Want to Change Your Spending? Change Your Mind

September 22, 2022 by Spectrum Credit Union

In an age of online flash sales, limited-time deals and app-exclusive offers, we’ve all made a few regrettable purchases in our lives.

The occasional splurge won’t derail your financial goals. But when we’re spending more than we’d like, it gets all too easy to beat ourselves up about it. After all, shouldn’t we know better?

Maybe not. A lot of what we buy comes down to the subconscious psychology behind our spending, not just the conscious decisions we make.

Thankfully, whether you want to curb your spending or just make more intentional purchases, knowing why you buy can help you change your habits.

We believe something is more valuable if there is less of it

In theory, when we believe a good is abundant, we’re not that interested. But when we believe something is rare, our desire to buy it goes up. It is called the scarcity principle and marketing firms use it all the time.

Take Black Friday, for example. Those doorbuster, limited quantity per customer and short-term sales are designed to create a buying frenzy. Online, retailers often employ the same tricks by listing something as “limited quantity.” Just reading that there is only two left in stock can be enough to make us take the plunge.

So, what do you do? The next time you feel tempted to buy something urgently because the quantity is limited or the sale is short-lived, take a minute to shop around. You’ll likely realize that item isn’t such a rare find.

We skirt our own rules

A lot of our conscious spending is based on rules we created. Say, for example, you never make impulse purchases in the checkout line. When we break a rule, we feel guilty. Drazen Prelec, associate professor of marketing at the Sloan School of Management calls that guilt the “moral tax on consumption.” And most of the time it works. We break our own money rule, buy candy in the checkout line, feel guilty eating it in the car on the way home and then don’t do it again next time. 

But we’re really good at getting around rules, even ones we made for ourselves.

One way we do it, Prelec found, was to use our credit cards more. “The moral tax gets blurred with credit cards,” he says. “When you’re consuming, you’re not thinking about the payments, and when you’re paying, you don’t know what you’re paying for.” Essentially, we subconsciously disconnect the joy of buying with the pain of paying. Bye-bye guilt.

So, what do you do? Carry cash to stores where you usually break your rules. Having to fork over actual money may be enough to keep yourself in line.

We can’t always spot real bargains

We all have the occasional cognitive bias, a term for simplifying information quickly based on what we perceive to be true. One of our more common biases is “anchoring,” and it can get us into financial hot water.

Researchers have found that when we see a number, we’ll often subconsciously anchor our minds to that number. So, for example, if a store lists the MSRP of a TV, we make a mental note that TVs costs that number.

The problem comes in when we “anchor” ourselves to a certain price and then see something we want go on sale. Just seeing the number lower can make us buy something — even if it isn’t really a great deal. Marketers know this and will often try to nudge you into buying. It is why you see the “full price” listed right above the “sale price.”

So what do you do? Shop around before making any big purchases, so you know you’re really getting the best deal and not just a lower number.

We influence each other

As people, we’re stronger together. But when it comes to spending our money, other people can make us go a bit wonky.

Take the ebbs and flows of the stock market. Normally, we’re fine to invest regularly at a steady pace, largely ignoring the ups and downs and trusting our money will grow over time. But when every news outlet starts talking about a possible recession or all your coworkers are frantically buying up the latest hot stock, it can send you into panic moves with your own portfolio.

You also see this influence play out in your everyday spending, especially with certain personality types. Status seeker personalities often subconsciously think expensive things define who they are. And the more their neighbors and friends bring home the goods, the more they want to follow suit, wracking up debt.

So, what do you do? Even if you’re not one to keep up with the Joneses, we’re all guilty of following the herd sometimes. Instead, find one “money buddy” you trust to bounce personal finance ideas off of. Avoiding the herd can help curb your spending.

Finding balance

Getting to the root of why you spend can help you reach your financial goals and achieve overall financial wellness. That’s why we’ve partnered with industry-leading Balance. This month, members that participate in BalanceTrack and complete the module will learn more about the psychology of spending and be entered in a drawing to win awesome prizes.

Ready to become a member? Let’s get started.

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