Why Are Gen Z and Millennials Losing Friends Over Money?

Friendships can sometimes come to an end for various reasons, and surprisingly, money can be a significant factor. A recent study conducted by Credit Karma found that over a third of Gen Z and millennial consumers reported having a friend who influences them to spend beyond their means. The study, which surveyed over 1,000 adults in the US, highlighted the impact of disparate spending habits on friendships.

According to Courtney Alev, director of product management at Credit Karma, overspending due to FOMO (fear of missing out) is a common issue among young consumers. "There's obviously so many opportunities, especially coming out of Covid and with people starting to travel again," she said.

Many respondents admitted to overspending just to avoid feeling left out when socializing with wealthier friends. However, these spending habits often lead to debt, with 88% of millennials and 80% of Gen Zers admitting to taking on debt as a result of trying to keep up with their peers.

"If you're starting to lose friends over misaligned spending habits, it's really time to just level set. It's important to keep your finances and your friendships in order," Alev said.

Dining out was cited as a major expense, with a significant percentage of both millennials and Gen Zers admitting to overspending on meals and drinks. Others attributed their increased expenses to more extravagant occasions, such as trips and vacations (22%) or birthday celebrations (21%).

Furthermore, they mentioned overspending on clothing (36%), drinks and nights out (32%), trips and vacations (24%), and even self-care activities (20%), such as massages and manicures, as common occurrences when socializing with friends.

"When we think about the impact of that on your finances, especially with interest rates really high right now, going into debt to keep up with your friends is just really stressful on multiple levels," Alev added.

Alev suggests using the 50-30-20 rule (50% for necessities, 20% for savings or loans, and 30% for discretionary spending) can help individuals manage their finances effectively. Moreover, suggesting free or low-cost alternatives for socializing, such as hosting a potluck dinner or enjoying outdoor activities, can prevent overspending.

"Talking about your finances with your friends could help alleviate some of the stress associated with money, especially if you and your friend have different financial situations. Yet, more than a quarter of millennials (26%) say they keep their income and debt a secret from their friends to avoid judgment," she explained.

"If you’re in a situation where you feel pressured to spend money to keep up with your friend’s lifestyle, start by being honest with them about your financial situation and what your limitations are when it comes to spending on things like dining out or a night out on the town," Alev suggested.

By openly discussing financial limitations, setting clear boundaries, and advocating for one's financial well-being, individuals can enjoy meaningful social connections while staying true to their budgetary goals. This approach fosters stronger friendships built on trust, understanding, and mutual respect, ultimately leading to greater financial stability and overall well-being.