Are You Tempted to Spend MORE When Money's Tight?

The following is a guest post from Dr. Bonnie Eaker Weil.

If you answered yes to the above question (or thought you might be inclined to answer yes, but didn't really want to admit it to yourself) you're not alone. A Stanford University study identifies one in twenty Americans as compulsive shoppers, and a recent survey determined that  80 per cent of women would go on a spending spree to cheer themselves up.

This survey, conducted by  Professor Karen Pine, from the University of Hertfordshire, concludes what some of you with one-too-many pairs of “retail therapy shoes” may already know: that some people use shopping as an emotion regulator, “a way of anesthetizing themselves to negative feelings or dissatisfaction with life.”

So here's what it boils down to – some of us are actually spending MORE during this recession. Or at least, spending more in proportion to our income. In other words, if we've lost a job we may not be spending more, dollar for dollar, than we did when we had a full time job. But if you fall into the above-mentioned one in 20, or 80 per cent, you could be spending more, proportionally to what you're bringing in, than you were before we hit this financial crisis. That's sobering.

But I guess the good news is: if you find yourself wrecking the budget  - or even fantasizing about wrecking it! - when you should be more concerned with keeping money matters in check, you're not alone. I'm referring to this phenomenon as a “pent up purchase.”

This type of purchasing is actually allowing us to participate in different stages of the grief process: anger and denial. Out of denial, Americans have awakened to a new emotional response to the economic collapse. We might be in denial about our financial situation, or we might be really upset about it. Either way, we're looking for a way to feel better about it. Of course, our rational, calculating minds know that the way to feel better about a tight budget is not by spending more! But in the moment, it makes sense: our addiction to spending to get that “high” is a common response to spur dopamine production (feel good hormones).

If you're indulging in spite of your budget – or worse, because of it – you may be headed down a dangerous path that will be unhealthy both financially and emotionally. Work to re-wire the pattern of thinking that leads you to shopping, opting instead for spending time with friends, trying something new like taking a class, head to the gym, or use your energies to volunteer. Work to divert your energy and attention into something positive – the possibilities are nearly endless!

Comments

[Rob Bennett]

I don't find it hard to believe that people do this.

Alcoholics are likely to drink more when they are told that they need to cut back on the drinking. They feel pain because of the damage they are doing to their lives and they know on some level of consciousness that they are causing that pain with their behavior. So they need to increase their efforts at denial. Drinking more "persuades" them that there is not a problem.

We can also "persuade" ourselves that a recession is not a problem by spending more. There is a logic there (even though it is of course a mixed-up emotion-rooted logic).

Rob

[JimmyDaGeek]

I had a girlfriend that used to say "In for a little, in for a lot" whenever she overspent for something. I suppose to her way of thinking, if she was going to fret about a little bit of money, she might as well fret about a lot more, and at least enjoy what she spent it on.

[meredith]

On the other hand, if the anticipated inflation tsunami hits in the next year or so, then now is the time to buy, when there are so many sales and discounts.

[Kin]

I can see and understand people doing this, but I am not sure if this is what we need -- more blaming on situation.

[Joe]

People spending more is good for the frugal among us. Its all a Ponzi scheme. We need people spending, spending, spending so that our stocks and houses go up. Then as we age we sell out, take the profit, and let the next guy do the same. Ever stop to think about CNBC talking about "confidence" in the market etc? That's right, its a confidence game - a Ponzi game. Ever actually do the Math on things like "dollar cost averaging"? Its a scam - and its proven to return less than alternative strategies whether one does historical analysis or Monte Carlo simulations on it. But boy is it useful to get people paying into the brokerage firms. Luckily most people are very weak mathematically so the wool can be pulled over their eyes easily (I include most MBAs here since the level of mathematics involved is a joke - start talking about autoregressive moving-average models over generalized autoregressive conditional heteroscedastic processes and see their eyes glaze over and then hit them with the money pitch on why our particular high-frequency strategy can volatiltiy pump - more nonsense - and sign 'em up).

Same goes for Social Security. It only works if we have a growing population that is paying in. That's why we need more legal immigration. Someone gets a graduate degree from a US university? Staple a greencard to the diploma, get them into the workplace, get them spending and paying into SS so the rest of us can retire. (Illegal immigrants are useful for cleaning the toilets at low cost so lets not discount them either).

The recent bubbles were trouble only in that we let things get a biy out of control. We need to keep the greed under control so that we can sustainably grow the Ponzi scheme rather than let it get out of balance by letting too many little people in too quickly. House prices need to go up but lets not hand out too many liar loans.

Its like a set of batteries. Slowly drain them but don't make them explode in your face.