It’s not only “emotional shoppers” who can learn from the findings. The studies suggest that attitude may be more important than you think for your financial position in the long-term.
The “big money test”
New research published in two papers here and here examined the attitudes to money and the buying tendencies of more than 100,000 people. Authors Mark Fenton-O'Creevy, Adrian Furnham, Sophie von Stumm, Sally Dibb and Gareth Davies revealed some striking findings. Among them is that some people use impulse shopping to manage emotions. Additionally, our attitude to money – whether it represents stability, opportunity or something else – matters a lot when it comes to handling our finances.
The researchers analysed data from the BBC Big Money Test, which asked participants a series of questions ranging from gender and social class to emotional coping strategies, financial knowledge, money attitudes and occurrences of undesirable “financial events” (such as having their car or home repossessed). It determined a money attitude profile by asking the participants about what money means to them: love, power, security, or autonomy. Money can be viewed as a means to express love to other people through material generosity; to achieve and convey power over others; to provide security for yourself; and to enable freedom or independence.
Money is power?
One of the findings is fairly unsurprising: the likelihood of experiencing undesirable financial events is linked to income level and certain aspects of what the authors call ”financial capability” (such as being able to generally make ends meet and keeping informed of macroeconomic trends).
But what is more surprising is that financial attitude also plays a role. Those who view money as power are more likely to experience these poor financial outcomes than those who view money as security.
Buy now, think later
Impulse buying also has some interesting correlates. People with higher incomes are more likely to be financially impulsive – spending spontaneously without much thought or reflection – but so are those with lower accumulated wealth. Money needs to be coming in to spend it, but this spending leaves the piggy bank perpetually empty. Females, younger people, and working class are more likely to spend impulsively. Interestingly, another characteristic linked to impulsive buying is high sensitivity to negative and certain types of positive experiences, and difficulty in managing emotions effectively. In other words, spending impulsively may be a way for some people to try to make themselves feel happy or stop feeling sad.
The importance of being prudent
Why are these findings so important? Some could argue that impulse shopping is enjoyable or at least quick and easy. But the researchers find that while it does provide an immediate reward for the shopper, financial impulsivity is also associated with poor financial outcomes. Examples outlined above include being unable to ”make do” with money available or even going bankrupt. In fact, the authors find that the tendency to impulse buy “has a greater impact on our ability to make ends meet than financial knowledge, income, education and social class combined”.
Impulsivity can be detrimental because impulsive buying often entails a trade-off. Spending now to acquire something immediately usually means forgoing something else later. And this ”something else” could be more critical (such as making necessary car repairs for the commute to work) or more valuable (such as the opportunity to invest the money for a return). An earlier eZonomics post described research showing that impulsive behaviour may be influenced by the reliability of the environment and the person’s confidence that a more valuable alternative later will actually come to being.
Write your own story
Improving your financial education is an important step to managing your money effectively, but knowledge alone is only part of the bigger story – alongside emotions and attitudes. If you’re prone to impulsive buying, try to look at the bigger picture. At the till, ask whether the purchase you are about to make will genuinely make your overall situation better off: will the improvement to your life from this item outweigh the associated implications to the reduction of your bank balance? It might also pay to consider your current emotional state and your coping strategies. It may be that your judgement is clouded by an expected emotional high. Finally, take time when you are not shopping to reflect on what money means to you. It could be worthwhile to try to reframe your outlook to one where money means security rather than power.