Young people are overspending online. How social media and 'buy now, pay later' apps play a big role.

Gen Z is the first age group to grow up with social media — and they might be the most likely to go into debt because of it.

Members of the generation born between 1997 and 2012 have recently been in the news for their transparency with money and showing how they’re trying to achieve their goals. But new data suggests they are also particularly susceptible to influencer marketing and targeted advertising, which have become ubiquitous across social media platforms — and have made purchasing easier with new technology and loan services designed to facilitate spending.

According to a survey released last month by LendingTree, 62% of Gen Z-ers feel pressure to spend money and keep up with people around them — compared with the national average of 32%. Additional data released in March by Credit Karma shows that the average Gen Z-er’s credit card debt is more than double that of millennials.

“It’s a phenomenon called ‘keeping up with the Joneses,’ and it causes many Americans to feel pressure to spend more and more and more,” the LendingTree report says. “That spending then leads to overspending, which leads to debt, which can lead to real trouble.”

In 2023, the private personal-finance website Bankrate released a survey showing how influential social media can be when it comes to overspending. According to that study, 48% of social media users reported buying something impulsively that they saw advertised online, spending an average of $754 on impulse purchases in the previous year. Such spending habits were even more prevalent among Gen Z, with 60% of respondents ages 18-26 saying they’d impulsively purchased something they saw on social media in the last year.

“I do think that within our generation, social media has contributed to over-consumerism and others feeling pressured to buy the nicest and newest things to keep up with trends and popular items,” Jacey Insani, a 23-year-old lifestyle creator and New York City resident, told Yahoo News.

According to a 2022 Statista study, Gen Z uses social media more than any other generation, with over half of that population engaging with several platforms daily. From sponsored posts on Instagram to ads before and during YouTube videos, Gen Z is constantly being influenced on their most-frequented platforms.

TikTok has also been on the vanguard of integrating advertisements into regular content. The TikTok Shop allows creators to add links to their videos that go directly to the products they’re selling, encouraging their followers to make purchases with just a few quick taps.

Dana Bodine, vice president of consumer review company TrustPilot, who previously worked in financial technology, or “fintech,” at Apple and Mastercard, told Yahoo News that the technology that allows you to purchase items directly from social media is deliberately designed to get people to buy things quickly, eliminating the time spent contemplating whether it’s really something you want or need.

The proliferation of such technology — plus the rise in “buy now, pay later” services like Klarna and Afterpay — has made it easier than ever for social media users to spend beyond their means.

“Tiktok Shop / other social media selling is probably contributing to your overspending problem,” Jessie Brady, a personal finance creator, wrote in a caption on TikTok. “On top of the fact that they pair that with Klarna, Afterpay to make it as cheap as possible for you per month to pay off the item. And you're literally digging yourself into a hole.”

How does ‘buy now, pay later’ work?

Afterpay and Klarna both allow consumers to stretch out their purchases over four interest-free payments. The services aren’t supposed to affect credit scores, and spending limits are increased based on the number of on-time payments. Consumers can use these services across industries, to buy a range of products, including clothes and food, and even to book travel.

If users miss a payment, the services promise that their credit scores won’t take hits because they don’t report to credit bureaus. Instead, an overdue account will be put on hold until purchases are fully paid off.

According to a new Bankrate survey conducted by YouGov and released on April 11, Gen Z is the generation most likely to use these services. Over 50% of Gen Z respondents say they use buy now, pay later services — with 29% of all users admitting to overspending because of the system.

Insani admits to accidentally getting into this exact situation.

“I’ve learned my mistake with those services and really try not to use them,” Insani said. “I love shopping with my friends, and it’s really enticing seeing that something is going to cost cheaper in the moment, but it’s not worth the anxiety I have to pay that money back.”

Afterpay says that it has several precautions to help prevent such situations, like sending out reminders when upcoming payments are close, not providing new customers with large spending limits to start and capping the total late fee for a purchase to no more than 25% of the cost of what was bought. Afterpay also says that as of the last quarter of 2023, the vast majority (98%) of purchases made through its service did not incur late fees, and that 96% of installments were paid on time.

In response to a request for comment, a spokesperson for Klarna directed Yahoo News to a recent joint survey with the company’s Wikipink initiative — which sets out to be transparent with its credit and finance information — and The Harris Poll, which found that Klarna users have a 99% payback rate, and 31% of all purchases are paid off early. The survey, which Klarna collaborated on, also showed that the company’s late fee and debt collection rates are currently in decline.

Still, Ted Rossman, a senior industry analyst for Bankrate, warned that while such services may seem like a better alternative to credit cards for young people, using them to buy things you can’t afford can be dangerous.

“I think sometimes you can trick yourself into, ‘Oh, it’s not a $200 purchase anymore,” Rossman told Yahoo News in an interview. “[Buy now, pay later] may feel more responsible than making minimum credit card payments, but it’s still debt.”