FOMO And The Financial Trap Of Impulse Spending

Who doesn't love a good online window-shopping scroll? Or a stroll in a mall on a Sunday? But then, you suddenly spot a gorgeous Jimmy Choo bag. It's love at first sight. Before you know it, you’ve swiped your card and walked out with the cute bag, a lighter wallet and a skip in your step.

But later, the thrill fades, replaced by a twinge of guilt, which is snowballing to no end. This scenario is all too familiar to many of us, and it’s a classic example of impulsive spending. But what drives these spur-of-the-moment financial decisions?

Instagram actually plays a significant role in shaping our spending habits. Platforms are flooded with influencers flaunting the latest fashion, gadgets, and luxurious lifestyles. This constant exposure creates a sense of FOMO, or fear of missing out, prompting us to splurge on items we might not need but feel compelled to buy to "keep up."

Peer pressure just adds fuel to the fire. If our friends and acquaintances are posting about their latest purchases, vacations, or experiences, we feel the need to match their standards. As Dr. Anjali Chhabria, a practicing psychiatrist, pointed out, "If I'm on social media and want to see what bags others are carrying and how I will look with them, I am more likely to make impulsive purchases. This desire to belong and keep up with trends can significantly impact our spending behaviour."

Your introduction to money and the general attitude towards it at home actually shape most of your beliefs around spending and saving. Brad Klontz, a financial psychologist, introduced the concept of money scripts, which are subconscious beliefs about money that we develop in our early years. These scripts can influence our financial behaviours in adulthood.

For instance, if you grew up in an environment where money was scarce and desires were often unmet, you might develop a tendency to overspend as an adult to compensate for those unmet desires. Conversely, if you were always given what you wanted as a child, you might continue to spend impulsively without considering the consequences. Dr. Chhabria explains, "Either I've got whatever I wanted as a child, or I've been deprived of what I wanted. Both scenarios can lead to impulsive spending, driven by deep-seated emotional needs."

The battle between immediate and delayed gratification is at the heart of impulsive spending. Immediate gratification is the desire to experience pleasure or fulfilment without delay. It’s the thrill of owning that Zara dress right now without thinking about the long-term impact on your finances.

Delayed gratification, on the other hand, is the ability to resist the temptation of an immediate reward and wait for a later, often larger, reward. This concept is crucial for financial planning and investing. It’s about setting aside money for future needs, like retirement or buying a home, rather than spending it all in the present.

The rise of cashless transactions has made spending easier and more convenient, but it has also contributed to impulsive buying. When you swipe a card or use a mobile payment app, you don’t physically see the money leaving your wallet, which can lead to a disconnect between spending and the actual cost.

The immediacy and ease of cashless transactions can weaken the perceived impact of spending, making it easier to succumb to impulsive purchases. Awareness of this psychological trigger can help in managing impulsive spending habits. As Kiran Telang, a financial planner, notes, "People often swipe their cards without figuring out how they will pay when the due date comes, leading to a debt trap."

While impulsive spending can be challenging to control, there are strategies to moderate it. The most popularly known is the 24-hour rule of waiting before making an impulsive purchase. This cooling-off period can help you evaluate whether the purchase is necessary and prevent regretful spending.

Maintain separate accounts for savings and spending, and regularly monitor your spending to identify patterns and areas where you can cut back.

Telang adds, "Creating a discipline of first attending to your long-term goals can ensure that, in the future, you have a nest egg ready for whatever goals you have. Simultaneously, keeping a separate spending kitty can help you enjoy guilt-free spending without jeopardising your financial stability."

For more insights into how your personality could be affecting your finances, catch the upcoming episode of Big Decisions on July 5 with Dr. Anjali Chhabria and Kiran Telang.