around personal finances. Financial comfort and success are highly personal and should align with each person’s unique goals and realities, not the curated lives depicted online.

How social media affects younger generations

The rise of social media platforms like Instagram and TikTok has revolutionized the way younger generations communicate, learn and perceive the world. They also impact the financial views and behaviors of these younger users, shaping their expectations about money and financial security.

It likely isn’t a surprise that younger people are more active on social media. For example, on Instagram, one of the leading social media platforms, 32% of users are between the ages 18 and 24, and another 29.6% are ages 25 to 34, according to April 2023 data compiled by DataReportal. By contrast, all users aged 45 and over make up for only 15% of the platform’s user base.

Social media platforms can amplify feelings of financial insecurity among the younger demographic. Of Gen Z social media users, 47% said they experienced negative feelings about their finances after viewing others’ posts, and a comparable 46% of millennial users said the same, according to Bankrate’s social media survey. Meanwhile, only 31% of Gen X and 22% of baby boomer users reported similar feelings, indicating a significant gap in how social media affects different generations.

There’s another concerning issue with how social media affects younger people. Among parents whose children are under age 18 and active on social media, 64% say social media has contributed to their kids having unrealistic expectations about money. For many young people, the seemingly effortless and lavish lifestyles shown on social media can skew how they perceive financial realities.

Social media and impulse buying

While digital shopping can provide convenience, it also encourages impulse buying, through means such as targeted advertisements, in-app purchases and “Buy Now, Pay Later” (BNPL) services.

Bankrate’s social media survey found that around half (49%) of social media users made an impulse buy after seeing a product on social media, with 64% of those experiencing buyer’s remorse afterward. Financial strain, guilt and dissatisfaction after an impulse purchase can all contribute to the prevalence of buyer’s remorse.

BNPL services, in particular, have made impulse buying on social media easier than ever. BNPL works by allowing consumers to defer the payment for a product over time, through multiple smaller payments, and in many cases without interest. With just a few taps, consumers can purchase a product they have just discovered through a social media platform, even if they don’t have the funds to immediately cover it.

According to a study by the Consumer Financial Protection Bureau, those who use BNPL services spend a median of around $1,000 in a year in total BNPL purchases. The study also indicated that these borrowers were more likely to have no savings: 25% of BNPL users had zero non-retirement savings, compared to 16% of non-BNPL users.

A major concern with BNPL services, and social media purchases in general, is that they can make it too easy for consumers to buy items they might not need or can’t afford in the long run, discouraging healthy saving habits.

The ease of impulse buying on social media and the resulting financial strain can be a serious issue for consumers who are trying to live up to a particular image of success. However, being aware of these potential pitfalls is the first step toward managing them. Financial literacy, contributing to a savings account and being mindful about how you engage with content on social media can help you maintain financial health while still enjoying the convenience social media has to offer.

“The trick to avoiding financial harm on social media comes down to staying true to yourself, following accounts that encourage you to stay true to yourself and avoiding comparing your lifestyle with others,” Foster says.

Frequently asked questions

—How many people use social media?

Data from DataReportal shows that 235.1 million — or 88.6% — of U.S. adults use at least one social media platform, as of February 2023.

—What is financial freedom?

Financial freedom, broadly defined, refers to having sufficient personal wealth to not have to worry about living paycheck to paycheck. Each person’s idea of financial freedom can vary. For some, for example, it might mean the ability to retire early. Others might feel financially free when they can quit a salaried job to pursue a passion project.

—What is impulse buying?

Impulse buying is when you make an unplanned or spontaneous purchase, driven by emotion or immediate gratification rather than careful thought and planning. Often, social media platforms can trigger impulse buying due to their integrated shopping features, targeted advertising and sponsored influencer content.

(Visit Bankrate online at bankrate.com.)

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