'FOMO,' 'likes' and card debt: How Facebook might lead you to overspend

Your social media activity lets brands tailor hyper-targeted ads; here's what you can do about it

Rebecca Lake
Personal Finance Writer
Making complex credit topics simple

How Facebook might lead you to overspend and what you can do about it

Two billion people and counting use Facebook to stay connected with friends and family. But in between the status updates and cat memes, you’ll find something else in your feed: advertisements. 

Facebook chairman and CEO Mark Zuckerberg defended the company’s data collection and privacy practices in Congressional hearings April 10 and 11 after it was revealed that personal data for nearly all of its users could have been accessed improperly.

Specifically, lawmakers were interested in how Facebook allows advertisers to use its users’ information to create targeted ad campaigns.

“Facebook’s data leak is unfortunate, but not at all surprising,” says Alex Andrade-Walz, head of marketing at Spatially, a location intelligence company that helps small businesses understand their local markets. “Mobile apps and other websites commonly engage in collecting and selling users’ data, and Facebook is well-known, so it’s naturally in the spotlight.”

The attention to Facebook’s business model and advertising practices raises questions about privacy, but there’s another issue for users to contend with. Facebook ads could be impacting the way you spend – or overspend.

Here’s how Facebook might lead you to spend more than you should, and a few tips to avoid the overspending trap induced by social media and “FOMO” – the fear of missing out.

Why Facebook and other social-media ads are different

Advertising is nothing new. Facebook ads, however, add a new dimension to marketing.

“It’s hypertargeted content,” says Dustin York, assistant professor of communication and director of the undergraduate communications program at Maryville University in St. Louis.

Marketing agencies and brands can personalize ads to fit a very specific niche, based on what you’ve shared. “Companies are using what you’ve given them – who your friends are, what you’ve done, where you’ve checked in – to tailor their ads to you,” says York.

Before founding personal finance site Sisters for Financial Independence, Catherine Agopcan worked as an advertising technology program manager. She says personalized ads are one of the most effective ways for brands to get customers to notice their products.

“The more relevant an ad, the more likely a consumer will make a purchase,” says Agopcan. This practice, she explains, is common across social media channels.

Instagram, for example, introduced functionality in March 2017 that allows to view and shop products featured on posts, which makes it “even easier to buy without realizing the consequences of our actions, the debt we could be putting ourselves in and the unnecessary accumulation of stuff.”

Dary Merckens, chief technology officer of Gunner Technology, a Las Vegas-based company that builds custom software for government and businesses, says Facebook’s primary product is utilizing user data to market. In making user data available, the payoff for Facebook is an increasing investment in ads by marketers.

“By matching the right offer to the right people, advertisers see a greater return on their investment and more purchases as a result,” says Andrade-Walz. “Consumers are more likely to make a purchase after seeing a highly targeted ad than they are from seeing an ad in a magazine or TV commercial.”

The result is more advertising revenue for Facebook and, potentially, lighter pockets for its users. But that could lead to credit card debt if you’re not keeping track of what you spend.

Facebook didn’t reply to a request of comment for this article.

"Consumers are more likely to make a purchase after seeing a highly targeted ad than they are from seeing an ad in a magazine or TV commercial."

How to avoid overspending while on Facebook

You don’t have to pull the plug on Facebook altogether if you’re worried about overspending. There are some things you can do to minimize the impact of targeted advertising.

  • Disallow ads on your Facebook account. Andrade-Walz recommends deactivating Facebook ads if you’re tempted to spend. To do that, log in, click on the upside-down triangle in the upper right-hand corner and go to "settings." In the left-hand column, select "Ads," then adjust your settings to specify what shows up in your feed. Of course, “they can also choose simply not to click on the ads,” says Andrade-Walz.
  • Skip the Like button. One of the ways Facebook tracks your preferences is through your likes. After 300 likes, advertisers can know you as well as your spouse does, according to researchers at Cambridge University in the United Kingdom. Liking things less often can make it harder for marketers to target you.
  • Unfollow your FOMO-inducing friends. If your spending habits mirror those of your Facebook friends, consider unfollowing them. You’ll stay friends, but your news feed won’t be filled with the latest status updates on what they’re buying or which brands they’re liking.
  • Don’t save your credit and debit card numbers online. Facebook ads make it easy to click on an ad and be redirected to an online store. If you browse the same retailers online regularly, resist storing your debit and credit card numbers, which could make it easier to spend.
  • Disable “1-click” features. Checking out with one click simplifies shopping, but that’s the last thing you want if you’re trying to avoid overspending. Disabling this feature forces you to pause and think twice about what you’re buying.

Feeding on the 'FOMO' effect

When it comes to FOMO, the struggle is real, especially among younger social media users.

In a February 2018 study from Allianz Life Insurance Company, 55 percent of millennials reported experiencing FOMO. Even worse, 57 percent said they’ve spent money they hadn’t planned to because of something they saw in their social media feeds.

The targeted nature of Facebook ads allows them to speak to the herd mentality that’s built into our DNA. “People are hard-wired to trust group norms,” says York.

When your Facebook friends like something, it’s a form of social proof, and one that can be powerful in influencing how and where you spend. When you’re doing what everyone else is doing you believe, “You’ll be more successful as an individual because others are successful,” he says.

Marketing companies are able to capitalize on this because the younger generation is most susceptible to advertising, says Merckens.

“Younger consumers take advertising at face value and assume companies have their best interests at heart,” he says. “The trouble is that with a generation that’s so highly marketable and so willing to part with its data, the only outcome is going to be companies using that data to target ads to social media users.”

"If you see a friend liking an advertising brand's Facebook page, you may be more inclined to trust that brand."

Andrade-Walz likens fear of missing out to keeping up with the Joneses, but says the difference is that in the online world, its effects are magnified.

“If you see a friend liking an advertising brand’s Facebook page, you may be more inclined to trust that brand,” says Andrade-Walz. “If you see your friends RSVPing for an event posted on Facebook, you’re likely going to at least check it out.”

Overcoming the desire to follow the crowd and spend like your friends is easier said than done, says York. It requires constant awareness of the biological urges that direct decision-making and making conscious choices about how you spend.

It's time for a social-media checkup

You may also need to rethink how much time you spend on Facebook.

In 2012, researchers at Columbia Business School and the University of Pittsburgh’s business school conducted a study to determine how Facebook habits shaped users’ financial habits. That study found that intense Facebook users had lower credit scores and higher credit card debt.

At the time the study was published, experts were skeptical of whether Facebook could be linked to poor money habits. It was also conducted before Facebook began rolling out targeted advertising.

 

Video: 4 young adult money mistakes to avoid

Considering how Facebook’s advertising practices have been called into question, however, users should be aware of how their personal information is being used and how that may affect their spending patterns.

“We have to understand that Facebook and other social media sites are free for a reason,” says Agopcan. “While we may not be paying a monthly fee to use it, we are paying in other ways and in most cases, the payment is the information that we share.”

If you find yourself overspending as a result of your social media activity, experts offer one last tip: recognize the “why” behind your spending choices.

“By sitting down and understanding your needs, instead of being assaulted by marketing telling you what you should want, you can create a more financially sound path for yourself,” says Agopcan.

See related: Hey, Mark Zuckerberg and Congress: Are you serious about protecting our credit card data?, 3 ways social media campaigns can make us splurgeWill “pay pain-free” mobile wallets make us poor?


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Updated: 07-17-2018