Why we overspend?

17 Mar 2021

We all love to shop and have all succumbed to overspending or impulse buying that we regretted later. But why do we fall prey to this when we know all too well that it is destructive to our budget?

  • 40-80% of purchases are impulse buys. We can blame it partially on marketing tactics and how they manipulate the way we perceive reality. (Even though we are aware we are being manipulated)
  • On top of that, 95% of our daily decisions are determined by impulsive unconscious processes.

We look at several factors that cause us to overspend and how to avoid them.

Pressure from Society

We as human beings are extremely susceptible to social pressures. There is the social norm e.g. that drives us to exchange gifts at Christmas because that is what is expected. 

This drive to conform to social norms is subconscious and has been carried over by our parents without even realising it. Whether wrong or right, we have this overreaching desire to fit in and do what everyone else does. It is a way of making us feel normal or belonging in society.

Marketing gimmicks add to these social pressures. Sales reinforce a sense of scarcity and we develop a fear of missing out. Big sales like Black Friday creates a herd mentality which causes panic buying. 

Being aware of this social effect will help us to identify traps in the future and hopefully avoid them.

Too many substitutes for hard currency

Modern advances in technology have brought with it alternative paying methods to cash. 

We have credit and debit cards, scanning apps on our phones and even digital banks that pay recipients via mobile numbers etc. Paying with alternative forms of cash eases the pain of paying, as we do not experience the same guilt when we part with our money. We don’t see the immediate effect on our decreasing bank accounts when we shop. It almost creates the illusion of buying goods for free. 

Hard cash makes us think twice before spending, as we can see the notes disappearing and our instinct to preserve money kicks in. This will also curb our visual purchases (we buy with our eyes before we even swipe a card) as we will buy only what we need or have cash for.

Decision Fatigue

This speaks for itself. According to research, we only have a certain supply of willpower. As the day progresses, we use up our supply until it is depleted. This depletion causes us to act impulsively.

Best to do shopping early in the morning when willpower reserves are at their highest. Also, avoiding other forms of stress such as large crowds and conflict situations, will make your willpower reserves last longer.

Mindsets

These are psychological states that influence our perceptions and decision making and can make us spend more. Occurring subconsciously, it’s when the thought process we use in one situation carries over to process information in another situation. 

e.g. when we go shopping after we volunteered at an animal shelter, we are still riding the high of positivity, feeling good about what we did. This high could make us feel more positive towards a sale in a shop we pass or deciding to buy gifts for friends in the spirit of giving. We end up buying things we don’t need or didn’t plan for. 

This is one of the reasons why we go into a shopping centre to buy one thing and leave with several bags. 

We need a focused mindset to stick to our shopping goals and buy according to a list and a budget. Mind over heart as the case is. Shift your mindset to rational and ‘do I need it’ as opposed to emotional and ‘I must have it’. 

Making Comparisons

When we shop, we follow a three-step process

  • Do I want to buy something?
  • Which product is better?
  • How will I pay for the it?

But when faced with two possible purchase options as we often get in malls and even online, we often skip the ‘do I want to buy?’ question and go straight to buying one of the choices.

The Halo Effect

This is when mental short cuts that we use to navigate life more efficiently, lead to incorrect assumptions of positivity.

When it comes to shopping, we make positive assumptions e.g. that all items belonging to a certain brand are quality. It’s a typical marketing ploy but our assumptions are often correct.

But a halo effect occurs when we assume for example, that the sale items inside a store are as much a bargain as the items for sale in the shop window. A sign stating up to 75% off in a shop window draws us in with the hope of huge savings. It is here we discover that one item is 75% off and the rest is 20% off. But we buy anyway, because our brains are still in happy mode from the sign in the window that said we are getting a bargain. We have made the incorrect assumption about the sale items and the money we are saving.

A sale isn’t always a bargain!

  • Come prepared on sale day 
  • Know what goods you want and what they normally cost
  • Only buy if it is a genuine bargain (not a product that is marked up and then on sale for the normal retail price)

Understanding why we binge shop or overspend, is the first step in controlling our mindset to be more focused and logical. 

When shopping, plan what you need or set yourself a budget and stick to it. If you do succumb to the influence of a shopping spree, at least set yourself a budget that won’t hurt your pocket and most importantly, stick to it. 

Memorise this mantra and, speak, chant or sing it whenever you feel yourself slipping.

“Do I really need it?”

Your deVere adviser can help you set up a budget that includes pandering to your shopping addiction. [email protected]
*some info taken from a study on theconversation.com

Please note, the above is for education purposes only and does not constitute advice. You should always contact your deVere adviser for a personal consultation.
* No liability can be accepted for any actions taken or refrained from being taken, as a result of reading the above.