Dealing With Debt, Lifestyle Inflation and FOMO

When your spending habits create avoidable debt, it can be worth looking into what might be the cause to get things under control before it becomes serious.

With so many concerned about keeping up with the Joneses and a fear of missing out (FOMO),  it has some millennials making rash decisions that create unnecessary debt they’ll have to pay for. Such impulsive purchases of retail therapy for the sake of appearances is more common than many might assume and contributing to an epidemic of debt.

A couple generations ago, you might have envy based on neighbours. But now, with social media it’s like access to peer into the lives of many from all over. This can create illusions over what might make you happy, lifestyle inflation, and living above your means. Since the actual price of happiness is misleading, the act of keeping up with the Joneses often appears to be rewarding, until a realization or credit card statement shows up. 

In a study by Credit Karma it was discovered that over half of young Canadians were overspending to keep up with friends, and 63% of them kept their overspending a secret while trying to keep up. It’s not all food, drinks or travel either. Significant portions of FOMO were also related to clothes (32%) and electronics (29%). Even cars (13%) and homes (11%) were factors, and it doesn’t end there. Respondents (30%) also said they’ll spend money on an item, or possibly an experience, just so they can post it on social media. About 33% of these young Canadians racked up debt beyond $500 all in the name of FOMO. 

Most had concerns that if they weren’t participating they would be excluded from future events. Many also said they did now want to miss a ‘once-in-a-lifetime’ experience. Other factors influencing their FOMO decisions include concerns of being perceived as an outsider (45%), possibly losing friends (34%), along with being judged (29%). 

Since this sort of living can only go on for so long, what is one to do or avoid, besides comparing your salary and trying to keep up with others?

Leaving Debt Behind

Thanks to inflation and the cost of living on the rise, it’s more important than ever to manage your debt and keep your personal finances in order. There’s a need to keep spending habits in check while maintaining a sustainable lifestyle that fits your income. After you’ve paid yourself (saving) and contributed towards your emergency fund you should take care of bills and necessities while looking to pay down debt as quickly as possible. Make a budget to monitor your money is a proven method to manage your finances and get ahead.

If the endless scrolling and images on social media continue to plague your decisions, causing debt and further money problems, taking a break or removing yourself altogether is often the answer according to some experts. 

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Some of the signs you may be in trouble:

• You avoid looking at statements from banks or credit cards. This is a form of denial and avoiding accountability which often leads to further problems.
• You always have a balance on your credit card, and tend to only make minimum payments. This compounds the debt dilemma and can intensify the issue.
• You manage to pay off your credit card monthly, but use your entire paycheque to do so and it’s a continuous cycle.

About half of all insolvencies filed in 2022 were by millennials. With about $47K being owed by millennials on average (one in three having student loan debt) and over 80% carrying credit card debt, managing your money carefully is crucial. When you get past caring what others think and start focusing on your own happiness, you are more likely to find a balance that’s less costly to maintain.

Young Gen Xers or older millennials (people in their 40’s) carry the heaviest debt overall, and the most likely to owe towards a HELOC. 

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Your Home is Not an ATM

Many Canadians have turned to using the equity of their homes, some for making ends meet while others continue trying to keep up with the Joneses and deal with their FOMO. Sometimes this involves home equity line of credit (HELOC) loans or other ways like Combined Mortgage-HELOC Loan Plans (CLPs) to extract value from the home they’ve been paying off. 

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This can be risky and for some it can lead to losing their home. Over extending yourself can make for unmanageable payments that can lead to default. Using your home equity to fund a lifestyle is a terrible idea that is almost certain to create bigger issues. About the only situation where borrowing against your home equity might make sense is home improvements, since this tends to add to the value of your home. As you pay your mortgage loan you are building personal equity that shouldn’t be touched unless for a very good reason. Another lifestyle funding situation can sometimes be taking a travel loan so you have the opportunity to enjoy an adventure or cross items off your bucket list. This can also be where FOMO may influence a decision, and you should only do so for the right reasons as you would be paying for it for months or even years.

With easy access to credit being the norm many are finding that living beyond their means enables them to create a lifestyle they dream of, but it can only last so long. Some think that spending money is a sign to others of success. Living large on a life of credit has become common but eventually it needs to be dealt with. 

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