Published June 01, 2012
Blame it on the Jones's.
It’s no secret that we overspend, and our tendency to over-leverage became painfully exposed in 2008 when the housing market crashed and economic growth came to a screeching halt.
“We are a get-rich-quick society; we want to get rich fast and we don’t think about the consequences,” says financial advisor Gary Sirak. “People get excited and buy homes they can’t afford and stocks they don’t really understand. We want to portray that imagine of having it all.”
If there was any silver lining to the Great Recession, it was that consumers reined in their spending habits and started to beef-up their savings. Late last year the New York Federal Reserve reported that consumer debt decreased by $60 billion in the previous quarter as Americans cut back.
But this mindset may be short lived.
“What happened with the economy in 2008 was significant enough for people to take a look at their spending patterns and make changes,” says Sirak, author of If Your Money Talked…What Secrets Would it Tell?. “But we have no memory at all, we will be freaked out and more conservative with our money, but as soon as any signs of an economic upturn show up, we will be right back to our old spending habits.”
In 2009, the Census Bureau reported that Americans spend $1.33 for every dollar earned.
But experts warn that we can’t blame our propensity to buy things we can’t afford solely on the want to impress our neighbors and friends. In some cases, overspending is an addiction, much like with alcohol or drugs.
“We are more and more stressed out as a society and for some people, an outlet to this stress is buying stuff,” explains Gloria Arenson, author of Born to Spend and marriage and family therapist. “Real compulsive spenders don’t even take things out of bag, the release is getting it.”
Los-Angeles based therapist Nancy Irwin says overspending tends to be a coping mechanism. “You need to find the underlining issue that is trying to be fixed by overspending and learn how to deal with it in a healthy manner.”
She adds that there is nothing wrong with keeping up with the latest trends or being indulgent from time to time, as long as the intent is in the right place. “It’s OK to keep up with the latest technology if you are into that or you enjoy giving your kids the biggest pool on the block as long as it comes from a creative place and serves your high consciousness and not just your ego.”
Economists have long maintained that economic growth hinges on consumer spending -- but there is a fine line between spurring growth and digging the nation deeper into an economic sinkhole if too many households are plagued with debt.
Want vs. Need
Almost everyone will overspend at one point in their life, but some feel like they deserve the same goods as their peers -- and that’s where the problem lies: not knowing the difference between wanting something, deserving something, and being entitled to something, experts say.
“We are all deserving, but people need to ask whether they can afford something and will it actually serve needs,” Irwin says. “We need to be able to look past the fact that the dress is beautiful and will make a statement at the cocktail party; we need to ask what will it do after the party, and how much will it set me back?”
Sirak points to a client that needed to take out $35,000 for a new car -- a reasonable request on first glance, until Sirak glanced in the parking lot and saw a three-year-old Audi. “Turns out he had the oldest car in the parking lot where he worked as a doctor and that bothered him. He had to take out money he couldn’t afford. It was just about impressing people and getting that instant gratification.”
Overspending spans all demographics. “Rich poor, it doesn’t matter,” she says. “Even without money they are finding ways to get stuff, they will go to garage sales compulsively. It’s all about the moment, getting an item, that’s the excitement they need.”
Overspending can also strain relationships as some spouses use spending as a way to get back at the other one.
Breaking the Habit
Even when consumers make the decision to break their overspending habit, Arenson says it can be hard because we are constantly bombarded with advertisements and it’s easy to make purchases.
“The credit card companies have raised the rates of what can be charged that people are just drowning in debt….[using] a credit cards doesn’t feel like spending, just like clicking on Amazon.com doesn’t feel like spending.”
The current buyers’ market with retailers offering heavy discounts to lure in shoppers can also spell trouble for over-spenders. “It’s easier to get addicted because it’s easier to justify purchases because you are getting much better deals and that makes the temptation much juicer,” says Irwin.
Sometimes the urge to overspend comes from being denied making purchases as a kid and feeling the need to overcompensate. “There was one guy who lived in a nice neighborhood growing up but his parents were frugal and he wasn’t able to do things that his friends were doing so when he became an adult, he thought he wasn’t going to hold back and buy things he thought he deserved, which led him into money problems.”
Recognizing the problem is the first step to controlling spending and then learning how to deal with the stress or whatever it is that triggers that bad behavior. Irwin suggests tracking every single penny spent for just a few days to identify any catalysts or similarities when things tend to go off budget and separate the need from the want.
“Overspending is completely a learned behavior and it is manageable,” she says. “If you can afford to make the purchase donate the item, and that gives you some power back to feel good about yourself without feeding your ego.”
There are also debtor anonymous and overspenders anonymous groups that can help consumers overcome the problem and offer support.