Financial Sense…What drives your spending habits?

Judy M McCutcheon

by Judy M McCutcheon

Spending isn’t such a bad thing, even overspending in some areas is not bad, but this depends on several factors, one of which is having an active budget, and the other being self-control.

Many of us when we hear the word budget, get anxious and all kinds of negative connotations come to mind. The thing with this is that we see a budget as some sort of noose around our necks that restricts us from doing the very thing we want to do – spend. Have you ever given any serious thought to why you spend and save the way you do? We’ve all learnt about money from very early in our socialisation by observing how the adults in our lives dealt with money or we may have been told certain things as it relates to money. You know, the love of money bit, money doesn’t grow on trees or the camel, the needle, and the rich man story. While we do learn some of our money management habits from our parents, the fact is that as humans we are pleasure seekers – we move towards pleasure and away from pain. So, while we may have the best of intentions to save, the thought of having to delay the pleasure we will get from buying something that brings us pleasure causes us to see saving as a loss.

Recent research shows that the insula – a small region of the cerebral cortex – is stimulated when we experience something unpleasant, which means the more the insula is stimulated the less likely you are to keep engaging in the unpleasant act. Some very good news indeed as it relates to your money and spending, more stimulation = less spending. In terms of this study, the research concluded that people who experienced more stimulation tend to be savers and with less stimulation, you tend to be more of a spender. But there are two extreme ends of the spectrum, over spenders and over savers. Overspenders can end up in significant financial difficulty, such as not having a retirement nest egg or living pay cheque to pay cheque and carrying excessive debt. Over savers, on the other hand, can end up missing a lot of life’s enjoyments because it is painful for them to spend, even a little. It’s important that we find a balance and knowing which end of the spectrum you are on can save you a great deal of regret.

There was a test conducted in 1960 by Walter Mischel, called the marshmallow test. A group of kindergarten school kids were offered one reward they could eat immediately, (marshmallows, Oreo cookies, or pretzels) or a larger reward (two marshmallows), if they waited alone for about 15-20 minutes. The interesting thing with this experiment is that the kids were followed until they were adults, and the findings revealed that, the kids who delayed their gratification and waited to get the extra treat, did better in life than those who ate the treat immediately. What can we learn from this study about our spending habits? Well, for one thing, the study is not really about candies, it’s about achievement, delayed gratification, self-control, and trust. If you are an overspender, chances are very high that you cannot delay the gratification of the pleasure the “thing” brings you. So, with cash in your hands, you just spend, without giving much thought to savings. Things appear to be going well for you now – you have a job, so it’s ok to live month to month without giving much thought to the future, but it is imperative that you do give more than a fleeting thought to your future. Therefore, before you make that next purchase, ask yourself if you really need that item. Go cash only, do not use your cards, this way you get to see just how much you are spending. As a big spender, you may want to pay for things upfront, don’t pay for things as you get them, that way you get to better understand how your money “just disappears.”

If you are an over-saver, you can go to extreme lengths to see your money grow and thus deny yourself the things that are essential to you living a happy and fulfilled life. While a spender feels pleasure when shopping, a saver feels emotional pain when they must spend. So, they make big sacrifices, missing life’s simple pleasures and sometimes even compromising their health in the process. While you don’t want to spend like there’s no tomorrow, you also don’t want to look back at your life and have regrets. In the final analysis, we are the only ones responsible for our financial present and our financial future. What is important is that we find the right balance between the two extremes and seek to live our lives to the fullest, in a responsible manner of course.

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Judy McCutcheon is a partner in the firm Go Blue Inc, a Human Development Company.

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