Three Ways to Help Millennials Avoid FOMO-Induced Spending
In a recent survey, almost half of millennials admitted that their spending habits have been influenced by what their friends share on social media. Over the past decade, social media has become a more powerful influencer than most traditional advertising channels, particularly among millennials who are naturally weary of overly pushy sales messaging. Moreover, considering that this demographic spends an average of 5.4 hours per day ingesting carefully curated photos, it’s no surprise that they might covet, or even acquire, some of what they see. Platforms like Pinterest and Instagram are starting to capitalize on this opportunity with shop-able posts that allow users to purchase an item in a matter of clicks.
This shift has also caused millennials to become increasingly susceptible to FOMO-induced spending—in other words, purchasing a product because they can’t bear the thought of missing out—whether it’s a hot fashion trend, "it" travel destination, or foodie mecca.
1. Explain That it’s a Marathon, Not a Sprint
Instead of spending money to keep up with the Joneses today, millennials should be investing that extra cash in the markets so they can get ahead of the Joneses tomorrow. This generation has time on their side and the opportunity to take full advantage of a little something called compound interest. Because almost 70% of millennials have never received any formal financial education, they may not be familiar with this concept. More than one in five of millennials earn less than one percent on their savings and an even greater number of them prefer cash savings over putting funds in the stock market.
Give them a little crash course on compounding and show them that the earlier you start saving, the more wealth you can accumulate over time. Put it in terms they can understand. For example, instead of paying $800 (or more) to upgrade their iPhone every year, put that same amount of money in a low-risk mutual fund. Assuming an average annual rate of return of 5%, they can generate $16,000 in 10 years and $250,000 in 50 years. This calculator is a good resource for playing with the idea of compound interest.
2. Help Them Get Clear on Spending (and Saving) Priorities
If your client doesn't have defined spending and savings goals, it will be even harder to resist impulse buys and the draw of FOMO-induced spending. When priorities are clearly articulated, it's a lot easier to keep your eye on the prize and forfeit shiny objects in the short term if it means receiving a much bigger reward down the road.
Especially when it comes to buying a home, planning a wedding and even taking a vacation, FOMO can cause millennials to overspend on upgrades they think they need in order to make their lives a little more (Insta)gram-worthy. Creating a budget in advance and outlining a "must haves" and a "nice to haves" list can help avoid the temptation to go off course.
3. Counsel Them on How to Avoid the Comparison Game
It's no secret that social media isn't great for anyone's mental health, with various studies showing how logging time on the different platforms can lead to anxiety, depression and feelings of inadequacy. While some clients may be blessed with a strong sense of self and the ability to rise above the comparison trap, others will need more support when it comes to remaining committed to their priorities.
You may also want to remind them that there will always be someone who has more than they do. It’s a lose-lose proposition. Recent research shows that young people today have a heightened sense of perfectionism than those in years past. The perceived need to hold it all together combined with a culture of mass consumption can cause many millennials to keep playing a game they can't win, both emotionally and financially. To compare is to despair, as the saying goes, and reminding clients of this can help keep them stay on track—with their self-esteem intact.
In our increasingly digitized world, it is only human for your millennial clients to fall prey to FOMO. However, with your guidance, they can learn to be more thoughtful about their spending decisions and better weigh the trade off between short-term enjoyment and long-term fulfillment.