What drives impulse spending?
Have you ever wondered why spending sometimes feels so good? What about why we spend more in some situations over others or how it can be easy to overspend without realising?
We talk to behavioural scientist Dr Juliette Tobias-Web, who received her PhD in experimental psychology from Cambridge University, about what exactly is behind our impulsivity and how it shapes the way we spend our money.
What is impulsivity?
“Impulsivity is simply acting without thinking,” Juliette says. “If you feel emotional, have time constraints or limited mental resources, that can lead you to act more impulsively.
“When it comes to spending, there was a study conducted in 2018, which found that consumers spent an average of US$5,400 a year on impulse purchases including food, clothing and household items. That’s quite a lot.
“I think most people, if not everyone, has spent impulsively at some stage.”
What’s behind these impulsive behaviours of ours?
“There’s an argument that genetic factors can influence our impulsivity, so someone who’s sensation-seeking might be more impulsive than others.
“Then there are what we call state-level factors, where how you feel can influence whether you act impulsively.
“Certain environments can cause us to be impulsive too. For example, if you think about gambling, there are structural characteristics of those games and environments that elicit people to have less self-control.
“You have the flashing lights and the sounds that make you feel like you’ve won. All that helps keep you in what we call a ‘hot state’.”
What are hot and cold states? How do they influence our spending?
“Basically, a cold state can be likened to a rational state and a hot state is more like an irrational or hyper-aroused state,” Juliette says, “so if you feel sad, spending can make you feel happier.”
“Spending money actually releases dopamine in your brain, which makes you feel happy. That’s why they call it ‘retail therapy’!”
“One Harvard researcher found the sadder you feel, the more money you’re willing to spend. But you might also find that when you feel incredibly happy, you want to buy everyone a round of drinks. In both situations, you’re in a hyper-aroused state — that can prompt you to overspend”
How do you prepare for environments that might tempt you, then?
“I’ll use gambling as an example,” Juliette says. “We find that gamblers can speak very rationally about their behaviour outside being what we call ‘in the zone’.
“I think this is true for most of us. If you really like shopping, you can speak very rationally about that habit.
“We can be very rational about our behaviour when we’re outside of ‘the zone’ and can plan well. But when we’re in that hot state, we’re unable to think through the consequences so well.”
So, what kinds of plans should we put in place to better help ourselves?
“A simple rule of thumb to remember is the easier you make something to do, the more likely you’ll do it and the harder you make something to do, the less likely you’ll do it.
“For example,” Juliette says, “if your gym is on the way to work, you’re more likely to go than if it takes 10 minutes to get there from your home.
“Ultimately, the more you practise self-control, the better you get at it. And it’s worth acknowledging self-control can be really hard.”
“You’ve probably heard about people putting their credit card in the freezer, or never buying chocolate as part of the weekly shop,” Juliette says. “These are ways people are adding ‘friction’ to make things harder.
“Friction is simply making the behaviour you want to avoid harder to do.”
Are there other factors at play when it comes to overspending?
“Sometimes, we overspend not because we lack self-control but because of forgetfulness or a lack of awareness — we might forget or not realise a bill or expense is coming up,” Juliette says.
“Having regular access to pay could help people to pay their expenses as they come up.”
“On-demand pay could help too if you want to marry up your mortgage or your rent with money you’ve already earned. That way it’s much easier not to spend your pay when it lands in your account.”
Dr Juliette Tobias-Webb is a Behavioural Scientist and has a PhD in Experimental Psychology from the University of Cambridge. She uses psychological and neuroscientific insights to help organisations design better for human decision-making and behaviour.
Earnd is an app that allows employees to choose how and when they get paid at no cost to them. This means they can align their income with expenses, track their money as they earn it and budget how best suits them.