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Social media became a part of our daily lives – starting from manners we communicate to intentions we interact with the world.

Its impact on our behaviours, mindsets and psychologies are so much so that experts claim social media is the biggest sucker of wealth.

Let us see how social media sucks our wealth and what we can do about it to avoid negative effects and harness positive benefits.

Behavioral Economics and Social Media

Social media deviates our financial decisions from the rational economic models.

They exploit our psychological tendencies inducing fear of missing out, herd mentality, and instant gratification.

Fear of Missing Out: Seeing curated lives of others breeds inadequacies and a fear of missing out. We spend what we have impulsively trying to catch the trends.

Herd Mentality: Promotes conformity and the illusion of social validation. So, choices of other people become basis of our purchases. We do not look at our own needs and financial capacities.

Instant Gratification: Social media ads target our inadequacies and then promise immediate satisfaction.

The temptation weakens our self-control, leading to impulsive purchases and then diminishing wealth.

Human Psychology and Social Media

Social media gets into core aspects of human psychology, exploiting our desire for social connection, approval, and self-esteem.

This psychological manipulation affects our spending habits and impairs our ability to build long-term wealth.

The core algorithms of the social media are designed to keep us hooked and addicted as Adam Alter outlines in his book Irresistible.

Social Comparison: We love making comparisons. This is brutal in social media, fueling consumerism. Living below means is just hard!

Addictive Nature: Social media use features to trigger dopamine release, keeping us uselessly engaged distracting us from pursuing meaningful financial goals.

Reduced Self-control: Constant exposure to social media contents leads to decision fatigue; weakening our willpower to resist impulsive purchases.

Online marketing tactics exploit our vulnerabilities, undermining our long-term financial well-being.

Money Management and Social Media

Social media promotes a culture of materialism, fostering a mindset that devalues frugality and financial prudence.

When we are in social media, we care less about budgeting, saving, and investing money.

Status Symbol Culture: We take material possessions as the markers of success. So, it encourages show-offs, taking debts, overconsumption, and misallocation of resources.

In the theory of the leisure class, the author outlines how consumptions seeking social status and prestige can lead to wasteful spending.

The book was published in 1899. How appropriate his work is in this age of social media!

How cool we feel after posting photos of our new luxury car or an iPhone mirror selfies just supports his claim.

Influencer Marketing: Social media influencers have a certain power that can distort our perception of what’s essential, leading to impulsive purchases and financial mistakes.

When Deki Lhamo and Lha Dorji tell us to buy Samsung tabs from Bhutan Telecom, it’s for their financial gains and rarely for our interest.

Social Media Doesn’t Show Bad Parts

Social media extends its influence beyond communication, impacting our financial well-being.

It extracts wealth from us leveraging behavioral economics, psychology, and money principles.

We have a choice in how social media affects our finances. We can either let it negatively impact us or use it in a controlled way, aware of its nature to showing only the positive aspects.

In the end, what matters is protecting our wealth and living a fulfilling life by making independent financial decisions.

What is your view of social media and its impacts on personal finance? Does it affect your financial mindsets and habits?