A recent study reported in Scientific American showed a complex relationship between economic behavior, emotions and childhood experiences. People who grew up when money was tight said when they were reminded about the recent recession, they were more likely to make short-term, impulsive spending decisions, to ignore wise investments and to choose luxury goods.
Unfortunately, there seems to be something about the stress of economic deprivation that triggers less than optimal spending habits. The Bureau of Labor Statistics concluded that in 2005, the most recent year available, more than 40 percent of U.S. households were spending beyond their means, and there’s reason to believe that behavior has continued throughout the recession, as median income has fallen between 2007 and 2010.
Luckily, though, you can draw on behavioral economics and psychology research to help you curb overspending every day. Here are five steps you can take:
(1) Think before you shop.
The most fundamental way to avoid overspending is to apply some self-awareness to the reasons you are shopping.
A 2001 Northwestern study showed that people who felt in control of their lives and powerful made more utilitarian shopping decisions based on quality and performance; people who felt powerless were more prone to conspicuous consumption. Don’t go shopping when you feel down about something at work or after a fight with your spouse.
(2) Delay “dream purchases” by advertising them publicly.
I always tell my husband that my Pinterest boards have saved us thousands of dollars. When I’m browsing online and see the cutest toy for our daughter or a new lamp for the living room, I “pin” the picture up on the online “board” instead of actually making the purchase. (You can do the same thing by cutting real pictures out of catalogues and putting them in a collage.)
Later on, after some time has passed, the object may have lost its luster, or I decide to change it for something better. Sometimes the item even goes on sale. This “advertising” strategy takes advantage of a well-known tendency for the mind to equate expressing intentions with taking action. By “pinning” that couch, I satisfy some part of my brain as if I’ve actually bought it.
(3) Ration the small stuff.
Many people are prudent when it comes to big-ticket items where they have the time and energy to invest in comparison shopping and budgeting, but all that falls apart when it comes to the little items like buying magazines. That’s exactly why stores call them “impulse buys” and put them in the checkout lines at the supermarket.
In one study, self-rationing, or placing arbitrary limits on small purchases, like “two a week,” or “only with cash, no credit cards,” or “only on Fridays,” helped consumers make better decisions and beat impulse buying.
(4) Make “exceptional” spending part of your everyday budget.
People are more likely to overspend in situations that seem out of the ordinary, such as birthday gifts, a car repair or a favorite concert ticket. But these situations add up and are actually pretty frequent, so it’s better to have a designated fund for special occasions, according to a 2012 study in the Journal of Consumer Research.
(5) Limit your use of plastic.
Credit cards, gift cards and even debit cards are made for overspending, because the pain of paying is delayed and the transaction therefore seems less “real.” Research indicates that some retailers see a 40 percent increase in each purchase when they start accepting credit cards.
The simplest way to tackle this problem is to leave your credit cards at home, or limit them strictly to categories such as gas, and use cash for everyday purchases.
Anya Kamenetz may be contacted by email at diyubook@gmail.com.