Spending time with friends and family is a hallmark of Thanksgiving with nearly 20% of Americans planning to travel to spend time with loved ones. (Canadians tend to travel less during Thanksgiving but we certainly appreciate the extra day off!) Maintaining relationships is vitally important for our well-being with numerous studies confirming the positive effect they can have on our physical and mental health, even lengthening our lives. Many of the choices we make, including the neighborhood we live in, the brands we buy, and the clubs we join, are influenced by our social connections.
Not surprisingly, our financial behaviors are also swayed by our friends through social observation and learning and this can have big implications on our wealth. One study showed that people are far more likely to buy a costly financial asset if a close friend has either bought it or tried to buy it.
3 Friendship Spending Traps and How to Avoid Them
If your friends are big spenders, it’s tempting to keep up. They may suggest going to expensive restaurants or booking luxury travel. Saying ‘no’ could mean less socializing and the risk of losing the relationship. The flip side is, if you try to keep up, you could derail your financial goals and peace-of-mind. One study showed that a majority of Canadians look at their friends and wonder how they can afford their lifestyles. To avoid this spending trap, review your own finances and personal goals. Then, set a budget for saving, investing, and spending. Tracking your goals will make it easier to resist the temptation to overspend. Have an honest conversation with your high-spending friends about your spending choices—you could even inspire them to gain better control over their spending, too.
A majority of Canadians (93%) admit to experiencing buyer’s remorse. Spending on clothing/shoes, jewelry, and electronics elicited the most regret, while people felt less regret spending on experiences. Keeping a spending diary, even for a couple of months, will help you to better understand what triggers overspending. What event preceded the impulsive purchase? Which members of your social group are most likely to incite overspending? What did you regret buying the most and why? Once you identify your spending patterns and triggers, you can develop strategies to deal with them ahead of time.
Social media spending
Social media platforms have expanded our social networks well beyond the people we see day-to-day. Our social networks now include not only close friends and family but also co-workers, clients, celebrities, and influencers. Depending on how we interact with social media, it can have a big influence on our financial well-being—both positive and negative. Because spending is visible but saving and investing are invisible, our attention is focused on others’ lifestyles. Being a smart consumer of social media is essential to avoid getting lured by displays of lavish spending or poor financial advice from poorly informed influencers. Some smart social media strategies include: 1) take periodic breaks from scrolling; 2) carefully screen financial influencers; 3) Understand your emotions—if certain postings make you feel bad about yourself or trigger you to spend to maintain your self-confidence, unfollow.
Understanding our emotions is key because 90% of our financial decisions are based on emotions and only 10% on logic! The better we know ourselves and how we relate to our friends, the more we can enjoy their company without hurting our financial well-being.