LIFESTYLE & TRAVELBUDGETING

The Psychology of Spending

Do you find it difficult to avoid constantly buying the latest trending item? You’re not alone! There are several outside factors that play a role in convincing someone to keep spending beyond their means (spoiler alert: our brains are the main culprit). With every purchase you make, there are psychological causes and effects. Learning more about the psychology of spending may help you recognize patterns in your financial habits and gain awareness of your subconscious tendencies when it comes to how you use money in everyday life.

Retail Therapy

Retail therapy is the practice of shopping and buying goods to improve your overall mood. Every time you make a purchase, you get a rapid rush of a brain chemical called dopamine. You gain instant gratification from swiping your credit card, but that high only lasts so long. According to the 2024 MarketWatch Guide’s Financial Stress Survey, 44% of people overspend to cope with stress. Making financial decisions while experiencing high levels of difficult emotions can result in making irrational spending decisions that would not have been made otherwise.

Online Advertising

With the increase in online and social media use, consumers are being exposed to substantial volumes of advertising within a given day. From hearing a popular influencer talk about their favorite products to the constant ads that are targeted to each user based on past online activity and social media interactions to endless sponsorships and commercials, digesting all this content daily pushes you to spend more than you realize! One tip to help prevent overspending is to try limiting your online usage or deleting apps that lead you to make irrational spending choices.

Scarcity Tactics

Scarcity tactics are a sneaky marketing strategy used to convince consumers they need to buy a product right then and there. Key words and phrases of scarcity tactics include “For a limited time only!” or “Act fast before it is too late!” These are used in advertising to persuade shoppers to purchase something without pausing to think about whether they really need or want it. To counteract this, try waiting as long as possible before purchasing a new item to ensure you really want it. Look out for scarcity tactics and ask yourself the following questions:

1. Is this really the last time I can buy this product?
2. Can I purchase this product or something similar later?
3. Do I even want this item?

Comparison

Comparison of materialistic goods is another psychological reason so many of us overspend. You may have a fear of missing out on the experience of having a specific item, or maybe you view materialistic items as a way of determining social status. Try not to measure self-worth based on what you have or don’t have, as it could lead to a draining spending cycle and harm your mental health too.

Brand Loyalty

If you’ve had a good experience with a specific company, you will likely be inclined to buy from that company in the future. While there’s nothing wrong with enjoying goods from your favorite brand, a possible challenge that could arise is fighting the urge to purchase every newly released item. One example of this behavior has become increasingly common throughout the technology industry. The pressure to upgrade your phone or computer to the newest model has been consistently pushed onto consumers. Even when it comes to goods from your favorite brand, it’s still important to take the time to analyze potential purchases so you can spend your money with intention.

If you’re reflecting now and coming to the realization that your brain may have tricked you into buying something you didn’t necessarily need or want, that’s OK! I, too, have purchased unnecessary items due to all the reasons previously mentioned. It can be a long journey to recognizing these psychological tricks used to push overconsumption. Awareness and accountability with yourself are key. One tip to help avoid harmful spending habits in the future is to create an individualized budget. This can assist you in staying committed to your financial goals and aspirations.

Sources:

https://money.usnews.com/money/personal-finance/spending/articles/inside-the-psychology-of-overspending-and-how-to-stop

https://www.betterhelp.com/advice/therapy/what-is-retail-therapy/

https://e.infogram.com/037757d8-9352-4cb0-9e65-8cdba8cd9064?parent_url=https%3A%2F%2Fwww.marketwatch.com%2Ffinancial-guides%2Fbanking%2Ffinancial-stress%2F&src=embed#async_embed