By Ammar Kazim
Belonging to the banking sector, I meet people with a bad credit history on daily basis. What astonishes me the most is the fact that most of the people I meet are educated and certainly capable enough to make wise choices, yet they still seem unable to control many of their whimsical urges and often continue to spend money on insignificant things. A survey by Federal Reserve Board shows a gloomy picture; nearly 60% of the American households have savings that would only last for about a month or two if they lost jobs or their financial condition deteriorated.
Many people claim that lack of self-control is to be entirely blamed for the habit of over spending. While this may be true in some instances it is not true in all cases. After observing and chatting with my debt-ridden clients, I came to a few revelations.
Most people who overspend are quite aware of this habit but are somehow unable to control it. So why do people overspend? Numerous scientific studies have linked psychological factors with the behavior of overspending and many of them confirm one thing: overspending usually occurs as a response to some emotional stress.
One of the reasons for overspending is that an individual has been brought up in a financially dysfunctional family. Parents are the examples kids follow. When parents spend mindlessly and on things that are not needed rather than paying their bills, this leaves a negative impact on the minds of children. Such individuals tend to struggle with money when they grow up. They usually practice avoidance and spend money much like the way their parents used to. They often make poor purchasing decisions upon impulse rather than paying their bills and improving their credit standing.
In a depressed state people tend to think that material goods will bring them happiness. What we forget is that this happiness will be short lived. The only thing that can bring us out of our depressed state is our own attitude. No material good is a substitute for stress, sadness, anxiety, loneliness or any other problem. But you must change your outlook towards how you want to solve your problems.
There are many dimensions to the phenomenon of overspending. According to Juliet Schor, an economist, people tend to spend more than they earn because they are prompted by an inner urge to ‘keep up’. With the advent of media, celebrities have obtained the stature of idols for teenagers and the ‘celebrity lifestyle’ has become consumption aspiration for people.
The idea of ‘keeping up’ and ‘showing off’ go hand in hand. People are willing to pay more for products that are in sight publicly. Status brands have become the norm of the day. For example, men are willing to spend more and more money to acquire the latest model automobiles. Women are willing to buy a more expensive brand of department store lipstick, or spend large amounts of money on brand name handbags. Teenagers are willing to do a lot to get their hands on latest gadgets, even at the expense of debt. It is surprising to know that people do not consider ‘showing off’ as a psychological problem. For many choosing status brands is a sign that they have impeccable taste, even if they cannot afford it.
Multinational firms have also played a prominent role in enhancing this impression. Over the years, companies have spent millions and millions of dollars in advertisement just to showcase their product and give more popularity to status brands often promising people unique individuality.
With so much temptation around, if you are having a hard time, here are a few things you can do to help reduce overspending:
Start off by tracking all of your purchases. Keep a small notebook or an index card with you at all times. Write down any purchases that you make. Eventually this will help you in making a concrete spending plan.
Be accountable for everything that you spend. If you have a spouse or a friend that you trust, ask them to help you out by sitting down with you at the end of each month and looking over the list of things that you bought. See how many of the purchases were unnecessary. If you can, return those items.
Never go into a store without a list, and do not buy anything outside that list no matter how much you are tempted. Before making any purchases, give yourself a ten-minute break. During that time try to divert yourself by looking at some other item or indulging in another activity, possibility is that after a few minutes, the object will lose its luster and you will save yourself from squandering.
Do not go shopping if you are upset or having a bad day or have been in a fight with your spouse or best friend. Psychologists believe that people who are upset or suffering from low self-esteem usually end up overspending. On the other hand, people who are confident and feel in control of their lives usually make wiser consumer choices.
Ammar Kazim has an MBA in Finance, and is a freelance writer. He lives in Lahore, Pakistan.