The Psychology of Spending: Why We Buy

We all have it. For some it’s chocolate, others it’s a new pair of shoes. Sometimes it’s new tools, a book or CD. Everyone has something that gives them the urge to spend. Sometimes it verges on the ludicrous, like when you’re stringently saving and buy a pack of doughnuts instead of the sensible pasta and lentils you set out for.

It feels like a necessity. And when it is affordable and budgeted for, these perks can be one of the joys of life. But most people have had patches where every purchase seems a necessity, where the credit card isn’t real money and you end up with lots of stuff you don’t need, and no money for the stuff you do, trivial little things like electricity or food. I should know. Telstra and I have an irreparably broken relationship due to one of these patches.

And so I set out on a journey. It was all very Zen- a journey of discovery, enlightenment and healing (though not of the whole Telstra situation, as some things just won’t be healed). Mostly I set out to try and discover what made me spend money, so I could stop.

The first thing I learnt was that I was inherently irrational. It’s a home truth that hurts. Spending is emotional. The obvious example is not spending much at the supermarket because the price of food freaks you out, and then immediately proceeding to get enough takeaway pizza to feed a small town.

I’m told that it’s also all about the pleasure versus pain principal. Previously, it was thought that spending was dictated by the prospect of immediate pleasure as opposed to delayed gratification. Apparently researchers now dispute this. The major factor at work is the battle between immediate pleasure and the pain of handing over your well-earned dollars.

This is where credit cards come in. Immediate pleasure, delayed pain. A time lapse between the gain and the loss. Catastrophic combination if you’re not a saver. Researchers at MIT conducted an experimental silent auction, one group had cash, the other had credit cards. The credit card group bid twice the amount of the cash group. Immediate pleasure, delayed pain. It’s a whole lot of pain once the bill comes in, but delayed nonetheless.

So what can we do about it?

1. Commit (it to paper). Writing down what you plan to spend before you go into a store is crucial in avoiding the emotional buy. For a more extreme version, check out http://www.stickk.com/ where you can set down your commitments in a contract.
2. Know Yourself- You Can’t Just Look: Don’t walk into the store that always brings you down. Find a new route home, or something fascinating to look at on the other side of the road. But break the habit of checking if they have anything new every other day.
3. Separate self-worth from financial worth. Feeling like money determines who you are has the potential to mean you spend more of it. Keep a bit of perspective, about money as a useful tool, and you’re likely to keep the pocket unburned.
4. Breathe through the pain. Take a deep breath. Consider they pain against the pleasure, regardless of how far away the pain might seem. Breathe a couple of more times. Remind yourself that you can make a logical decision, regardless of what your emotions are screaming. Exhale.

And there you have it. Emotional spending conquered. Rational spending back on top.

What makes you spend?

Share with us the reasons you spend money – besides the obvious of course!

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