The market for digital avatars is expanding rapidly, yet consumer adoption and experiences with the technology remain uneven, highlighting the need to understand the psychological, social, and ethical effects of avatars. Building on interdisciplinary theory, we propose a conceptual model of ethical avatar design for consumer wellbeing, centred on self-congruence and humanisation, and moderated by realism and skills. The model integrates insights from the Proteus Effect, Computers-Are-Social-Actors framework, and Social Comparison Theory, and is operationalised through a self–avatar continuum that classifies forms of customisation. While avatars enable engagement, self-expression, and perspective-taking, they may also amplify risks such as stereotype reinforcement, Uncanny Valley effects, or idealized body standards. The framework presented here provides actionable strategies for designing avatars that align with user values, foster wellbeing, and encourage prosocial behaviour, offering both managerial guidance and directions for future research in marketing, health, and immersive digital environments.