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Is Peer Pressure Wrecking Your Savings?

By Maurie Backman – Updated Oct 6, 2016 at 8:08AM

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Believe it or not, social media may be the cause of your financial woes. And that's not a good thing.

If there's one thing Americans seem to be struggling with, it's saving money. Almost two-thirds of Americans have less than $1,000 in savings, and it's not just the lower class that's falling behind. In a study by the Federal Reserve Bank, almost 25% of households earning between $100,000 and $150,000 a year said they'd have trouble coming up with $2,000 within a month's time. And while there are lots of reasons many of us aren't saving -- stagnant wages, high living expenses, and student loans, to name a few -- it seems that younger Americans have an additional hurdle to overcome: social media.

Image source: Getty Images.

According to a study by TD Ameritrade, peer pressure from social media is causing millennials to spend more and save less. In fact, almost 25% of younger Americans say they feel pressured to match their friends' spending habits, while 15% admit to spending money to make a good impression on others. It's a definite problem, and it's by no means limited to millennials.

Social media and our money

Though the problem of keeping up with the Joneses has existed for decades, the advent of social media has made it increasingly easy to take coveting to the next level. Now, we're not just competing with our neighbor's new deck and freshly landscaped lawn. Rather, we're competing with people everywhere who always seem to have it all -- especially money.

As a result, many of us are spending more than we can afford in an effort to keep pace with our braggart friends, and while the problem isn't limited to younger folks, millennials seem to be getting hit the hardest. Thanks to social media, 57% of millennials now feel that they need a "substantial amount of money" above what it costs to pay their basic living expenses. Only 34% of baby boomers, by contrast, feel similarly. Furthermore, millennials are twice as likely as boomers to compare themselves to others.

Of course, there's nothing wrong with wanting more, but the problem is that many younger Americans spend money as though they have more, when in reality, they don't. And as we all know, social media hardly tells the whole story.

The picture you see of that young couple enjoying a $200 meal at their local steakhouse? There's a good chance they're feasting on instant noodles every other night of the week to compensate. That Caribbean vacation your old college roommate went on? It'll probably take him a year to pay it off from his credit card, which means it'll end up costing him more than it should. Or, maybe it's the first vacation he's taken in the decade since you've graduated.

The thing to remember about social media is that what you see needs to be taken with that proverbial grain of salt. Social media makes it easy for those of us who don't have money to pretend like we do, but there's a real danger in not being more honest with our peers.

If you see a coworker who conceivably earns the same salary as you buying a much bigger house and spending weekends at the local country club, you may start to wonder what's wrong with you. After all, if he can afford those luxuries, why can't you? In reality, that guy might be racking up loads of debt in an effort to create a lifestyle he can't really pay for. But unless he comes clean, you might be tempted to start matching those spending habits -- either because you want to keep up, or because you're tricked into believing that if he can do it, surely you can do it, too. It's a bad, bad cycle, and it needs to end.

Ignore thy neighbors

There are numerous studies that show how quitting social media can make you happier, but if you're not ready to go cold-turkey, then at least pledge to stop trying to match other people's spending habits, and instead focus on your own savings needs and goals. There's nothing wrong with putting money aside each month for a nice vacation at the end of the year, but take that cruise because you want it and can afford it, not because your buddy did it last year.

Let's say your friends encourage you (whether directly or indirectly) to spend $5,000 on a vacation just like they're doing. If it takes you two years to pay off that trip at 14% interest (which is what many of today's credit cards charge), it'll actually end up costing you $5,760. Meanwhile, you don't know how your friends are paying for their vacation. Maybe their parents are lending them the money interest-free. Maybe they're using money from savings or a bonus. Or maybe they're charging it and paying it off. But just because they're willing to throw out $760 doesn't mean you should be willing to follow their lead. And if it happens to be that they do have the money -- whether they earned it directly or not -- then trying to keep up could seriously end up hurting you financially.

You never know where somebody else's money is or isn't coming from, so there's no point in comparing yourself to the people you see on social media and trying to emulate their spending habits. Instead, do what it takes for you to be happy and financially secure. Live below your means, invest wisely, and always aim to save at least 10% of each paycheck. And if need be, stay off of Facebook.

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