'FOMO Spending' Is a Real Problem for Young People

CC BY 2.0. Benjamin Linh VU

But they're not the only ones. Older folks, too, struggle with saying no to expensive experiences with friends.

There was a time when material possessions were the most obvious indicator of one's wealth and social status, but in recent years there has been a merciful shift toward prioritizing experiences over accumulating stuff. Now, a person who does interesting things -- while documenting them on social media, of course -- is seen as the cooler, more attractive individual.

The problem with this, however, is that it's much harder to say no to spending on a shared group experience than it is to, say, not buy the same expensive handbag or designer jeans that another friend owns. As a result, young people are struggling terribly with what's known as "FOMO spending," (Fear Of Missing Out) or paying for experiences that they really cannot afford but don't refuse because they fear missing a once-in-a-lifetime opportunity with friends.

A survey of 1,045 Americans conducted by Credit Karma has found that nearly 40 percent of Millennials in the U.S. has gone into debt to keep up with their peers. More than a quarter of these (27 percent) says they're uncomfortable saying no, and two-thirds regret spending more in social situation than planned. Thirty-six percent doubts they can sustain such a lifestyle for another year without going into debt.

Please don't think we're bashing Millennials alone for spineless money management. Overspending while trying to keep up with friends is a problem faced by people of all ages. Joshua Becker wrote on his blog,

"According to Robert Frank in his 2007 book, Richistan, '20 percent of households with between $1 million and $10 million in assets in 2004 spent all their income — or more — in a frantic race to keep up with their newfound friends: those with more money than them.'"

For very obvious reasons, this is no way to live. While the experiences themselves might be fun in the moment, there's always the overhanging dread of the bill arriving at the end of the night, the credit card statement to deal with, the overarching debt to be paid off. It is stressful, which has a harmful effect on mental and physical wellbeing, and it eats into longer-term plans for investments, major purchases, and retirement.

What's needed is a strategy to "save your money from spendy friends," as Mr. Money Mustache put it. He gives some suggestions in an old blog post from 2012, as does Joshua Becker in a recent article. They add up to the same thing: taking control of your finances means consciously managing your social life, and doing that may require some guidelines.

1. Be the leader. Don't wait for someone in your friend group to suggest something you can't afford. Suggest a frugal yet fun activity, like a potluck picnic in the park, a game of beach volleyball, a backyard BBQ, a hike, a board game night, camping in a free field instead of renting a cottage. As Mr. Money Mustache wrote,

"Why do non-rich people plan their social events at expensive restaurants anyway? Is it because those restaurants are the only way to have fun? Is it because they hate the idea of becoming wealthy? Is it because they’re all [dolts]?" (edited for appropriateness)

2. Create a budget. Oh, the good old budget. Set yourself a limit for social spending and stick to it. Take this further by using only cash. If credit cards are enabling your spending, leave them at home. At restaurants, read the menu carefully; choose a starter instead of a main, buy a cheaper drink, drink less. (Pack a flask.)

3. Never "split the tab." Don't let yourself get saddled with another person's extravagant choices in a restaurant. It's not rude to offer to contribute enough for your portion plus tip, but it is rude for your friends to expect you to pay for their indulgences.

4. Talk to your friends. They could very well be feeling the same as you. The Credit Karma survey proves that many young people feel overwhelmed by spending, so you might find yourself in sympathetic company. As a group, you could change your social habits in more frugal-friendly ways.

5. Get new friends. It may sound harsh, but do you really want to be friends with people who expect you to spend beyond your means? Or, do you want to pretend to be a person who must spend in order to prove themselves to these 'friends'? Do some deep digging here. As Joshua Becker said,

"Isn’t [losing them] eventually going to happen anyway? Can you keep overspending and going into debt indefinitely just to be with them? Of course not. At some point, something will need to change — either how much money they spend or how much money you spend."

6. Keep the big picture in mind. Don't think of a budget as restrictive; it's a roadmap guiding you to where you want to be. You might need some tough reminders along the way, but stay on that track and you'll get there sooner, faster, more smoothly. Just think how great it's going to feel once you're there.