This behavior is often linked to “mindless spending,” where people spend lavishly as a coping mechanism, especially in uncertain times like the post-pandemic era.
Learn more: Budgeting for international travel: Study shows how much New Zealanders could save
According to Elizabeth Currid-Halkett, author of The Sum of Small Things: A Theory of the Aspirational ClassThe current trend began during the financial crisis of the 2000s, moving travel from an “optional” expense to a “priority” expense.
The pandemic and the two-year lockdown that caused a pause and a radical change in domestic and international travel have amplified this trend.
Currid-Halkett explains this phenomenon on CNN: “We couldn't have predicted it, given how the pandemic has affected different generations in different ways, but the idea that our friends matter, that living your life matters, how important it is to live a good life – it's led to a change in how people spend their money.”
She made the connection to Australian real estate mogul Tim Gurner's viral and much-criticized claim that millennials couldn't afford major purchases, like buying a house, because they were spending their income on avocado toast.
Netizens criticized Gurner and mocked him for not really understanding the reason why there is a decrease in the number of millennial homeowners, which is due to rising real estate prices and stagnant wages.
Currid-Halkett explains this similarity to people who go into debt to travel by explaining the mindset: “I can't buy a house, I'm not sure I can afford to go to college or university, so I might as well go to Spain and backpack around. It's a small bite out of the debt I'm going to have to go into for other things.”
However, recent studies also show that people who get into debt this way know it's wrong and very dangerous, but they prefer to put their financial goals on hold in order to have fun now.
Experts suggest this could be due to the suddenness of the pandemic, which put the entire world on hold, putting life as people know it on hold. A few years before the pandemic, millennials and Gen Z were teenagers or young adults, dreaming about their future lives — from college applications, to travel, and even job opportunities.
However, all of this has changed dramatically because of the pandemic, and studies suggest that it may have caused a shift in mindset among people of this age: from planning for the future to living in the moment.
Additionally, the digital age, with its endless stream of enviable travel photos and videos, fuels the fear of missing out, forcing people to stay up-to-date with what they see online. And with the rise of sales and limited-time offers, a sense of urgency is driving people to book trips on impulse.
Learn more: Should You Buy a Trip Now and Pay Later? Financial Experts Give Their Opinions
How do people travel without a budget?
The rise of “buy now, pay later” schemes has made it easier than ever for people to travel without any upfront costs.
Aside from the accessibility they offer, from easy sign-up processes to the luxury of being able to spend without counting and repay later, these “buy now, pay later” programs also offer various installment plans that often offer payment plans over three, six, 12 and even 24 months.
Because of the instant, stress-free mindset it provides, many travelers choose to cover their travel expenses with credit cards, racking up high-interest debt that can take years to pay off.
Trusted financial sites tracking this trend have found that it’s particularly strong among younger generations, who are more likely to book international travel even if they can’t afford it. Worse yet, studies have found that millennials and Gen Z are more likely to indulge in longer, more expensive trips than older generations.
Repercussions
The younger generation often finds themselves in a frustrating situation where they cannot invest in major lifestyle changes, such as buying a house or a car, because banks will not give them loans.
When financing larger projects, banks conduct a thorough review of the borrower's financial history. The standard procedure includes a review of the person's income and debt history. Most often, loan applications from those who have accumulated higher debts in recent years are repeatedly rejected by banks.
These travel trends also affect those who don't want to buy a home, as those who indulge in such wanton travel often face long periods of financial hardship afterward, struggling to repay massive debts accrued while they were having fun, and which can continue to accrue interest over time.
How to avoid breaking the bank while traveling?
It's easy to indulge and think that money doesn't matter when you go on vacation, especially when you want to take advantage of everything that's on offer.
However, it is essential to understand that traveling without a budget can lead to future problems.
It's essential to understand the concept of “Monopoly money”: it's easy to treat vacation money like it's not real, especially when you're focused on enjoying every moment.
Experts recommend taking a more conscious approach to spending, and that starts months before you even think about booking a flight.
Set up a savings plan
As with any major expense in life, saving will help you greatly. Experts suggest creating your own savings plan, where you can list all of your financial goals, such as vacation budget, home savings, and emergency savings. After taking a financial inventory of your assets and liabilities, you can decide and allocate a specific percentage of your income to these goals, and make monthly contributions to them each month. Financial advisors recommend setting smart financial goals and looking for methods and platforms that can help you make better financial choices.
Compromise
Planning a trip can be hectic, but you need to plan ahead if you don’t want to overspend. Financial advisors and travel experts advise you to know which aspects of the trip you want to indulge in and which aspects you can give up or compromise on. This could mean forgoing the great food and cuisine at your Airbnb to go on a luxury boat cruise, or forgoing a few excursions to stay longer at your hotel.
Make a list of “need to have” things and another list of “nice to have” things, and prioritize the former.
Sometimes compromising on your vacation can mean traveling in the off-season, when prices for flights, accommodation and activities are generally lower.
