Word on the street is that young Americans’ financial standings are negatively impacting their social lives, and it shows. Misalignment of financial priorities among Gen Z and millennials is causing friendships to disintegrate across the board and driving a phenomenon known as “FOMO spending,” aka spending money you don’t have in order to keep up with your friends. According to a recent survey, More than one-third (36%) of Gen Zers and millennials have a friend who drives them to overspend, which can understandably take a hefty toll on friendships. Luckily, our friends at Credit Karma have done a deep dive into this dilemma and are here to assist. We tapped Courtney Alev, the consumer financial advocate at Intuit Credit Karma, to get the scoop on how to combat this issue. Her role is rooted in helping Credit Karma’s members make sense of their full financial picture and make progress against their financial goals. Our first question for her: What is the biggest issue with FOMO spending, and how can one resolve it? Her answer was lengthy but insightful. “Spending money you don’t have in order to keep up with friends—or worse, strangers online—can lead you to take on debt, which can cost you a lot of money in interest fees and prolong the time it takes to reach your financial goals,” she said. She also referenced some pretty staggering data: “A recent Credit Karma survey found that 76% of Gen Z and 69% of millennials have gone into debt as a result of FOMO spending, which is a dangerous consequence.” Read the rest of the interview below.
MC: Do you have any tips for how to set financial boundaries?
Courtney Alev: Be open and honest about your financial situation. It’s no secret that talking about money can be awkward, especially with friends and family. We’ve all been there—it’s easier to keep your concerns to yourself when you’re in the moment and everyone is having a good time. But in order to avoid overspending or potentially resenting your friends, these conversations can be necessary. Other friends might even be feeling the same way you are and appreciate the opportunity to set expectations as a friend group. It’s better to have these conversations before you RSVP for that group dinner or that bachelorette trip so you don’t overspend or feel pressured to pay an amount you’re not comfortable with.
Set a limit for yourself. In addition to having a larger conversation about money, it’s okay to speak up about your spending limits. For example, if your friends are planning a trip, let them know the maximum amount you’re willing to spend before they start booking flights and hotels. The more prescriptive you are, the better. Sharing your budget with your friend group can also make it easier to opt out when you don’t have the funds.
Don’t be afraid to say no. It’s easier said than done, but try not to feel pressured to participate in expensive outings just because your friends want you to. At the end of the day, it’s more important to do what’s best for you and your finances. Aim for quality time and quality experiences rather than taking part in every single costly event.
Factor your social life into your budget. It’s all about balance. You’ll have to say no to some things, but not everything. The key is to avoid spending money you don’t have, and if you can put aside money for entertainment and travel, there’s no reason why you can’t enjoy those experiences periodically. Take a look at your budget to see what you can move around to set aside money in the “fun” category. It’s also always a good idea to plan as far in advance as possible so that you can save up more over time. If you’re not sure where to start with budgeting, we recommend allocating 50% of your income toward your needs (such as rent and groceries), 20% toward your financial goals (such as saving an emergency fund or paying down debt), and the other 30% for discretionary or fun expenses.
MC: How do you recommend using Credit Karma to help you spend and save wisely?
CA: Changing how you save may help change how you spend. Start by creating a dedicated high-yield savings account with Credit Karma Money, where you can save for specific items and experiences with friends and where your money can earn interest and grow over time. You can also track your transactions via Credit Karma’s Net Worth feature to reflect on your recent purchases, determine if they were “worth it,” and use those insights to make smarter spending decisions.
A dedicated savings account can help you avoid spending money you don’t have, and it can keep you honest about how affordable something actually is. Let’s say you’re saving for a weekend away with friends. If you realize that you don’t have enough money saved by the time you’re booking your travel, that may be a warning sign that a vacation isn’t the best move financially at the moment and that you need to keep saving.
And as you’re saving for something specific, name each of your savings accounts. Instead of putting money into “savings,” you’ll be contributing to your “fun fund” or “vacation account.” Knowing you’re working toward something specific may make it easier to contribute regularly and will help you avoid withdrawing from that account for anything else.
You can supercharge your savings by keeping your cash in a high-yield savings account. Interest rates have been relatively high for the last several months, and your savings can earn interest and grow over time. Accounts like Credit Karma Money are free and secure.
