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2-Cent Rant

How Social Media Can Cause Us To Make Bad Financial Decisions

Is social media causing you to spend more money?

We all make decisions in life. We choose whom we want to marry, where we want to work and how much time to spend with our family.

We also get to decide what is it that we want to do with our hard earned money. We can choose to buy something today, or to save it instead for tomorrow.

Deciding Based On What Others Are Doing


When it comes to financial planning, personal choices play a huge part in the success or failure of it. And like every other decision in life, we sometimes rely on others to help us decide.

Relying on someone else does not necessarily mean we discuss we them on our decisions. At times, we could decide based on what the people around us are doing.

However, that does not mean we are mindless robots who simply buy the things that everyone else is buying. Rather, we prefer following or copying the people whom we think are most similar to us, or people who we look up to.

Prototype Matching

Researchers call this type of behaviour making decisions prototype matching. What it means is that we make decisions based on what we think other people similar to ourselves would be doing.

For example, if you are a finance undergraduate today, you might decide you want to do an internship during your term break with the top investment banks in Singapore. You might have decided that because you studied the structure of these investment banks, and really believe that a 3-month internship programme would help you learn what you need to know about the sector.

Alternatively, you might be submitting your internship application simply because you know all your peers are doing so. In other words, we base our decision on what we believe people similar to us are doing.

The idea behind prototype matching is that most of us do not have enough information to decide for ourselves. Hence, simplifying the decisions we need to make based on what other people are doing is easier, and appears right.

Prototype matching only works with someone we see ourselves similar to (or think we are similar to). For example, a 30-year old white-collar male executive is unlikely to join a queue at McDonald in the wee hours of the morning to buy Hello Kitty toys if he sees parents queuing up with their children there.

Spending To Impress

And perhaps those are not your true friends?

And perhaps those are not your true friends?


Most people receive signals about other people’s success through the way they spend. We then subconsciously create our own picture of how successful a person is.

For example, if a 27-year old friend of ours who works in a bank buys a brand new Mazda 3 and post it on Facebook, we immediately expect that he must be doing well in his career. A Mazda 3 costs about $100,000 brand new today so he couldn’t possibly have afforded it if he isn’t doing well.

When we are impressed with what others are posting on their own social media page, we are subtly buying into the idea that we can also influence what people think about us by posting similar updates on our social media page.

What We Don’t See On Social Media


A person who buys a $100,000 car might have taken a loan of $50,000. The thing about social media is that people do not give the full picture of their choices. While we might be impressed by that new Mazda 3 bought by a young friend of ours, we wouldn’t be too impressed to find out that he took a $50,000 loan to buy it.

And that’s really the problem isn’t it? People don’t take a selfie of themselves posing with their $50,000 debt. People don’t share on Facebook about how their ill-advised condominium lifestyle is costing them too much money. Nobody shares about the pathetic state of his or her bank account balance; they only share about their fantastic lifestyle.

And that makes the rest of us believe that we need to spend like what our peers are doing. And so we do so, and then post it on Facebook so that everyone else knows about it. And the cycle continues…

How Social Media Fails To Play A Part In Us Spending Less

Here is a list of stuff people should really post more often on social media to encourage others to make financially prudent choices.

1. Post a mandatory photo when our home loan mortgage is cleared and we get our title deed.

2. Post photos of how much we managed to invest for the year. We don’t see why people should be shy to share their $10,000 investment made for the year when they have no problems sharing photos about their $12,000 3-week holiday in Europe.

3. Show themselves making smarter lifestyle choices. Instead of snapping a photo of a really nice restaurant that we are dining at, why not post on Instagram a $3 cai fan dinner that we are having.

We are not saying that people should try to look like a cheapskate on Facebook. Rather, what we are saying is that a lot of people copy the lifestyle decisions their friends made without the realization that social media status are a poor reflection of the actual life that their friends are living.

No, your friend is not taking a cab whenever they go from one place to another. They just do not take a selfie when they are on the SBS bus. And neither are they having lunch with their colleagues at a restaurant every day. They just don’t take photos of themselves when they are at the crowded hawker centres.

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