Today, everyone tends to spend a lot of money on things they never thought they actually required. From smartphones to fashionable accessories, our buying habits are strange, and spending exceeds our financial capacity. This paper will explore the psychology of expenditure with the aim of helping people avoid some common traps when it comes to spending their money.
The Influence of Emotions on Spending
The primary cause of costs is emotion. Most people do not shop to fulfill a need or want but rather to satisfy their need to deal with stress, anxiety, or even boredom. This is a familiar behavior, sometimes called retail therapy, whereby customers shop with the exclusive purpose of distracting themselves from their grief. The price paid for an item is just for a moment’s satisfaction, as purchasing creates a novelty effect that can be considered addictive.
It's called hedonic adaptation, which means that individuals tend to return to a particular level of well-being in a short amount of time after being joyful. As consumers use a product, they may experience disappointment or even buyer’s regret, and to repeat that experience of joy, buyers make another purchase.
The Role of Social Pressure and Comparison
Other factors that cause unessential consumption are social factors or pressure. Social media usage has enhanced the visibility of other people’s lives, a phenomenon called “social comparison.” Everyone looks at his friends, famous people, and other influencers who boast their new buys, travel, and other pricey events that make them feel low. In a bid to avoid being left behind in the esteem competition, many people tend to spend on items to match the standards set by other people.
Advertisers use this phenomenon and sell products under brand images to make people believe that the possession of some products will improve their status in society.
Cognitive Biases and Spending Behavior
Cognitive biases explain why people overspend to some extent. Present bias explains that people tend to make decisions that will provide them with short-term profits, disregarding long-term financial gains. For instance, a person may know that it is wise to save for a rainy day or retirement, but they fail to deny themselves a new pair of shoes or a holiday.
The scarcity effect refers to people who are led to make decisions based on perceived short product availability, such as buying two in place of one, 50% off for now, or only two left.
Cutting Down Unnecessary Spending
People who keep a journal of their expenses learn how much they spend on different items. Another way is to gain awareness of emotions that can lead to excessive spending behavior. For example, it is possible not to shop when feeling sad.
The one I found to be rather helpful is the “24-hour” rule, which means that one should not immediately buy any item that has not been on the list. It allows a person to separate himself from the excitement of purchasing and thus make a more sober decision.
