Stories | April 30, 2013

Do you “like” this? Facebook may make you spend more

Logging in to Facebook or checking the latest Tweets is more than a quick way to catch up with friends or see the latest news.

It may actually have implications for the way we spend money. Given the rapid rise in the popularity of social media, it might pay to be wise to the unexpected consequences of networking online.

Peer pressure 2.0
For years, we have known about the power of peer pressure – keeping up with the Joneses and buying (or cutting back), giving to charity or taking other actions because your friends and family are. Now researchers are looking at how this dynamic works on social networks. New research from the United States argues social networking can reduce self-control in other areas of our life, such as if we choose to eat healthily or decide to spend money. The authors, from Columbia University and the University of Pittsburg, were interested whether browsing social networks influenced what people did next.
In the second of their five studies, researchers Keith Wilcox and Andrew Stephen found that when we brag about ourselves to our close friends on Facebook, we feel better about ourselves. But there appears to be a trap to this feel good factor. It can reduce our self-control. They examined food choices but also financial choices. One finding was Facebook users with close ties with their social network had higher levels of credit card debt and lower credit ratings – although it is important to note that the study showed a correlation only and did not test causality (so it is not possible to determine the cause of the high debt levels).

You have it, I want it
Wilcox and Stephen write that future research might want to examine if browsing Facebook affects desire the buy luxury goods. This is because it can relate to the way we present ourselves to others.
Reviews on Facebook are a big influence for Millennials – or Generation Y, as they are sometimes known – when deciding what to buy, finds a different study on the topic.

I am feeling so good – let’s go
Although the research did not identify the thinking traps that may influence the drop in self-control, it may be that ”overconfidence” rears its head. This bias is our tendency to over estimate our abilities and take greater risks as a result. It is well-known in investing and other parts of life. In a sense, when we feel ”bullet proof” we become less protective of ourselves – and potentially of our finances too.
It echoes findings from the United Kingdom about “emotional shopping” that being impulsive with money is associated with poor financial outcomes.

Should I avoid Facebook?
The lesson is not to cut out social media but to be aware of some of the surprising effects using it might have.
There might be ways to use Facebook and Twitter to harness positive peer pressure (think: announcing your intention to save money or joining forces with others with similar financial goals).
And next time you feel flush with how good you look to your friends online, take a deep breath when confronted by a tantalising shopping option. Maybe click to a news site (or perhaps eZonomics?) and browse for a few minutes to let your self-control reassert itself, thereby reducing the likelihood of making a poor decision.

eZonomics team
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