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#3 Buy Now, Pay Later (BNPL)
The advent of Buy Now, Pay Later or BNPL platforms is a true testament to consumers’ changing spending habits and preferences. In the past when only cash was available, a shortage of cash would mean that you had no other choice but to forgo your purchase. When credit cards came, you could buy first, and only pay when your credit card statement came.
But this BNPL service has changed the entire retail space. You can now pay by interest-free installments to spread your purchase expenses over a few months. And that’s what gets spenders going.
Having your big-ticket purchase split into three or four manageable installments entirely changes your perception. You’ll likely think to yourself “hey, it doesn’t seem that expensive”, and then proceed to make the purchase. A S$1,200 brand new phone becomes affordable because you’ll just have to pay S$400 for 3 months. Seems affordable right?
But if you think about it, you’re just delaying the payment and spreading it into bite-sized payments that your brain thinks is affordable.
#4 Marketing gimmicks
Ever seen a deal thinking “wow this is the best deal ever, I have to get this” even though you had no intentions of purchasing it before? That’s how good marketing tricks people into buying their products. You would probably think that you bagged some good deals with a huge discount, but on the flipside, you wouldn’t have even spent anything if you skipped out on that purchase altogether.
But don’t be too hard on yourself because I’m guilty of that too. Who can’t resist a good deal right?
You would have also realised that when you buy items, many of their prices have decimal places like “S$14.90” or “S$62.99”. In a 2004 study done by Monica Wadhwa and Kuangjie Zhang, they found that when we see a price with a decimal place, our brain takes time and struggles to process the number quickly. To compensate for this, our brains tap into ‘cognition mode’ to logically evaluate it (though often poorly).
Our brains are tricked into thinking that these prices are cheaper than they really are. Say a chair that costs “S$49.90”. Your brain immediately thinks it’s still affordable because it's still less than S$50 and in the S$40 range, though in actual fact it’s just 10 cents less than S$50.
Because of these, people tend to spend more than they should, and more on things they don’t need.
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#5 Lifestyle inflation
Another reason why you feel the need to spend? The culprit is lifestyle inflation. It refers to an increase in your expenses alongside your salary increase.
It’s again, normal human instinct to want to “treat yourself” when you get a salary increment or bonus. With more spending power than you had previously, you’ll feel richer and have the realisation that you can afford more things now.
And the scary part is that you probably won’t notice it unless you scrutinise your credit card statements each month.
Whether it’s transitioning from a student to a full-time employee, or you’ve just gotten a raise, anyone can fall prey to this affliction, if you don’t keep track of your expenses. When your disposable income increases, things that were once “luxuries” can easily become “necessities” because you technically can afford them right now. This could potentially result in an increased spending and get in the way of you achieving your financial goals.
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#6 Your parents’ spending habits
Wonder why you’ve been a spendthrift since young? Your parents’ spending habits may be the reason why you are a free-spirited spender.
The saying “monkey see, monkey do” applies even to you as a child, adopting your parents’ spending behaviour. But not just parents though, your older siblings, extended family and school teachers, and caregivers can also have a lasting impact on the way you deal with money.
If you were raised by people who were always saving whenever they can, and spending only on necessities, you might be less likely to overspend. Conversely, if they always splurged whenever they can or often treat themselves to material gifts, it is likely that you might do the same.
#7 Peer pressure
Another reason for you overspending might also have to do with peer pressure. It might not be your peers forcing you to buy that new game console or that pair of shoes they absolutely love you in, but it could be you not wanting to miss out on these materialistic goods that everyone around you had as well.
Remember the time when everyone had the same Jansport bag in Secondary School, or Converse shoes that made the “cool kids” stand out? As humans, we definitely also want in on the latest trends. If our friends have it, then we want it too. More for the reason of not wanting to be left out instead of us buying it just because we like it.
If everyone has that same Chanel 2.55, it doesn’t mean that you have to have it too. Decide for yourself whether you really want it or you just want it out of peer pressure. Sit on it a few days and logically consider its practicality. If the trend dies out and your desire for purchasing it also declines, you’re probably just FOMO.