Understanding Impulse Spending: The Why and the How to Mitigate Its Impact
Impulse spending, a phenomenon almost everyone has experienced at some point, can bring about an intricate mix of emotions and consequences. But what exactly is impulse spending and why is it so hard to avoid? Let’s dive in to find out.
The Nature of Impulse Spending
Impulse spending, often a result of a sudden, intense urge to possess something, typically leads to unanticipated, often expensive, and usually unnecessary purchases. These purchases, while fulfilling a transient desire, can quickly turn into a habit, leading to a spiral of costly and unsustainable expenditure.
The Intricacies of Impulse Spending
Impulse spending is most often a byproduct of the pleasure that comes with buying something entirely of your own choosing. The satisfaction of spending hard-earned money on something you have complete control over can bring about a sense of joy and rebellion.
Yet, this initial happiness is often shadowed by feelings of guilt, remorse, and self-reproach. The aftertaste of an impulse purchase, more often than not, is a lingering sense of regret that overshadows the initial surge of satisfaction.
The Role of Neuroscience and Psychology
Unraveling the reason for impulse spending necessitates a look into human psychology and neuroscience. From a neurobiological perspective, impulse spending is largely driven by dopamine, the brain’s motivation molecule. The dopamine system, designed to push us towards meeting our basic needs, can often go haywire, leading us to chase after things we merely desire, with excessive enthusiasm.
One way to conceptualize this is through Maslow’s Hierarchy of Needs, a theory suggesting that humans strive to meet a series of increasingly complex needs throughout their lives. Each level of the hierarchy needs to be satisfied before an individual can move on to the next. It begins with meeting basic needs like food, water, housing, and then progresses towards security needs, social needs, and psychological needs like esteem, belongingness, and self-actualization.
Impulse spending can help us fulfill our psychological needs and provide a sense of self-actualization, at least in our imagination. The consumerism-driven society and constant exposure to smart marketing strategies have trained our minds to equate buying and owning goods with success, status, and happiness.
Before each purchase, there’s a release of dopamine, which prompts us to strive for the next level in Maslow’s Hierarchy. Following the purchase, endorphins chemically stimulate our brain’s pleasure receptors. However, once the endorphin release stops, the euphoria quickly fades away, and the reality of our decision sets in.
When Does Impulse Spending Turn into a Problem?
Impulse spending can become a problem depending on an individual’s financial circumstances. People with lower income or high debt are more susceptible to the immediate dangers of impulse spending, as they have less flexibility in their budgets. However, having more spending power can lead to even costlier and riskier purchases, making impulse spending a potential issue for anyone.
Here are some signs that impulse spending is becoming problematic:
- Inability to save money for unexpected expenses, large purchases, or retirement.
- Living paycheque to paycheque.
- Regular use of credit cards and lines of credit without a repayment plan.
- Inability to pay off credit card balances in full at the end of the month.
- Gradual increase in debt.
- Anxiety following an impulse purchase.
- Disagreements over spending within the family.
The Extreme Cases: Shopping Addiction
In rare cases, impulse spending can escalate into a shopping addiction. Much like how drug addicts chase the chemical high from their substance of choice, or gambling addicts chase the rush of a potential big win, individuals with a shopping addiction chase the endorphin rush that follows their purchases. And similar to other types of addiction, shopping addiction can have real financial, mental, and emotional costs. Medical attention is often required to overcome the condition.
The Impact of Impulse Spending
Even if it doesn’t progress into a diagnosable shopping addiction, impulse spending can still negatively impact a person’s financial wellbeing and potentially their mental health as well.
Consistently spending beyond one’s budget can result in increased borrowing to meet basic needs. This leads to a larger portion of income being allocated towards servicing debt, which in turn leads to more borrowing. Another common source of dissatisfaction emerges when impulse spenders realize how much purchasing items on credit has increased the cost of their purchases due to accruing interest.
The cumulative effects of impulse spending can lead to an inability to attain long-term financial goals. In extreme cases where the resulting debt is unmanageable, it could even lead to insolvency.
Managing Impulse Spending
While we are all susceptible to impulse spending, it doesn’t mean we are victims of our biology or psychology. Resisting the temptation simply requires awareness and practice.
Here are some steps you can take to avoid impulse spending:
- Be aware of your impulses (understand what you’re most likely to buy and when)
- Consider how many hours you had to work to afford the potential purchase
- Make a shopping list and stick to it
- Delay the purchase for a week, then reassess its importance
- Avoid shopping as a form of entertainment
- Develop a budget that includes savings and fun money (but set a limit)
- Open a savings account to set aside money according to your budget
- Remember that it’s okay to treat yourself, but only occasionally
Repairing the Financial Damage of Impulse Spending
The Bankruptcy and Insolvency Act provides options for honest but unfortunate debtors to achieve a financial fresh start and permanent relief from their debts. If you feel overwhelmed and are struggling to make any headway on repaying debt, consider scheduling a consultation with a Licensed Insolvency Trustee to find out whether Bankruptcy or a Consumer Proposal is right for you.
In addition to relieving you of your debts resulting from impulse spending, both debt solutions also offer financial counselling sessions to help you understand the underlying causes of your spending and adopt better budgeting strategies. These sessions also provide practical tips and advice to rebuild your credit and repair any lingering financial damages caused by your impulse spending.
So, what is impulse spending and why is it so hard to avoid? In a nutshell, it’s a deeply ingrained human behavior that can lead to financial and emotional distress. However, with awareness, self-control, and strategic financial planning, it’s something we can all learn to manage effectively.
