What are the main reasons for so many people to overspend?

Published on: Oct 18, 2021

For many people, their own financial status is a topic they don’t like to talk about. Nevertheless, an opportunity often exists for outsiders to assess the other person’s financial situation. The potential visibility of financial circumstances can lead individuals to make poor financial and consumption decisions that can potentially have a negative impact on their own well-being. Such effects can range from not achieving self-imposed goals all the way to threatening one’s very existence. Especially in times of economic downturn, the consequences of irresponsible money management are magnified. Time and again, we see that although individuals are aware that they are wasting their available capital or making bad decisions, they still do not change their behavior. This raises the question of what causes many people’s spending to be irresponsibly high. This post will look at why many people are unable to keep track of their spending, why social expectations can be dangerous, and how the social environment affects one’s spending behavior.


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Individuals are usually good at managing a budget for their daily lives, but find it difficult to anticipate exceptional or unexpected expenses. Often, however, these very burdens are the reason why financial goals cannot be achieved or the allocated financial resources are not sufficient. While everyday expenses are taken into account in the course of approximate budget planning, unexpected expenses are often neglected. The same can be observed in the case of micro-transactions, which are also frequently not taken into account. This essentially results from the fact that the transactions are (wrongly) considered irrelevant – in the case of micro-transactions – or possibly exceed the time frame of the budget planning – e.g., in the case of one-off purchases. The sum of extraordinary expenditures can quickly reach a significant level that should be considered in the context of everyday consumer behavior. The fact that such expenditures are repeatedly underestimated and individuals purchase corresponding products and/or services despite an existing budget can quickly become a problem. Many organizations are also aware that individuals are more willing to spend money on “special things” so they explicitly design their marketing activities to market their own line of products accordingly.¹

In addition to problems in planning and adhering to adequate budgets, social pressure is also a cause of poor (financial) decisions. Human behavior is driven by social needs, among other things, which have an impact on our everyday lives. Social pressure exists in a wide variety of areas – from consumption to education – and usually leads to poorer outcomes. The desire to belong causes people to seek out groups whose members have comparable attitudes and values. When different groups that have fundamentally different views coexist, this can lead individuals to change their own behavior to become part of such a group. The more people identify themselves as part of such a social group, the more strongly the views of the group will become established. It is nearly impossible for a single person to redefine social standards that are formed along the way. Therefore, when individuals strive to belong, they often have no choice but to succumb to social pressure and conform their own behavior.²

In this context, one repeatedly hears that individual behavior is merely a reflection of one’s own environment. Ebert et al. (2021) have investigated this assertion with regard to its viability in relation to the purchasing behavior of individuals and have made some insightful observations: Individual personality traits are dependent on various influences from the immediate environment, and in addition to individual personality, regional personality also exists. Actual purchasing behavior is not only based on one’s own preferences, but also on cultural standards. Spending thus not only reflects one’s own personality, but is at the same time a reflection of the social environment in which a person acts. Even if the possibilities for spending money are heterogeneous and individuals have different decision-making options, spending is usually in line with one’s personality and values.³ Consumption is often not just about meeting a specific need. Rather, many people also assign symbolic value to consumer goods – especially brand products. Households with limited financial resources, for example, spend a larger share of their income on visible “luxury goods” to possibly distract from their precarious financial situation. This is thought to promote social relatedness, which is particularly important for children. The strongest influence on children comes from their own circle of friends and immediate environment. The adaptation of one’s own behavior to the social environment leads to the manifestation of peer pressure at an early age.⁴

Handling money responsibly is difficult to learn since it is not possible to formulate clear recommendations for action. When it comes to purchasing behavior, there is no clear right or wrong. Purchasing decisions can still be judged differently by different people who are in a similar financial situation. Only the fact that excessive consumption can be harmful on many different levels seems undisputed. It is quite conceivable that the problem of excessive spending results predominantly from the fact that purchasing decisions are often made without thought. Instead of questioning whether certain products are actually needed, a purchase takes place “because other people do it too.” One way to escape this trap could be to surround oneself with an environment that already has a conscious approach to money. However, this often fails because many people value convenience far too much instead of being proactive. Everyone has the opportunity to educate themselves regarding relevant topics in the world of finance, and they don’t even have to put money into their hands to do so. Even if it is sometimes uncomfortable to sacrifice things, the focus should always be on long-term goals. However, the immediate satisfaction of short-term consumption often gets in the way of this. Another aspect that encourages irresponsible consumer behavior is the fact that many people are able to spend more money than they actually have. The banking system, which generates significant income through interest payments, and the proliferation of credit cards offer the possibility of paying for short-term consumption with income that has not yet been generated. Such consumption debt comes at a significant cost that cannot be ignored and should be avoided. Consumption linked to the achievement of specific goals is likely to be significantly more rewarding in most cases than consumption motivated by peer pressure or other forms of social influence.

Overspending is a widespread problem, and it’s often not just down to personal inability. Even though individuals often find it difficult to integrate exceptional or unexpected expenses into their budget planning, this is not the only reason why many people spend money irresponsibly. Individual purchasing behavior is not only driven by personal needs and preferences, but also by social influences. Societal standards create social pressure and expectations, which in turn lead to poorer choices. Although individuals are unlikely to be able to define new standards on their own, this circumstance should not be used as an excuse. Everyone has at least the opportunity to choose their own surroundings to a certain extent and to be proactive. Otherwise, influences such as peer pressure could lead to undermining financial goals and ruining one’s own future.

¹ Sussman, A. B., & Alter, A. L. (2012). The exception is the rule: Underestimating and overspending on exceptional expenses. Journal of Consumer Research, 39(4), 800-814.

² Bursztyn, L., & Jensen, R. (2017). Social image and economic behavior in the field: Identifying, understanding, and shaping social pressure. Annual Review of Economics, 9, 131-153.

³ Ebert, T., Götz, F. M., Gladstone, J. J., Müller, S. R., & Matz, S. C. (2021). Spending reflects not only who we are but also who we are around: The joint effects of individual and geographic personality on consumption. Journal of Personality and Social Psychology, 121(2), 378–393.

⁴ Elliott, R., & Leonard, C. (2004). Peer pressure and poverty: Exploring fashion brands and consumption symbolism among children of the ‘British poor’. Journal of Consumer Behaviour: An International Research Review, 3(4), 347-359.

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