We all know that we should live within our means but for many households this is an aspiration that proves impossible to meet. Overspending has become commonplace and has a serious impact upon our ability to service debt payments and/or to invest the monies needed to fund a comfortable future.
To put this in context, a report by uSwitch in the UK revealed that nearly five million adults spend more than they earn and nine million just break even at the end of the month. Whilst these figures relate specifically to the UK, this is a global phenomenon and the causes of this overspending are common across national boundaries.
Availability of credit facilities and ease of purchase fuels our overspending habit:
– Credit facilities.
The uSwitch report showed that overspending on “non-essential” items had soared by 65% over the last decade but this increase in spending wouldn’t have been possible if it wasn’t for the ready availability of credit facilities, such as credit cards, overdrafts, and personal loans. Indeed, many of the worst affected people have come to regard their credit cards and overdraft limit as an extension of their monthly income rather than as options of last resort. All of this overspending was unsustainable and, of course, we have seen the bubble burst with the credit crunch recession. Lenders have started to tighten their lending criteria but it may take longer for individuals to adjust their mindsets and reign in their spending.
– Ease of purchase.
It’s also never been easier to buy stuff, whether you need it or not. Most people’s wallets or purses are straining from the weight of credit cards, store cards, and debit cards, and they frequently also have a PayPal account and use Online Banking. Additionally, with a cash machine around every corner (and increasingly in pubs!), there’s rarely any difficulty in obtaining cash if that is your preferred payment method. Stores are often open seven days a week and even when they shut their doors, you can go online and buy to your heart’s content.
Emotional causes of overspending:
The availability of credit facilities and ease of payment options may facilitate overspending but they aren’t the root cause of why people overspend. To uncover those reasons we need to delve a little deeper into the psychological factors that underpin our purchasing behaviour.
– Muddled Spending (absence of a budget):
Many people simply overspend because they don’t keep track of how much they are spending. The absence of a budget, with associated financial monitoring and targets, means that they lack the controls that are necessary to avoid going into their overdraft. This is often also associated with impulse buying and with a failure to plan shopping trips. Having a shopping list and sticking to it can help reduce this type of overspending.
– Comfort buying and boredom:
In the same way that some people overeat when faced with stress or depression, others turn to spending to provide a short-term distraction from their worries. On a similar vein, overspending can be connected to a desire to overcome a sense of boredom. If you feel that there’s not much going on in your life, then the thrill of bidding on items on ebay may hold more appeal than it would otherwise do.
– Keeping up with the Joneses:
A very well known cause of overspending is the desire to keep up with one’s friends, neighbours, and peers. This often translates into households spending more on things such as homes, cars, and clothes than they can comfortably afford. Those afflicted with this disorder may suffer from insecurity as they worry overly about how the outside world will perceive them.
– Shopping addiction:
Many people are addicted to the thrill of shopping. You only have to witness the mad dash to the January sales to understand that some people live for the buzz of fighting their way through crowds to find some magical “bargain”. It’s worth remembering, however, that a purchase is only a bargain if you really needed the item in the first place! Of course, addiction can extend beyond shopping and being addicted to other things, such as gambling, alcohol, or drugs, will also tend to lead to overspending.
– Preoccupation with branded items and failure to shop around:
How many of us have been guilty of paying more than we should have either because we have been suckered in by a status brand name or because we have been too lazy to shop around for a better deal. At least the emergence of price comparison websites means that we have less excuse for the latter!
– Pernicious influence of advertising:
To be honest the effects of advertising are probably a little exaggerated but advertisers wouldn’t spend so much if their adverts weren’t successful at encouraging us to buy stuff that we otherwise wouldn’t have. The key is always to ask yourself the question “do I really need this item?!”
Summary:
Overspending has become a major problem within the Western world and current levels of overspending are clearly unsustainable. This behaviour has been fuelled by a deadly concoction of the easy availability of credit facilities and the increased ease of making purchases at any time of day. However, these factors only facilitate the overspending behaviour and the real causes of overspending are tied to emotional and psychological factors. These can range from muddled spending, to shopping addiction, or a desire to keep up with the Joneses.
The key to reigning in spending is to understand why you are overspending and then to implement a budget and commit to find ways to combat your ingrained behaviours. It may be tough at first but the benefits of avoiding overspending can’t be overstated and make it worth persevering with.
Sources:
http://financialplan.about.com/od/savingmoney/qt/Overspending.htm
http://www.uswitch.com/press-room/press-releases/spent-out-5-million-brits-spend-more-than-they-earn-1605.pdf