Psychology of spending can map our future lives

LIZ KOH
Last updated 05:00 03/06/2014

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OPINION: What we do with money is strongly driven by psychological factors.

There are many forces, conscious and subconscious, that determine how much we spend, what we buy and why.

Even at a young age, children vary in their ability to control impulsive behaviour.

When given the choice of a dollar today or two dollars a week from today, some will always opt for a dollar today and will carry that behaviour into adulthood.

Research has shown the self-control required for delayed gratification is a predictor of future success in life.

Those without it fall behind.

Saving is nothing other than delayed spending and requires self-control. The financial environment in which children grow up can influence their attitudes towards spending and saving later in life.

Children brought up in an environment where money is spent freely can lack respect for the value of money in adulthood.

Frugal parents teach their children to save, although not all children adopt their parents' way of thinking. Poverty in childhood can have a dramatic impact, with a range of outcomes in adulthood.

For some, the impact is to make them more determined to save so they will never suffer poverty again. For others, the lasting impact is a poverty mindset which becomes a barrier to saving.

A person with a poverty mindset believes they are destined never to have money and, rather perversely, spends money as soon as it starts to accumulate, so perpetuating their belief.

Perhaps the strongest link between psychology and financial behaviour is the problem of overspending. Research has shown chronic overspending is a problem for about 10 per cent of the population. It can affect men as well as women and affects people at all levels of income. Like any addiction, it is usually triggered by an emotional or behavioural issue and followed by remorse and guilt.

The overspender may make promises and attempts to change but after the initial remorse, the cycle starts again.

Often the biggest hurdle is for the overspender to acknowledge they have a problem. Denial is an easy way to avoid the issue.

Signs of chronic overspending:

Spending over your budget when you are already in debt or unable to pay your bills.

Overspending regularly (every week, not a couple of times a year).

Compulsive spending; that is, buying things you don't need.

Spending to make yourself feel better when stressed or depressed.

Hiding purchases out of shame or to avoid an argument with a family member.

Physical or emotional reactions to spending such as an increased heart rate, sweating and headaches from anxiety; emotional effects such as elation, followed by guilt or depression.

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Frequent arguments with family members and friends about your spending.

Dealing with an overspender by arguing, criticising, shaming or blaming will usually just make these people feel worse and spend more. Rather than criticism, overspenders need ongoing support and encouragement to change. The remedy starts with the overspender acknowledging the problem they have and being willing to change. Usually some form of counselling is needed to deal with the underlying causes.

Lack of self-esteem, depression, stress and jealousy of the lifestyles of others are often root causes.

What we spend money on is very much driven by our core values. Money enables us to enjoy life and everybody has a different perspective on what makes life enjoyable. It could be having a beautiful home, travelling or learning, giving children a good education, creative pursuits such as writing or art, or helping others.

Having a clear idea of what is really important to you in life helps you make good spending choices.

- The Press

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