You might spot your younger friends rolling up to events in a sleek Tesla or armed with a Prada purse, but it’s entirely possible they’re running their bank accounts ragged just to look good.
A recent study from Wells Fargo reveals 59% of affluent millennials — with $250,000 to more than $1 million in investable assets — feel it’s important to look or appear financially successful to others, compared to just 35% of Gen X and 14% of baby boomers.
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However, a sizable portion of the younger generation (40%) also admit to taking on more debt than they want in order to live large.
Here’s why rich millennials are wrapped up in a “Keeping up with the Joneses” mentality — and how to avoid sacrificing your financial security for splendor.
Wealthy millennials securing (and losing) the bag
Although appearances are a top priority, more than half of the group say they’ve been greatly impacted by the cost-of-living crisis as well — a higher proportion than any other generation surveyed by Wells Fargo.
It’s not hard to see why this generation is struggling. They’re weighed down by student loans, have experienced two major financial recessions and are trying to purchase their first homes in a time of high mortgage rates and limited supply of real estate.
So, why are they still splurging on luxury items and costly experiences? Social media could be partly to blame, with many folks feeling the FOMO (fear of missing out) online. Some users scramble to post photos of their pricey restaurant dinners on their Instagram stories or create aesthetic TikTok videos of their travels in other countries, and watch the views and likes rack up.
But as a result, many young Americans may find themselves shelling out the funds for items or experiences they can’t actually afford. The Wells Fargo study found 41% of affluent millennials are funding their lifestyles with credit cards or loans (in comparison to 28% of Gen Xers and 6% of baby boomers) — a tactic that can become particularly dicey during a time of high borrowing costs.
The average credit card interest rate today is around 24.59%, the highest on record, according to LendingTree. This means if you’re not paying off your credit card bills in full and on time, you’re accumulating pretty high amounts of interest and risk putting yourself through a cycle of debt.
That’s not to say affluent millennials can’t enjoy their money or spend big on the things that are important to them — but it’s crucial to spend wisely, and make sure they have enough leftover to take care of their future selves too.
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Pay off your debts first
The key to staying wealthy is saving and spending responsibly, so you can continue to enjoy fun purchases without hurting your finances.
Try to avoid relying too heavily on your credit cards — or rather, make use of them while paying down your balance on time and in full to avoid accruing interest. If you’re struggling with your debt load, consider making use of the avalanche method, where you tackle your cards and loans one at a time, starting with your highest-interest debt.
Or, look into rolling all your debts into one loan with a lower interest rate so you’ve only got one bill to pay off each month.
Cut down on costs
Next, make sure you’re not overpaying on your fixed expenses.
If you’re looking for new wheels, consider shopping for a used car instead. The average price of a new non-luxury vehicle is around $45,000, while a luxury car could set you back over $64,000, according to Kelley Blue Book.
Meanwhile, an average used car costs just around $26,500. You can also look for other ways to cut down your car costs, like shopping around for a cheaper auto loan or insurance rate.
Save for a rainy day (and a sunny one)
It’s fine to splurge on nice things occasionally — as long as you’re not sacrificing your savings.
Even setting aside $100 a month into a high-yield savings account can add up over time.
And if you’ve already got a robust cushion, you might consider putting that $100 into your investments to take advantage of compound interest and grow your money over time.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.