Question: What are common spending problems people have, and do they always correlate to psychological issues?
Answer: When it comes to money, we are our own worst enemies. The basics of financial health are quite simple: save for the future, don’t spend more than you make, and when investing, buy low and sell high. I have yet to meet someone who didn’t know these basic tenets of financial health. However, most Americans don’t abide by them. When we know better but can’t do better, the problem is psychological in nature. In fact, in our research at Kansas State University, we have discovered that we can predict an individual’s income, net worth and financial behaviors based on their beliefs about money. We have identified a psychology of wealth.
Q: Many shoppers like to stock up on items when they go on sale. Is that always a problem?
A: Stocking up on sale items is not a problem if it makes financial sense. However, some retailers and advertisers take advantage of our emotional impulses and mental miscalculations to get us to pay more than necessary for stuff we don’t need.
Q: At what point does someone need to be concerned that they may have become a hoarder?
A: Many hoarders come from a background of poverty or lack and are desperate to insure themselves against future lack. In our research we have found that hoarders are more likely to believe that the key to their happiness lies in the acquisition of more money and more things. However, no amount of money or possessions fills the emotional void. Typically, hoarders have strained relationships with their loved ones who have complained about their collections or miserly relationship with money.
Q: If someone has never learned how to create a budget and stick to it, how can they learn the practice?
A: Budgets are difficult for most people, for the same reason that just thinking about a diet makes someone crave high-caloric foods. It creates a poverty mindset and our subconscious rebels. It is much better to create a spending plan with a focus on what you want to spend your money on: a vacation, home, education for your children or an early retirement. When we can get a clear and exciting vision of how we want to spend our money, it gets much easier to reduce our spending in areas that are not as important to us.
Q: What techniques can people use to curb impulse purchases or compulsive spending?
A: We are all vulnerable to impulsive purchases and marketing techniques that prey on these impulses. The key is to put some distance between our impulse to buy and our buying behavior
so we can engage our rational brain in the decision process.
Ask yourself: Is this something I need? Is this something I can afford? Where will I put it? If it is a large purchase, wait 24 hours before pulling the trigger. Compulsive Buying Disorder is a serious, debilitating, spending addiction that afflicts 5 to 7 percent of Americans. Our research has shown a strong correlation between compulsive buying disorder and lower net worth, lower income and higher credit card debt. Compulsive buyers often need the help of a psychologist to change their self-destructive buying behaviors.