The pressure to spend because of social media envy and the desire to not be left out of friends’ experiences apparently is leading to some bad financial habits, according to new survey results.
Schwab’s 2019 Modern Wealth Survey finds that more than one-third of Americans admit their spending habits have been influenced by images and experiences shared by friends on social media and confess that they spend more than they can afford to avoid missing out on the fun.
Schwab’s annual examination of how 1,000 Americans think about saving, spending and investing also finds that three in five respondents pay more attention to how their friends spend compared to how they save, with an equal number saying they are confused by how their friends can afford the expensive vacations and meals they share on social media.
And remarkably, it’s the social media platforms and not people that survey respondents place the most blame on – they rank social media as the biggest “bad” influence when it comes to how they manage their money, while they place friends and family at the top of “good” influences. “The burden to ‘keep up with the Joneses’ has been part of our culture for decades, but it appears that social media and the fear of missing out (FOMO) have increased the pressure to spend,” says Terri Kallsen, head of Schwab Investor Services. “Spending is not the enemy, but when we allow social pressure or other forces to lure us into spending beyond our means, it can impact long-term financial stability and become a larger problem.”
Despite the financial pressures from social media, nearly 60% of respondents consider themselves to be savers and 65% say they are willing to sacrifice spending money on current experiences in order to save money for later in life. However, a significant number of respondents admit that they are still struggling to save, yet they also spend a large amount on non-essential items:
- 59% live paycheck to paycheck;
- 44% typically carry a credit card balance;
- only 38% have built up an emergency fund; and
- on average, they spend nearly $500 a month on non-essential items.
What’s more, when asked what they would do with a sudden $1 million windfall, more than half (54%) of respondents said they would spend it – on a house first, followed by cars and travel. In addition, they say they would use the funds to pay down debt (28%), invest (23%) and save (21%). One bright spot is that Generation Z respondents, at 37%, were more likely than their older counterparts to say they would save at least a portion of their earnings.
Planners vs. Non-planners
For those looking to make better spending and investment decisions, the results show that more than 60% of respondents who have a written financial plan feel financially stable, while only one-third of those without a plan feel that same level of comfort.
Consider some key differences in money habits between planners and non-planners, based on those survey participants who say they have an investment account:
- Pay bills and save each month (78% of planners versus 38% of non-planners)
- Automate a portion of their income to go into savings (74% of planners versus 25% of non-planners)
- Have an emergency fund (68% of planners versus 26% of non-planners)
Planners reportedly also demonstrate better investing behavior, compared to non-planners:
- Consider risk tolerance when investing (75% versus 56%)
- Are aware of fees and investment costs (74% versus 49%)
- Regularly rebalance their portfolio (85% versus 57%)
- Feel “very confident” about reaching financial goals (56% versus 17%)
Yet, despite the benefits of planning, Schwab’s survey shows that only 28% of respondents have a written financial plan. And among those without one, nearly half (46%) say it’s because they think they don’t have enough money to merit a formal plan, 18% say it’s too complicated and 13% say they don’t have enough time to develop one. “We want to change the perception that financial planning is inaccessible, too expensive and too complicated,” notes Kallsen. “Most people have short-term and long-term goals, either in their heads or documented informally.”
The online survey was conducted by Logica Research from Feb. 8 to Feb. 14, 2019, among a national sample of 1,000 Americans aged 21 to 75 and an augment sample of 200 older Gen Zers aged 18-22 for generational comparisons.