Money traps for millennials


Money traps that tempt millennials are vastly different from those that ensnared previous generations. While older generations fell for costly insurance policies, dubious land deals, or high-yield deposits in unstable banks, millennials are being lured into financial traps via smartphone apps that offer instant loans, gamified investment platforms from fintech companies, and online shopping with buy-now-pay-later options. Financial influencers are dispensing money advice, while online stock tipsters and day trading gurus promise quick riches from trading options.

Gen Z’s impressionable perspective on the world is largely shaped by social media. The pursuit of likes and followers has fueled materialistic desires that often conflict with their income profiles. In their quest to live life to the fullest, new entrants to the workforce are turning to fintech apps that offer small-ticket, easy credit, such as payday or early salary loans.

Many investment platforms now offer smart tools and features that gamify trading activity, such as points, badges, leaderboards, or cash vouchers. Although these incentives may seem harmless, they are subtle nudges designed to influence trading habits. In its biennial Investor Trust Study, the CFA Institute found that a staggering 92% of investors aged 25-34 trust digital nudges, with 75% reporting that the use of tools in apps increased their frequency of trading.

The Influence of Instagram

Social media platforms have a profound influence on Gen Z’s perception of the world. In an effort to garner likes and followers, many feel the need to project a certain lifestyle, while others emulate their favorite influencers, resulting in materialistic desires that do not match their income profile. According to Harsh Roongta, the founder of Fee Only Investment Advisers, “On social media, everyone appears to be leading glamorous lives, which fosters aspirations for others.” As a result, individuals who have recently joined the workforce want to live life to the fullest.

To bridge the gap between their aspirations and their cash flow, fintech apps now offer easy credit for small amounts, making credit card debt a thing of the past. Gen Z is now indulging in payday or early salary loans and peer-to-peer lending platforms are becoming increasingly popular.

Attracting Those with No Credit History

The lenient eligibility criteria of certain lending options have made it more accessible for individuals who are borrowing for the first time, resulting in a large percentage of new-to-credit customers. ‘Buy now, pay later’ programs and their variants, such as ‘travel now, pay later,’ and even ‘marry now, pay later,’ have become increasingly popular. The allure of these alternative credit options is obvious: they provide quick access to credit with less stringent eligibility requirements, and can be availed with just a few taps on a phone. Experian India predicts that digital lending will surpass traditional lending by 2030. For young adults, this provides an easy solution for their short-term cash flow issues, enabling them to pay for their lifestyle expenses such as a weekend trip with friends, a birthday gift, or a meal at a fancy restaurant. However, when borrowers become addicted to this on-tap credit, they often fall into a cycle of repeatedly borrowing increasingly larger amounts, even after repaying their initial loan.