The Psychology of Spending Habits

Strolling across the street one day, I noticed a middle aged man. He came up to me asking for money. He told me his sad story of how he had everything but lost it because of his addiction to spending. His wife left him taking his kids and his house was repossessed to cover debts, the same classic sad story you hear all the time. I listened and shrugged him off thinking that this guy was a fool; who would do that? I continued on my way and walked by a furniture store that was having a 30% off sale on there entire stock, advertising no payments for a year with rates as low as 11% with guaranteed instant approval. The store was hustle bustle crazy with people pouring in, loading bays spitting out furniture. Learning about how in debt Americans are, I wondered how they could afford anything else. I continued walking and came across a new restaurant, Thai Express: Authentic Cuisine. I love Thai food and have been meaning to try it out. So I grabbed a bite, ringing up a bill of $26. I have been spending a fair amount of time going out to restaurants recently. It's amazing how easy it is to charge and think nothing more of it.

Spending in itself is a phenomenon whose explanation has been attempted to be theorized by many fields. Why is it that some Americans spend poorly and some well, and what are the factors which decide this? Those associated with the humanities (such as psychologists and sociologists) have come up with credible theories from convincing research giving transparency to the art of spending. The reason some Americans are bad at making spending decisions and others good at those decisions is due to the psychology of spending habits and the fact that we live in a time of an increasingly expensive living costs.

Spending is the reason we work so hard and our reward for working. How would life be if you could never buy something that is not just food or shelter? How would one be able to unwind after a hard work week? What would be the point of working if one could not allow one's self to get something they want every once in a while? However, spending needs to be kept in check; otherwise one may find them self over spent. In trouble with creditors, we can sink into a dark pit which we may have trouble getting out of. Claude S. Fischer acknowledges the many potential theories of why people overspend in his paper "Succumbing to Consumerism?: Underlying Models in the Historical Claim." His analysis brings to light three major debated theories as to why people overspend on a psychological level. These reasons are to "Emulate" a certain population, to "Indulge" in spending, or to "self-create" a personal image which is unique to oneself (2). Indulgence and emulation are classic reasons for overspending, while "self-expression" is the post modern explanation. This is not to say that one theory rules over another but that they each play some part in explaining the phenomenon of over spending in today's society. It would be too easy to say that these or any one part are the true reasons; because we are human and complex, there are many reasons we spend.

First of all, spending money makes us feel attractive and as if we belong to an upper society, as we see others who spend in the same way. Purchasing the year golf membership, liking golf or not, can create a sense of belonging within that peer group and is self assertive. Fischer defines emulation as "the desire to keep up with, fit in with, and impress people of higher position (3)." Many people want to feel oneness in today's society. By dressing with a certain fashion or driving a snazzy car one can complete a certain image in order to receive a certain response. Either to be accepted or noticed people will generalize you with the image of other people who buy those clothes or those cars. Instead of being an individual you become the purveyor of that product.

Spending can also be fun and exciting; it is able to spice up an otherwise boring day. Without an agenda for a day or interests we will spend more than we think we would. The truth is that "For a lot of people, shopping is simply a solution to boredom (Lukac)." We spend because there is nothing we are significantly thinking of in the current moment. We buy when we're lonely or uninterested in life. Boredom causes great overspending in society.

Spending can be an irresistible impulse driving us to do it. Going out to see a movie is an excellent excursion for a blank box on the calendar. It is tantalizing to see that new movie or even that pay-per-view movie on TV. Because of that, spending is addictive. Fischer abstracts Indulgence as "an irresistible desire to possess and voluptuous pleasure from possessing; people who are caught by the sensuality of goods (4)." The indulgence idea can also be expressed as an addictive trance. "Buying and displaying goods is how people compensate for anxieties and frustrations, for economic uncertainty, for loss of meaning (5)." Spending calms the nerves and releases stress, certainly a feeling we would always like experience. Who wouldn't want to be stress free all of the time? Spending is a an easily achieved desire in society.

Spending money on odd things can make us feel unique and individual. Purchasing jewelry, customizing your car, and buying that one-of-a-kind belt are all examples of strange obsessions we have. "Post-modern" theory argues that both emulation and indulgence are incorrect to the degree of "depict[ing] consumers as 'cultural dopes', irrational and easily manipulated" and that we must take into account that consumers engage in "self creation" (6). Many people enjoy uniqueness and try to create themselves as they see fit. These people will buy something which "affirms individual personality (6)." They want to be something more than a person who emulates as a clan would.

