10/21/2013 8:00 PM ET|
Why we can't just save more and spend less
Experts explain why it's difficult for so many people to follow two basic financial guidelines: Save your money and don't overspend.
Don't overspend. And save money.
Those are the two hallmarks of successfully managing money. It really should be easy to have more money than one needs -- and yet many of us aren't able to follow those two basic rules, judging from anecdotal evidence and reams of statistics (for instance: 1.2 million bankruptcies in 2012, according to the Administrative Office of the U.S. Courts, which was at least down from 1.4 million the year before).
Plenty of factors explain why some people have difficulty following those two simple money management guidelines. Life is expensive, and not everyone has a six-figure job. Sometimes a medical problem or job loss upends a good financial picture. Still, it's always interesting to ask the question: Why, knowing all that we know, do we still often make bad money choices?
We think buying things will make us happier
"Many people equate possessions with happiness, so the more 'stuff' we have, the happier we are. This isn't necessarily true, mind you, but many people think that way," says Lou Manza, psychology professor at Lebanon Valley College in Annville, Pa. "Therefore, when some people are unhappy, they look to purchase something, and this can be anything -- food, clothes, entertainment, a vacation -- to improve their mood."
What apparently gets in the way of more stuff making us happier is that old adage, money doesn't buy happiness. While many of us would like to test that idea out for ourselves, the saying is absolutely true, insists James Roberts, professor of marketing at Baylor University and author of the book "Shiny Objects: Why We Spend Money We Don't Have in Search of Happiness We Can't Buy."
Roberts says "our ability as humans to adapt very quickly to changing circumstances serves us well when bad things happen to us, but not so well in the consumer realm." He offers the example of the college student who wants to get out of the dorm, then moves into a rental house and soon tires of having roommates. "Once we have our own apartment, we dream of a small house, then a bigger one, and then a bigger one and the story goes on ad infinitum," Roberts says.
Bad money choices are a habit
Yes, people who buy lottery tickets or expensive shoes they can't afford tend to know their actions are likely to make things worse, according to Chris Hogan, a speaker and executive with the Lampo Group, a company headed by well-known financial education guru, Dave Ramsey.
But some people still do these things because they're accustomed to struggling with money. "A refusal to change spending habits is an active choice," Hogan says, adding that many people tell him they're terrible when it comes to handling money. "Then they let themselves off the hook by saying their parents were bad with money, too."
It kind of is our parents' fault
That is, we spend the way we were taught, according to Eric Meermann, a certified financial planner with the Palisades Hudson Financial Group in Scarsdale, N.Y. "Some people learned early on to exercise prudent personal finance discipline: to spend less than they earn, save the rest and invest," he says.
The others, Meermann says, probably "grew up watching their parents make purchases based on what they could afford."
What's wrong with that? It sounds responsible. Meermann says that too often, people go to the ceiling of what they can afford rather than aiming lower. If you spend less than you need to -- buying a lightly used vehicle versus a brand-new car, for example -- you'll have more net worth.
Sometimes, Hogan says, people buy things because they think shopping will cheer them up.
We're attempting to impress others or are playing a role
These are also reasons people spend money they don't have. "They're constantly seeking the latest or greatest thing, or they're trying to keep up with a persona or image of someone that has it all together," Hogan says.
So what happens if we do some or all of these things? Can we change? Absolutely, every personal finance expert and psychologist out there seems to think. But they all say it takes some serious commitment to re-wire our behavior and mindset. "Many people don't want to do the work," Manza says. "It's just too hard. But it is doable."
Simon Rego, a licensed clinical psychologist at the Montefiore Medical Center in New York City, agrees, offering up the idea, for instance, that you can budget by making it harder to spend money. "It's harder to overspend if you don't have any money or credit cards available. So, restrict access to them," Rego says.
He suggests locking away credit cards or shredding them if you can't trust yourself with them, or carrying only the minimum amount of cash you need every day.
But Rego also observes that we let our moods influence how we think and act. So if you're worried that the minimum won't cut it and you've trapped your credit card in an ice cube in the freezer, odds are, you'll melt it free before long.
Don't feel too bad, though. Making bad financial choices -- while knowing they're bad -- is universal, according to Robert Epstein, a psychology professor at the University of the South Pacific and a senior research psychologist at the American Institute for Behavioral Research and Technology.
"Research on self-control over the past few decades shows clearly why people overspend," Epstein says. "When immediate rewards are available, most people ... tend to go for them, even when those rewards are associated with delayed punishment."
If that wasn't the case, Epstein says, people would never have unprotected sex or wolf down big slabs of chocolate cake when they're already packing on the pounds. No one who knows they're likely to get a hangover would drink excessively, and there wouldn't be drug addicts.
"I call those kinds of rewards 'dark rewards,'" Epstein says. "Because money will get you just about any reward on the planet when you have some in your pocket or bank account. Or when a bank gives you a credit line, you'll tend to spend now, even if the delayed consequences are negative."
The good news is that most people can learn some degree of restraint because the payoff of not overspending and of saving is high, Epstein says. After all, there's something comforting about having a lot of money in the bank. But he has bad news for some people -- think of that ne'er-do-well cousin of yours who never seems to be able to hang onto money.
