7 Ways Social Media Influences Our Spending Habits
We know that frequent use of social media can profoundly impact how we feel about ourselves, but what about our wallets? A growing body of research shows that it is not a question of whether social media influences our spending habits, but how and at what cost?
Are ballooning social media ad buys to blame? Do you cave to peer pressure because you want to impress your peers or avoid missing out? Are you seduced by targeted ads that leverage our data and prey on our impulse control? Have you been coerced into spending more than we can afford because it’s so easy to shop online? The answer is all of the above!
In 2021, we’ve never been more reliant on social media to stay connected to one another. We’ve also never had such high demand and necessity for the conveniences of online shopping.
- US e-commerce sales grew by 32.4% year-over-year in 2020.
- US social ad spending was expected to increase 20% to $43 billion in 2020.
- 74% of consumers rely on social networks to make purchase decisions.
- In 2020, the average person spent 153 minutes per day on social media, a number that has increased every year since social media began.
The data paints a picture of an average user who spends more than two hours on social media every day and relies on it to make important buying decisions. It demonstrates how online shopping convenience, social ad spending, and the amount of time and influence social media wields over our lives all work together to impact our spending habits.
7 Ways Social Media Influences our Spending Habits
1. User Data Mining and Targeted Ads
The saying “If you don’t pay for the product, you ARE the product” has been around for a while. Television, for example, used to be free and was paid for by commercials. Marketers gambled and won on the assumption that ads, played repeatedly on TV, would influence our buying decisions. It worked, and the model is a marketing cornerstone.
Social media started as a free service, and it’s most prominent founder, Mark Zuckerberg of Facebook, toiled for years figuring out how to make social media profitable. Ultimately, Facebook took the bedrock principle of commercial advertising and added a new layer of value that exploded the industry: mining user data.
When we sign up for Facebook, we agree to terms of service that allow the app to save our data and track our online behaviors. When you see a sponsored post or ad on Facebook, it’s no coincidence. All this info has created an algorithm that allows Facebook to predict what we are interested in and what we may want to buy.
2. One-Click, Seamless Shopping Experience
According to new research from Visa, one in four online purchases is made as a result of interaction with a social media outlet. Buyers enjoy the convenience of online shopping directly from social media apps. Despite concerns about our data, many users report that targeted content is convenient and shows them products that are genuinely relevant to their interests.
Facebook in-app shop features mean that users no longer need to leave the Facebook app to complete a sponsored product purchase. By shortening the funnel, Facebook has made it extremely fast and easy for users to spend money without thinking twice.
- In an Australian study, 43% of those surveyed said that the seamless in-app shopping available through Instagram and Facebook was a significant spending trigger.
3. Peer Pressure and FOMO (Fear of Missing Out)
Targeted ads and in-app shopping features are effective tools, but they aren’t the only thing coaxing us to open our wallets. Peer pressure and FOMO (fear of missing out) are a big part of the story.
We are motivated by a desire to unlock social achievement by mimicking the behaviors and buying habits of people that we admire. Additionally, we use social media posts to demonstrate our affluence, style and worthiness to our followers, perpetuating the cycle.
One study that examined social media impact on spending habits in America found:
- 90% of millennials say social media causes them to compare their wealth and material possessions to their peers.*
- 57% of millennials say they spent money they hadn’t planned on because of something they saw on social media.
*By comparison, 71% of those in Generation X and 54% of Baby Boomers say the same.
4. Triggers Impulse Spending
Social media is known to have both positive and negative effects on our self-esteem, feelings of connectedness and overall satisfaction with our lives. As far as your wallet is concerned, it doesn’t matter if social media makes you feel good or bad about yourself. To be sure, both emotions are linked to online spending.
If social media gives you negative emotions like envy and inadequacy, you may online shop to self soothe. People also report feeling triggered to spend money to feel included, keep up with their peers and avoid missing out on things and experiences that their friends have.
If social media gives you attention that boosts your ego, you will seek out more of that positive reinforcement by any means necessary. Social media users are spending beyond their means to get positive feedback from their followers.
Ultimately, the influence social media has on your spending habits will be unique to you. However, if you already indulge in “retail therapy” in real life, social media is likely to amplify this trigger. People with pre-existing impulse control issues may find it harder to resist temptations available to them in their online communities.
An Australian survey suggests that boredom and distraction are also at play.
- Boredom: 27% made purchases while distracted and watching TV
- Distraction: 13% said they’d cheered themselves up with comfort purchases
5. Influencers and Social Proof Advertising
Most people don’t like being sold but do enjoy buying products that excite them. That excitement amplifies when our friends and favorite influencers are enthusiastic about a product, brand or service. To that end, brands now partner with influencers who feature their products and services in posts and videos that are more entertaining than sales-y.
Social proof advertising is a method in which prospective customers are motivated to make decisions based on perceived similarities with current customers. Simply put, if someone relates to a trusted reviewer using a product, they will want to use the product too.
- 89% of people say that reviews, testimonials and social posts influenced their purchasing decisions.
6. Raises Security and Fraud Concerns
We may love the speed and convenience of online shopping, but it’s not without risk. Many shoppers admit to being less diligent when making online purchases. The result: online shopping fraud is on the rise. BBB Scam Tracker has received thousands of complaints about misleading Facebook and Instagram ads. The data shows the average dollar amount lost to online shopping scams in 2020 is $93, up from $76 in 2019.
Types of fraud:
- Products That Claim to Support a Charity
- Free Trial Offers
- Counterfeit Merchandise
- Engaging Ads that Overpromise and Underdeliver
- Products Never Arrive And Customer Service That Is Unreachable
Though not shopping-related, incidents of grants, charitable and giveaway frauds are also on the rise.
Before making a purchase based on a social post, search for the company name + “scam” or “complaint” to see if third-party sources throw up red flags. If something seems too good to be true, it probably is. Learn more about online shopping scams from The Federal Trade Commission.
7. Leads to Buyer’s Remorse
Underlining the downside of social media buying we found that buyer’s remorse isn’t exclusive to those who have been the victims of fraud or scams. Legitimate purchases can also trigger regret in consumers. For example, an impulsive purchase may cause you to spend money you could not afford. Buyer’s remorse is on the rise, with most respondents in a Visa survey admitting their social media purchases were a disappointment, even if fraud wasn’t involved.
Refunds have proven to be a less viable solution than you might expect. Just 1 in 5 say they received a full refund for an item they wanted to return.
Social Media Shopping Trends According to Visa survey:
- 58% feel their purchases have been a disappointment
- 38% are either trying to obtain refunds or return items they’ve bought
- 88% said they remained out of pocket because of their social media purchases
Stay Informed and Make Smart Choices
For better or worse, social media is here to stay. Although it has the power to shape our spending decisions, being aware of why and how is the first line of defense against this subconscious influence.
Keeping the positive and negative impacts of social media top of mind will help you make informed spending decisions. Accordingly, you’ll think twice before you click-to-buy.