What is impulse spending and why is it so hard to avoid?

Everyone, except perhaps the most frugal among us, makes purchases from time to time which they hadn’t anticipated or planned for. This isn’t running out of milk or having to make an unexpected car repair — rather it’s a generally costly and usually unnecessary purchase which fulfills a spur of the moment desire.

These purchases are typically preceded by an intense and inexplicable urge to have something. In a flash, our mind rationalizes the merits of the transaction and concludes the item is not only necessary, but will bring lasting happiness as well.

The occasional impulse purchase can be a healthy way to treat yourself, provided the price fits within your allowance for discretionary spending, you take the time to genuinely savour whatever it is you bought, and it remains a truly occasional practice. Unfortunately, this kind of rationalization can quickly become a slippery slope to justify all sorts of costly and unsustainable spending.

Why do we impulse spend?

Most often we find ourselves making an impulse purchase because it feels good. You work hard for your money, most of which is already spoken for long before it ever lands in your bank account. There’s a deep-seated satisfaction (and joyful rebellion) that comes from spending it on something that you have complete and total control over.

However, initial feelings of happiness are often followed by guilt, shame, and self criticism. The only thing more powerful than that initial surge of satisfaction is the lingering buyer’s remorse many people feel after they return to their pre-purchase baseline.

Neuroscience and psychology offer some answers

It’s clear something more is at play to convince us the irrational is rational in the moment. We can look to human psychology and neuroscience for some insight.

From a neurobiological standpoint, impulse spending is driven largely by dopamine. Dopamine is the brain’s motivation molecule, and it plays a central role in pushing us towards specific goals like working toward a promotion at work, improving our fitness, and pursuing a mate. Without it, we would never have the urge to meet our core needs. Unfortunately, now that most of these are taken care of, it’s common for the dopamine system to go haywire and cause us to go after things we merely want with much the same enthusiasm.

Another way to visualize this is through Maslow’s Hierarchy of Needs, which theorizes all humans pursue a progression of increasingly complex needs over the course of life. Each step in the hierarchy must be satisfied before an individual can move to the next. It begins with basic needs to sustain life such as food, water, housing. We then move toward security needs, social needs, and psychological needs such as esteem, belongingness, and self-actualization.

Impulse spending can help satisfy our psychological needs and (at least in our imagination) feelings self-actualization. Consumerism and constant exposure to clever marketing have conditioned our minds to equate purchasing and possessing goods with happiness, status, and success.

Before each purchase there is a release of dopamine, telling us to strive for the next step in Maslow’s Hierarchy. Following the purchase endorphins chemically trigger the pleasure receptors of our brain. Once the release of endorphins stops, that euphoria quickly subsides and the reality of our decision sets in.

When does impulse spending become problematic?

The answer largely depends on an individual’s circumstances. Typically, lower income or highly indebted people are more susceptible to the immediate dangers of impulse spending simply by virtue they have less wiggle room in their budgets. However, with more spending power comes the potential for even costlier and brazen purchases — so impulse spending can really become problematic to anyone.

Here are some signals of problems:

• Inability to save money for unexpected expenses (e.g., car or home repair, job loss, etc.), large purchases (e.g., trip, car, or to purchase a home), or retirement
• Living paycheque to paycheque
• Habitually utilizing credit cards and line of credits without a plan to pay them off
• Inability to pay credit card balances off in full at the end of the month
• Gradual increase in debt
• Anxiety after making an impulse purchase
• Family disagreements over spending

Extreme cases

Impulse spending can, in extreme cases, develop into a shopping addiction. Just as a drug addict chases the chemical high of their chosen substance or a gambling addict chases the rush of the next big win, afflicted individuals chase the flood of endorphins that immediately follow their purchases. And just like other types of addictions, shopping addiction comes with real financial, mental, and emotional costs — and medical attention often is required to overcome the condition.

What is the impact of impulse spending?

Even if it doesn’t progress into a diagnosable shopping addiction, impulse spending can still negatively affect a person’s financial wellbeing and potentially their mental health as well.

Consistently spending beyond one’s budget can result in increased borrowing just to meet basic needs. This results in an increasing portion of income going towards servicing debt, which in turn leads to more borrowing. Another common source of dissatisfaction emerges when the impulse spender discovers how much purchasing impulse items on credit has increased the cost of their purchases due to accruing interest.

The cumulative effects of impulse spending can lead to an inability to attain long-term financial goals, or, in cases where the resulting debt is unmanageable, insolvency.

How can one manage impulse spending?

It’s a point that bears repeating: We’re all human and all humans are susceptible to the pressures of impulse spending. However, that doesn’t mean we’re all victims to our innate biology or psychology. Resisting the temptation simply takes a little bit of awareness and a great deal of practice.

Some steps you can take to avoid impulse spending in your own life include:

• Being aware of your impulses (where, when, what are you most likely to buy?)
• Consider how many hours you had to work to pay for the potential purchase
• Make a shopping list and stick to it
• Delay the purchase for a week, then re-assess whether it is still important
• Don’t shop as a form of entertainment
• Develop a budget which includes savings, include some fun money but set a limit
• Open a savings account to set-aside money according to your budget
• Remember it’s ok to treat yourself, but only occasionally

How can one repair the financial damage of impulse spending?

The Bankruptcy and Insolvency Act provides options for honest but unfortunate debtors to achieve a financial fresh start and permanent relief from their debts. If you feel overwhelmed and are struggling to make any headway on repaying debt, consider scheduling a Free Confidential Consultation with a MNP Licensed Insolvency Trustee to find out whether Bankruptcy or a Consumer Proposal is right for you.

Beyond relieving you of the debts resulting from your impulse spending, both debt solutions also offer financial counselling sessions to help you understand the underlying causes of your spending and adopt better budgeting strategies moving forward. These also offer practical tips and advice to rebuild your credit and repair any lingering financial damages your impulse spending may have caused.