Tuesday, May 24, 2022

Why Our Spending & Saving Behavior is Changing in the 21st Century

The idea of saving and spending is rapidly changing in the world we live in today. Our banking and our shopping have been at the forefront of this online transition ever since the early 2000s. Budgeting at its very core is understanding and having knowledge of recurring predictable expenses. For example, this can be a phone bill, electricity bill, water bill, car insurance, mortgage payments, and rent payments. These are all classified as predictable expenses that we can monitor by using a simple and easy-to-understand budgeting method.

Unpredictable expenses, on the other hand, are expenses that we don’t account for. Think of funerals as an example. This is an extreme expense that brings in many spending components. This event can bring in travel expenses and housing expenses, not to mention buying items for a funeral that we hoped we would never need to buy.

Shankar Vedantam, the host of the Hidden Brain Money 2.0 podcast discussed “Why We Bust Our Budgets.” On the podcast, he brought associate professor of marketing Abigail Sussman, Ph.D. in which they discussed in detail why many of us who save and spend money aren’t prepared for our unpredictable expenses. Dr. Sussman explained the importance of planning for unpredictable expenses, “the idea is that even though it's going to be hard to predict what the specific unpredictable expense is going to be, we might still be able to predict that there will be an unpredictable expense.”

For example, we may have a friend or relative birthday coming up and need to buy them a gift. Or we may need to replace the tires on our car. Unlike food expenses that we regularly think about and plan for, these types of unexpected expenses tend to slip our minds when we are planning our budgets. The very nature of their being unpredictable makes us think they don’t come along very often so we don’t need to budget for them. Sussman shares we are likely to overspend when things are unpredictable because we assume it’s a one-time expense. Actually, we have a lot of these “one-time” expected expenses that are easy to overspend on. And in reality, birthdays, holidays, and car repairs actually come along on a regular basis and we can plan for them ahead of time, instead of being blindsided by them unexpectedly.

Sussman also explained why many of us have a habit of overspending on items greater than our budget can sustain. Companies use discounts as a manipulative advantage to keep us spending more. The “25% off or 50% off” on purchases does not help the average consumer when spending. We think we are saving more by utilizing the discounts, however, discounts can do the exact opposite by encouraging more and more spending. We should be more aware of this type of devious behavior during the inflation period. The higher the discounts, the more spending that will occur and the less happy we may be when we leave these stores.

Why do we get tricked into spending more than we intended to? Sussman suggests our excitement to have money plays a role. when we earn more in our pocket, we spend exponentially more because we now have the actual money to spend. This is especially true when we get reimbursement or a refund, like a tax return credit or store credit.

Another way we get tricked is we get comfortable with price transparency. We like when cost structure and price information are broken down into smaller pieces. Sussman explains “…when we look at that breakdown, we think that the company is being more transparent with us, we think that they're giving us more information.” This is an abusive tactic that is often utilized to make us understand why such items cost the way they do and make us feel okay spending more and more.

Understanding company motives when it involves our spending behavior is important. It helps us understand why we are spending so much. We can then combat the tendencies by becoming aware of these tactics before we make purchases.

Identifying the ways we are being tricked into spending more money, as well as making the effort to budget and allocate money for both predictable and unpredictable expenses are important strategies to increase our financial wellness.

If you also want to learn more about how to save more during an inflation period, please click here! If you also want to learn how to budget efficiently, refer to our last blog here for more information.

Here to help,


Your Financially Fit Me Team

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