Gen Zers and millennials are ditching 'spendy friends' who are tempting them to overspend and go into debt

• Financial differences are driving some Gen Zers and millennials to break up with their "spendy friends." 
• Over a third of these consumers said friends led them to overspend, according to a Credit Karma study. 
• Respondents said they felt pressured to overspend, in part due to FOMO, or fear of missing out.

Friendships can end for a lot of reasons — and money can be a big reason. Disparate spending habits are leading some Gen Z and millennial consumers to break up with their friends, a recent study found.

Over a third of Gen Z and millennial consumers reported having a friend who leads them to spend beyond what they can afford, according to a Credit Karma study conducted by Qualtrics. The study, which ran from June 7 to June 9, asked over 1,000 US adults over 18 about their spending habits. 

"If you're starting to lose friends over misaligned spending habits, it's really time to just level set,"  said Courtney Alev, director of product management and a consumer financial advocate at Credit Karma. "It's important to keep your finances and your friendships in order." 

The reason young consumers are overspending? Respondents chalked up part of their spending habits to FOMO, or fear of missing out. Over 30% of Gen Z and millennial respondents said the main reason they overspent alongside their wealthier friends was because they didn't want to feel left out. 

But these spending habits are drawing some consumers into debt. Eighty-eight percent of millennials and 80 percent of Gen Zers said spending time with these friends resulted in them taking on debt.

"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 said. 

In some cases, overspending drove these consumers into over $500 in debt — and prompted some to consider calling it quits with their "spendy friends," the study found. Among those who said their friends lead them to spend more, 47% of millennials and 36% of Gen Zers said they were considering ending these friendships due to their different spending flexibility,

According to the survey, dining out accounts for much of the overspending. Forty-three percent of millennials said they overspent on dining out, as did 37% of Gen Zers. In addition, 37% of millennials and 32% of Gen Zers report overspending on drinks and nights out.

More than a third of Gen Z consumers, 36%, also said they overspent on clothing. Studies have found that Gen Zers, people born between 1997 and 2012, are particularly interested in spending chunks of their income on luxury brands and fast fashion.

Both groups also attributed part of their overspending to expenses for trips and vacations. While 21% of millennials attributed some of their overspending to birthday celebrations, 20% of Gen Zers said they also overspent on self care expenses, such as massages and manicures.

Avoiding money problems coming between you and your friends, boils down to communication. 

While money can be an awkward topic to bridge with friends, Alev suggests setting a monthly spending budget — and communicating with your friends what that budget is. She recommends budgeting using the 50-30-20 rule: 50% of your income goes toward necessities, such as rent and groceries; 20% goes toward savings or student loans; and 30% is left over for a "fun budget."

At the end of the month, when you may be running short on that spending budget, Alev suggests free or low-cost alternatives to hanging out with friends. Hosting a potluck dinner, staying in to watch a movie, or spending time outdoors, can help you avoid overspending that month.

When going out with friends, it can be easy to overspend in the moment — on that other drink or dessert at a restaurant. Before going out, Alev recommends setting a budget for the activity, and alerting your friends to that spending limit as well. 

When all else fails, Alev says it may be time to just say "no" to your friend's invitations. Ultimately, communicating these financial goals to your friends will strengthen those friendships in the long run, Alev said. 

"A big theme of this is FOMO," Alev said. "There's obviously so many opportunities, especially coming out of Covid and with people starting to travel again."

"For things that are less compelling or not worth the money, be willing to say no, and that will open up a lot of other freedoms for you," Alev said.