22 January 2013

Saver or spendthrift? It’s all in the mind.

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More Australians are saving today than at any time since the late 1980s1, but if you’re not one of them, it could be time to change your thinking on spending.

 

Retailers use subliminal persuasion to help you give in to impulse buying. Being conscious of these strategies can help de-activate the signals that encourage you to open your wallet. Obvious ploys include manipulating prices so it appears you are getting a bargain. Less obvious tricks include marketing techniques known as framing and price anchoring.2

 

Framing involves the presentation of an item to dupe you into buying a greater quantity than you really want.  Many food outlets have replaced the ‘small’ cup with what used to be ‘medium’ and the new ‘medium’ now contains the same volume as the old ‘large’ size did.  Because we tend to choose the middle option, customers buy a larger volume at a higher price than they might have intended.

 

Price anchoring, which tricks you into thinking you’ve found a bargain, is another sales technique you can learn to avoid.  In this scenario, shops position over-priced items at the front. Further into the shop, similar items with cheaper price tags are offered.  These appear to be good value compared to the stock at the front, and diehard bargain hunters will fall for it.

 

Be aware of these marketing techniques and pause to assess whether it is a bargain or you are just being persuaded to part with your money. Uncontrolled retail therapy might provide instant relief, but it will lead to long-term financial pain if you can’t make credit card payments.

 

Luckily, shoppers can use a few weapons of their own.

 

Controlling the urge to splurge

 

How can we teach ourselves not to binge buy?  Spending can make us happy, but it is often a fleeting moment of pleasure. One solution might be to spread out our purchases, so we experience them as a number of smaller purchases.3

 

Another might be to curb your credit card.  No need to shred it, but you could switch to a debit card for all purchases. Or better yet, switch to cash as people spend far less when they shop with cash.

 

Your adviser can help you kick start a realistic savings program to save your pennies and make them multiply.

 

1 J. Bishop & N. Cassidy, ‘Trends in National Saving and Investment’, Bulletin – March quarter 2012, Reserve Bank of Australia, <http://www.rba.gov.au/publications/smp/index.html>

2 P. Cummins, ‘The Psychology of spending’, 19 August 2012, Sydney Morning Herald, <http://www.smh.com.au/money/planning/the-psychology-of-spending-20120818-24fet.html>

3 ibid

The author is an employee of Verante Financial Planning in Castle Hill, Corporate Authorised Representative of Magnitude Group Limited, Licence No 221557, Magnitude Group Limited ABN 54 086 266 202.

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