Is Social Media Keeping You in Debt?

Is social media influencing your purchase decisions and impacting your credit score and credit card debt?

We know online networks influence who we like, what we eat, and how we think. What do they do to our bottom lines? 

Let's admit it: We're addicted to social media, and it's changing the way we operate — including how we spend our money. In its 2016 Social Media Update, the Pew Research Center reports that more than two-thirds of all U.S. adults use Facebook, and about one-quarter use Instagram, Pinterest, LinkedIn, or Twitter. 

And according to comScore, we spend one out of every five minutes of online time social networking — with Facebook, occupying the most of our time. (Unimpressed by that count? Keep in mind that, on average, Americans only spend about 41 minutes a day socializing and communicating).

So, what are we doing with all our time on social media? The same thing we do in the physical world: We're seeking a connection. Whether it be with a brand or with individuals, we want a sense of community. We want to feel that our opinions matter and that others share them. We want to feel like we're not alone. 

Social media amplifies our search for social desirability — and makes it easier for us to spend in that pursuit.

"Humans are social creatures by nature, so it makes sense that many of us gravitate toward platforms that help us to connect," says Megan Ford, president of the Financial Therapy Association. "But we must also be mindful of how social media impacts our choices, informs our instant gratification tendencies, and may ultimately lead us away from our true values and desires."

Keeping up appearances

We've always been concerned about what other people think of us — and have, in a way, built our budgets around it. For example, we might pick cars, accessories, clothes, and other material possessions based on what we believe these objects say about who we are. 

Translating that phenomenon into social media usage: We share our lives through these sites and quite literally invite other people to like us — or not.

"Within social media, we're being trained more and more to consider how things appear to others," says Kit Yarrow, consumer psychologist and author. “That’s nothing new. People have always purchased things thinking, ‘I wonder what my boyfriend would think of this,’ or ‘I wonder if this would fly at work.’ But I think social media has brought that to new heights."

One way social media ups the ante: Whereas people once focused on showing off what they have, they’re now showing off what they do. 

"It used to be you could acquire an aspirational handbag as a way of saying, 'Look at my success; look at my good taste,'” Yarrow says. “And now you can do that with experiences too, through social media."

And our friends and followers are doing the same — carefully curating their timelines to brand themselves for the public. 

"We want to be seen as competent, capable, and successful," says Ford. "Social media often creates a way for you to put your best foot forward, even if it's not a true reflection of how things are. It can be a lot of smoke and mirrors."

In a survey from British digital marketing company Custard, more than 75 percent of respondents admitted to lying about themselves on social media networks. Less than one-fifth reported that they post "a completely accurate reflection" of themselves on their Facebook profiles, while almost a third admit to leaving out "the boring bits." 

That carefully crafted experience on social media can influence what people think about other people’s lives — and their own. 

For example, according to a survey from the American Institute of CPAs, 39 percent of U.S. adults on social media say that seeing other people's purchases and vacations on social media makes them look into a similar purchase or vacation. 

Essentially, we are shopping other people's lives and consuming their experiences. We see our friends traveling, dining out, taking their kids apple picking, decorating their homes for the holidays, showering their loved ones with gifts — and we want to do the same. 

We feel the pull to spend as they spend.  

Getting in the spending mindset

We also shift into a general spending mode. “When we’re using social media, sometimes we get into a shopping mindset,” says Andrew T. Stephen, L’Oréal professor of marketing at the University of Oxford’s Saïd Business School. 

In his research, Stephen says he’s finding that spending time on social media increases people’s willingness to spend money online. For example, in a recent study he conducted, one group of participants was asked to read the news; another group scrolled through Facebook for 10 minutes. The results: After their assigned activity, the group who had just been on Facebook had a higher desire to shop online than the group who had been reading news. 

Another study Stephen worked on showed a connection between social media usage and credit. The findings revealed that people who use Facebook more and have close relationships with their Facebook friends tend to also carry more monthly credit card debt and have lower credit scores

Why do we lose control? Stephen’s study suggests it's because we get a slight self-esteem boost from using Facebook. Posting things that our close friends and family “like” makes us feel good about ourselves — which gets us to let down our guard and could open us up to overspending. 

Connecting with products

And, as we let down our guard, we’re more likely to pay attention to ads, which — you might have noticed — really are everywhere. On the Internet, products and brands you’ve clicked on follow you from screen to screen to screen (it's not your imagination). Even items you haven't shown direct interest in can seem to pop up frequently in your feeds. That's because social media sites can tailor the ads you see based on your online activity, as well as the activity and preferences of your connections.

For example, if you give a thumbs-up to a lot of pictures of dogs, you might start getting targeted for puppy chow ads. Also, when your friends “like” a retailer or a post from its page, that activity shows up in your feed — and you get the message that this is somewhere you might like to shop or something you might like to buy too.

"Research shows that when you become really familiar with products, when they're in your sphere constantly, you actually develop a sense of ownership, which translates easily into buying the products," Yarrow says.

Online activity is even factoring into how we spend in brick-and-mortar stores. A study from Deloitte found that consumers who use social media during their shopping process are about four times more likely than non-users to spend more or significantly more on purchases.

Taking control

On the flip side, our behavior on social media can also give us the opportunity to improve our financial pictures. In general, we are becoming more open about our lives and more willing to share our experiences online. 

If we can share our financial concerns online, Ford says, we may be able to come to terms with them — solving our problems and achieving our goals — more quickly. 

"Social media has had some positive impact, specifically around people more openly sharing their money concerns, which I believe has the potential to lessen shame," says Ford. "Finances and financial problems can feel isolating, so knowing that there are others enduring the same issues can be comforting." 

But, Ford adds, no amount of online connection can replace the depth of in-person relationships and face-to-face communication — when it comes to your money matters or any facet of your life. 

One way to ensure we get the benefits of social media while curbing some of the potential pitfalls: Be mindful of how much time we spend online, and how we spend it. 

"I think nowadays there's an increasing realization among people that social media might not be all good," says Stephen. "There's a sense that [people] need to ensure that it is used — enjoyed, even — in moderation." 

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This article is for informational purposes only and is not a substitute for individualized professional advice. Articles on this site were commissioned and approved by Marcus by Goldman Sachs®, but may not reflect the institutional opinions of Goldman Sachs Group, Inc., Goldman Sachs Bank USA or any of their affiliates, subsidiaries or divisions.