ÑÇÖÞÎÞÂë

Have you heard of doom spending?

Doom spending typically refers to spending more than a person can afford, for example on luxury items or life experiences such as travel and retail shopping, to help counter concerns and anxieties over personal finances or the general state of the economy. (Doom spending is a relative of doomscrolling, and both refer to spending time looking at a phone or computer as a short-term distraction.)

More than one-quarter of Americans (27%) admit to doom spending, with Generation Z (35%) and millennials (43%) accounting for much of the activity.  Many younger Americans may feel their financial goals are even more out of reach given their experiences during the global financial crisis in 2008 and 2009, the pandemic, and the global lockdown. And nearly half (46%) of Americans hold credit card debt, a type of borrowing that typically has higher interest rates and can affect their credit score.

What’s driving it?

There are several factors at play in doom spending. Some people may feel they are at a tipping point in terms of their finances and the many factors outside of their control that can influence finances. Nearly half of all Americans (47%) say money has a negative effect on their mental health, more so than their physical health, current events, family health, relationships, and work.

It is not surprising that younger generations are among the biggest doom spenders, considering the effects of high inflation and limited credit. Many find it difficult to reach that next milestone in life, be it starting a new family or buying a new home. Spending on luxuries that they otherwise would not is their way of regaining some semblance of control.

In addition, as technology continues to transform financial services, there’s been a significant rise in the use of buy now, pay later (BNPL) applications that make it easier for consumers with weak credit profiles to get short-term credit. While the share of consumers currently utilizing BNPL is 9%, this represents a 40% increase in the past two years.  And social media influence continues to be a major catalyst for excess spending, with more platforms encouraging impulse buying.

How to take action

Doom spending may help some de-stress, but the benefits are often fleeting while the negatives can make it harder to save and achieve retirement goals.

Balance is crucial. Just like you seek a work-life balance, strive for a save-spend equilibrium. Stacking purchases onto credit cards, for example, can be one of the most expensive forms of debt, and is often counterintuitive to many financial goals.

For most people, finding balance means following some guidelines that aren’t too restrictive and can help to affect lasting change. These could include, for example:

1. Set a monthly budget.
   Some standard budget guidelines may feel restrictive, particularly in times like today when inflation is still elevated. For example, the 50/30/20 rule—50% of income goes to essentials, 30% is discretionary, and 20% goes to future savings—may not work right now. Instead,  that makes sense for you—10% to debt instead of 20%. As in most cases, a little bit goes a long way.
2. Automate your goals.
   Technology has changed the financial services industry in ways that can be helpful to you, too. You can automate your goals by setting up direct deposit into different accounts. For example, you may choose to have your paycheck split up, with direct deposits into multiple accounts for bills, your emergency fund, and long-term savings, like retirement.
3. Create and stick to a debt repayment plan.
   Making a debt repayment plan can help you recapture and keep control of your spending.. Consider these methods when paying off debt.

Keep your eyes on the (future) prize

Doom spending may provide a temporary sense of self-control, but the financial security tradeoffs may not pay off—short term or long term. Like anything worth committing to, your financial future can benefit from careful consideration, planning, and discipline. Finding a saving/spending balance is time well spent, allowing you to both enjoy and live in the moment and ensure that those moments are not fleeting.