How debt makes us spend more
OPINION: The whole country is wrestling with how to reduce spending.
High inflation, lagging wages, and higher home loan rates have all taken a chunk out of many households’ incomes.
Reading the tea leaves suggests about 15 in every 100 families have seen a dramatic worsening of their financial positions in the past two years, and half of households are having to be a lot more careful now when it comes to watching the pennies.
It’s tempting in times like this to start harking back to the imagined behaviours of our forbears, imagining that they possessed skills sets that we have lost.
If only we behaved more like our respected elders did when they were our age, then everything would be fine.
Over the years, I have come to see these imaginings as being caused by the rose-tinted goggles of nostalgia, and the relative absence of consumer debt before the 1980s.
Had credit cards, easy loans and buy now, pay later debt been so easily available in the 1950s, 60s and 70s, I have no doubt our venerable elders would have behaved very much like people do today.
Human behaviours are tremendously susceptible to manipulation by moneyed industries to spend more.
There’s a famous experiment in which people are required to bid for tickets to a baseball game.
Some were told they had to pay with cash. Others were told they had to pay with credit cards.
The people with credit cards were willing to pay much more for tickets.
They weren’t more stupid people. The effect on how much more the availability of credit meant they were willing to pay was unconscious.
Crikey, even just putting a credit card, or buy now, pay later logo prominently on a catalogue, website or shop window has an unconscious impact on how much some people spend.
This, of course, raises a red flag for all those people claiming in surveys to be watching the pennies more carefully.
What they think they are doing, and the success of their strategies, is to some extent determined by forces working on them that they are not conscious of.
How do you overcome that? We humans can take more control through knowing how our financial enemies are attempting to encourage us to spend more, and building defences. These defences are processes in our lives that defeat their nefarious aims.
They range from people who obdurately refuse to have a buy now, pay later accounts, and instead save for luxury purchases, to people who set up regular payments into KiwiSaver and savings accounts.
Regular saving is a strong predictor of financial stability.
That makes sense. Having a regular savings habit is associated with a lot of positive money characteristics, including a person’s belief that they can positively affect their own futures. Regular saving is associated with higher incomes, but not exclusively. Some people earning what you earn save more than you. Others save less, or nothing at all.
Processes that can defeat skilful attempts by the likes of retailers and lenders to get us to spend more, include living to a budget. But it can also involve changing our other habits.
This can include adopting simple life maxims, like: I never use buy now, pay later loans, I always pay off my credit card in full at the end of the month, I never buy snacks when filling up with petrol, I shop for clothes once a year, I don’t recognise recreation shopping as a lifestyle choice for the weekend.
Yes, life is tough. Yes, it’s expensive. Yes, your wallet is under constant assault. But that does not mean you don’t have choices.