Last week I wrote about how a lack of money management predicts individuals' compulsive spending, regardless of their personality, gender, age, and income. These results were based on a study (Sadness, Identity, and Plastic in Over-shopping) published in the Journal of Economic Psychology which was conducted with two students of mine former (Grant Donnelly and Masha Ksendzova).
I received quite a few emails and there were a number of follow-up questions people wanted to ask. So, I decided to ask Masha to answer the top five most popular questions:
What drives materialists to buy compulsively? Our study suggests that materialists are more likely to be compulsive buyers (although not all compulsive buyers are necessarily materialists) because they don't manage their credit as well as general consumers, believe that purchases will transform their lives, and buy for emotional relief. If people are materialistic, it means that they value the acquisition of tangible products and believe those products will bring them happiness. If the same individuals do not regulate their credit use, they loosen the reins on their spending - they can shop as much as they want without a real restraint. If we add retail therapy into the mix, and the promise of a purchase to improve one's life and self, then we have a recipe for consumer disaster.
Why do shopaholics, as they’ve been called, overspend? If we're talking about compulsive buyers, the ones who suffer terrible financial and emotional consequences from their shopping behavior, then most researchers will tell you that these individuals shop in reponse to negative emotions or negative awareness of the self. Shopping is something to do, but it is mindless. It is engaging mentally, but requires little effort. If people value material possessions, the idea of going to the mall over doing something else is more likely to pop up in their minds at the moment of low self-esteem. If these people have credit cards and are too focused on the promise of their purchases instead of future financial consequences, they can get engage in out-of-control spending. With a slide of a credit card and delayed payment, we don't experience the same psychological impact of parting with money - we get excited about a purchase now, face the pain of acknowledging our spending behavior later, and don't learn as well from this cause-and-effect relationship. Some people value material things, and they take this value to the extreme when they have the right tools.
What role do credit cards play in compulsive buying? With a slide of a credit card and delayed payment, we don't experience the same psychological impact of parting with money - we get excited about a purchase now, face the pain of acknowledging our spending behavior later, and don't learn as well from this cause-and-effect relationship. Credit cards get rid of restraints, both of actual money and our psychological discomfort of spending it. When we handle cash, we physically part with it, and our awareness of spending money increases. The consequence is immediate. When we use a debit card, we can think of our balance dropping to an eventual zero - there is a real bottom to hit. When we slide the credit card, we can delay the consequences - we can stick our heads in the sand like ostriches.
Does bad credit management come from ignorance or is it intentional? It is somewhat intentional ignorance. Rationally speaking, people who value possessions should be MOST concerned with managing their money for one simple reason - with better financial standing, they can buy more! However, they would have to pace themselves and buy less first. This behavior doesn't mix well with the frantic desire for a quick fix of identity and emotion in the now. However, because some individuals really value money, they have trouble facing the fact that they're not spending it wisely or that they just don't have it. There's something in psychology called "the ostrich effect," and it suggests we pay more attention to good information and try to limit our awareness of the bad. We also call it "the pain of knowing," which may be so debilitating that individuals would rather ignore their debts than face them. When the overspending is extreme enough to be considered compulsive buying, individuals experience a great deal of guilt and sometimes go as far as hiding their purchases out of sight. These individuals understand there is something wrong with their behavior, but may be too scared to face reality, and "sticking their heads in the sand" only perpetuates the problem.
What can be done to help with compulsive spending habits? If someone fills out a clinical screener and turns out to be a compulsive buyer instead of a casual overspender, then counselling and professional help. Most often, compulsive buyers experience a great deal of negative emotion, and the actual shopping isn't the root of their problem. That's where therapy comes in. If people just want to spend money more wisely, we urge them to shop using cash or at least debit, not to buy immediately (instead, take a break between deciding on a purchase and actually getting it, walk around the store or save the page if shopping online), and question their motivations - will this item really make you happier, make people like you better, and make you feel more self-confident, or is it just something the media wants you to think? Do you really need it?
Beyond The Purchase is a website dedicated to understanding the psychology behind spending decisions and the relationship between money and happiness. We study how factors like your values and personality interact with spending decisions to affect your happiness. At Beyond The Purchase you can take quizzes that help you understand what motivates your spending decisions, and you’ll get personalized feedback and tips. For example:
Are you a compulsive buyer? Take the Compulsive Buying Scale and learn about your spending habits.
How do you score on the five fundamental dimensions of personality? Take our Big Five personality test and find out.
How do you feel about your past, present, and future? Take the Time Attitudes Survey and learn about your relation with time.
How happy are your Facebook updates? We can analyze your last 25 Facebook status updates and determine how happy you have been.
How happy is your subconscious? Take our Happiness IAT and find out.
With these insights, you can better understand the ways in which your financial decisions affect your happiness. To read more about the connection between money and happiness, go to the Beyond the Purchase blog.