"Some people," Epstein says, "those we call 'impulsive' -- have virtually no ability to resist the dark rewards."
More from U.S. News & World Report:
VIDEO ON MSN MONEY
Sure its easy to save if you're not trying to be a 'Poser"- (a person who's only gratification comes from impressing others)
It has nothing to do with stagflation, QE, or even liberal presidents spend, spend philosophy. It has to do with YOUR SPENDING HABITS. So stop making excuses, and put some of that money aside.
Do you really need to go out & dress up for halloween? Just think how glad you'll be on that Friday not having a hangover !?
Whether you're with family or not during Thanksgiving, split up the meal by having everyone bring a dish to the feast- that way it's not hard financially on anyone. - Or, you can do what my family does during this time; serve others Thanksgiving that are less fortunate than you.
And Christmas: Same as above for the food part. And the gifts? DON'T USE THE CREDIT CARD!
You might even volunteer to work the Toys for Tot's organization- Highly recommended !!
The bottom line is that you can save if you really want to- and you can do some good in the process.
Give me a Break! Now its time to blame the parents. All through collage i was bombarded with credit card offers even though i didn't have a job. My parents didn't have a lot of money. We weren't rich. What they earned had to pay for the essentials like the mortgage, food and transportation. I was paid an allowance growing up and i had to learn to budget that money if i wanted to go to the movies on saturday. If i spent it all on candy during the week...no saturday matinee.
Advertisers for cars, clothes and the latest electronics tell the consumer...BUY NOW YOU DESERVE TO HAVE THIS WONDERFUL THING. It doesn't matter if you can't afford it. Our parents and grandparents grew up with the idea that they had to work for what they wanted and to wait until they could afford to buy it. Now we are indoctrinated early with the notion that we don't have to wait til we can afford something. Get it now and don't worry about later. if you get in over your head just declare bankruptcy and cheat and rob everyone you owe. Then you can start all over again charging more than you can pay off.
Why should we expect anything different out of Washington? Our representatives pack as much pork into a bill to please their constituents and they squawk about the size of the deficit. We are all guilty of wanting more out of Washington then is sent in taxes.
A gallon of milk is $4.29... a loaf of whole wheat bread is $2.79.
Transportation costs exceed $325.00 a MONTH for me TO GET TO WORK.
Lost all my clothes, shoes, handbags, undies, etc... in Sandy and they were not covered by insurance... I have to dress for work and women are ripped off daily when it comes to clothes, shoes and maintenance thereof.
Mortgage, insurance (home, flood), taxes (village, state, medicare, ss, property, sales, etc...), food, electricity, water, heat... EVERYTHING is through the roof.
How am I supposed to save?
I believe most of this is true, but I also have to add that coprorate America and politicians have a lot to do with it.
The middle class is shrinking! the quality of goods is terrible in this country! You can't save if you have replace major items all the time.
I bought a name brand king size matress 2 1/2 years ago. They said the reason one side was flat was that they have made beds better and you don't have to flip them anymore. Total B.S. - $1,600 down the drain in little over a year.
I have lived in my house for 19 years and have went through 4 sets of washer / dryer. The thing is they have been name brands, all bought new, and only two adults (no kids) in the house.
We are programmed to buy and replace, buy and replace because nothing is made to last anymore.
I spend $750 on my washer in 2007, had to replace this past summer. Really?
You think if you spend a little extra money on a better model, it will last longer.
What happen to the good old days when we grew up in mon and dads house and they had the same appliances for 15 to 20 years?
If it only were that easy......just think there are hundreds of competing interests looking to get every penny from you. I scratch my head every day and wonder how someone is ever supposed to pay for all the "necessities." Even more complicated, every finance article tells you about how much $ you will need for retirement, how much $ you will need for medical expenses, how much $ you need to send your kids to college. BUT then statistics say the average household income is around 40-50k! How is it possible mathematically to ever reach these goals? The point I'm making is that its way easier to fall in the hole then to "save" your way into freedom even for a responsible money person. Its not always feasible to live in a way where you are always trying to cut corners. Cost is not always measured by dollars.
IT'S CALLED "STAGFLATION".
When gas prices are $4/gallon, rent is horribly expensive thanks to the subprime collapse and the realtors are using subsidized imaginary money to rob people who need shelter, and the price of food went up.
And wages either dropped or people can't find work.
When are you going to get China to remove it's ban against the US financial sector to finance corporate growth so companies can afford to hire again?
NBC Journalists = nepotistic retards.
Addressing the actual Article, well how can most folks save when Corporations refuse to pay a living WAGE. Folks aren't saving simply because they don't know how, folks aren't saving because most just make enough to pay essential bills. Have Real Folks posting actually dealt with the Soaring Monthly cost of just the Essentials. I am really being to question that they have. Folks are working harder yet getting less in Benefits and Income. So some posters want a already overworked and stressed out American Worker to become even more overworked and stress out on non-existence Second Jobs. And some folks wonder why Emergency Rooms are always Packed.
Are there folks that play keeping up with the Jones, sure, but that's hardly the biggest problem. Making a living wage is. We live in a new Normal where the top1% take in all the Benefits while the rest of us do all the Work and see very little of the Benefits.
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