Understanding financial concepts like debt, credit, and savings is critical to long-term success with money and finances. Equally important, however, is understanding the psychology that leads to overspending and debt. We have to be able to recognize and control the thinking and behavior that influence the way we spend money. In other words, why do other people overspend? Why do I overspend? It turns out, it has a lot to do with unrealistic expectations and the little lies we tell ourselves.
Overspending and unrealistic expectations
People with overspending and debt problems tend to share a common costly trait: they have unrealistic expectations for how material things will make their life better. That is the chief finding of a study by two marketing professors at the University of Missouri.
The authors found that people who wind up deep in debt often got there because they expected “unreasonable degrees of change in their lives from their purchases.” They also concluded that “these beliefs are fallacious for the most part, but nonetheless can be powerful motivators for people to spend.” Studies like this could add useful insight to what has become a global quest to raise personal financial literacy through programs in schools, communities, and online.
The study identifies four types of unrealistic expectations common to overspenders. These expectations are much less common in consumers who do not have debt problems and may be the key to understanding why people overspend. Here, then, are four lies that overspenders tell themselves when buying things they don’t need:
People will like me more
Some overspenders believe that purchases will make it easier for them to connect with others. One woman in the study wanted to buy a house so that she could host parties and be more social, resulting in making more friends.
I will become a better person
Many overspenders believe purchases can help them become better people. One woman in the study was certain that cosmetic dental surgery would improve her looks, increase her confidence, and help her become more successful.
I will become more fun
Some believe that purchases will make them “fun” and feel more fulfilled. A man in the study wanted a mountain bike because he figured he’d become more adventurous and interesting.
I will become more effective
The typical overspender believes that purchases will make them better at a certain pursuit. Several in the study said that a new car would make them more independent and self-reliant.
So why do people overspend? In sum, much of it has to do with a pursuit of temporary or false happiness. Heavy overspenders have a greater tendency to believe that the product which put them into debt is necessary for their happiness. But is it true? Sure, whiter teeth may give you a confidence boost and a new house might attract more visitors, but for how long? The question becomes, will there be yet another need that will have to be fulfilled by another large purchase?
Understanding why you spend the way you do can help you avoid the problems associated with debt at their source. And that’s important because it can help you avoid going back into debt as you work to pay off your current debt.
Stop overspending and get out of debt fast
Understanding why you overspend and making an effort to curb the habit are both important first steps to improving your financial health. But if you’re struggling with debt now, it might be time to take additional action. To that end, Freedom Debt Relief is here to help you understand your options for dealing with your debt, including our debt relief program. Our Certified Debt Consultants can help you find a solution that can put you on the path to a better financial future. Find out if you qualify right now.
- 5 Tips to Make Sure You Don’t Overspend on Your Credit Card (CNBC)
- Budgeting 101: The Basics on How to Budget (Freedom Debt Relief)
- 7 Good Financial Habits to Master (Freedom Debt Relief)
- The Psychology of Spending Money (The Balance)