Spending increases when consumers use credit cards. A credit card makes paying delayed and leading to instant ownership. "The psychology of credit cards themselves makes it easy for you to spend more money than you should (Guide)." The "charge it" mentality makes us spend 12% to 18% more per charge than what we would spend using cash. Because we are human we make impulsive purchases because of credit cards. It's so easy to charge a combo meal or to buy add that pack of gum to your cart at the super market with a credit card. Instead of counting out the cash the total is conveniently charged to our account. The ease of the credit card is a significant reason we overspend.

Many people have never learned how to responsibly spend. People who have been born without money have never learned how to use it. "Some people overspend simply because they don't have a good handle on what they make compared to what they spend (Three)." A person Such as the guy who lost everything because he had never learned how to spend has suffered from this problem. They do it because they are not used to spending money and incapable of managing the habit of spending. Many times lottery winners foolishly piddle away their entire fortune because they have never had the responsibility of keeping that much money within a budget. The learned skill of spending is a something which people lack and causes many people to overspend.

Of course our psychological thinking isn't the only reason why we overspend. Ultimately, we spend because we have to spend; in order to cover bills and the costs of living. The sad truth is that living is expensive and increasingly getting more expensive giving us the appearance that the woes of spending are not necessarily the fault of the individual. Elizabeth Warren in her compilation "The Over-Consumption Myth", cites that the spending rate in America has not necessarily increased due to choice but because life is getting more expensive. Warren makes the argument that the culprit for empty pockets is the increase cost of mortgages, insurance, cars, and tuition. She explains that the cost of "fixed prices" on the mortgage, cars, insurance, and tuition are consuming 75% of a duel income family when just two decades ago they cost merely 54% of a single earner family (17-18). These are rather startling figures considering fixed costs cannot be dropped as we must pay them from month to month. One couldn't just stop paying the mortgage or one would be foreclosed. We can see that tuition has jumped greatly with its ridiculous prices; the news says it all. We hear of how most families can't afford to send their kids off to college just solely relying on the money in their own pockets. The price of insurance has pushed many struggling families out of the markets having them wish to stay healthy. Families are living further and further from a city centre so two cars are now required. These are certainly factors in the expense of living which contribute to overspending.

Also in analyzing why Americans are overspending and dumping their pockets we must consider that we are given choices on what we buy; but to what extent exactly? Why is it that we can't break free of these ridiculous costs of living? Why must we pay so much for mortgages and costs of living? Well, it is quite plausible that the private business sector is to blame. Christer Sanne in his paper "Willing consumers-or locked in? Policies for sustainable consumption", addresses the possibility that "consumers may not be so keen and willing but are rather locked-in by circumstances. Some of these circumstances are deliberately created by other interests (273)." Sanne concludes that business interests override true consumer choice. Rather than self regulation Sanne explains that business regulates spending. It's easy to see this in modern society. Banks make a killing on mortgages whether you default on the loan or pay it off costing the consumer a lot. Why is it that we must buy gasoline vehicles and why is it that gas is at a set cost? We should be able to purchase electric cars but we can't, due to business intervention. Insurance companies make huge profits and yet people can barely afford it. Business is an important factor in deciding how much we spend on fixed costs contributing to the overspending epidemic.

There are obviously psychological and social aspects to why we overspend. The costs of living have dramatically increased putting a squeeze on the average family. Because living is so much more expensive we have less expendable income to use for entertainment or consumer goods. Add to the discrepancy the fact that our natural urges are the reason why people overspend. Overspending is researched by all fields of the humanities and is an important economical, sociological, psychological, and historical tool of discovering ways to end self inflicted poverty and the woes of overspending in the humanities.

Works Cited

"Guide to Credit Cards: How Credit Cards Encourage You to Overspend." Sound Money Tips. 24 July 2007 .

"Three Reasons People Overspend." Always Frugal. 24 July 2007 .

Fischer, Claude S. "Succumbing to Consumerism?: Underlying Models in the Historical Claim." The Berkeley Sociology Department (2003). 26 July 2007 .

Lukac, Martin. "Why We Overspend Our Dollars." EzineArticles 05 July 2006. 31 July 2007 .

Sanne, Christer. "Willing Consumers-or Locked-in? Policies for a Sustainable." Elsevier. 26 July 2007 .

Warren, Elizabeth, comp. The Over-Consumption Myth. 2 Dec. 2004. Yale Law School. 26 July 2007 .