A recent Business Week article caught my eye, with the title “Americans Buy IPads While Broke in New Abnormal Economy“, it’s hard not to.
There are many interesting points in this article – the gist of it is that consumers are just sick and tired of making so many adjustments since the start of the recession. Now while we are willing to pinch pennies on the small items, we paradoxically are willing to spend big bucks on true luxury items. Indeed, the fact that we are saving $2 by buying store-brand paper towel instead of a national-brand may help us justify that it’s okay to purchase a new $2,000 computer.
The new abnormal has given rise to a nation of schizophrenic consumers. They splurge on high-end discretionary items and cut back on brand-name toothpaste and shampoo.
Ran Kivetz, a professor of marketing at Columbia Business School, has done research on consumer psychology. He says that consumers’ brains lack a line that separates spending from saving. We practice a certain amount of thrift so that we can justify blowing a large sum frivolously, he says.
Have you fallen into the pinching pennies to justify splurges mindset that Professor Kitvetz talks about?
I know I have. I have proudly patted myself on the back when I took advantage of a 2 for 1 deal and snagged an extra tube of toothpaste for the same price, then the next day, perhaps subconsciously emboldened by my earlier thrift, purchased a Groupon package for a local spa. In order to make my savings goals, I really shouldn’t have made that Groupon purchase. The fact that I saved $3 on toothpaste is nice, sure, ($3 is an In-n-Out burger!), but I would have to have gone through quite a few toothpaste for the $3 saving to add up to a $100 spa visit.
Now I consciously remind myself that my true savings is my income less my expenses (which includes taxes, rent, loans, groceries, and all the other incidentals that comes with living). If I did not spend $10 because I skipped takeout one night but then went and spent $600 on an IPad, I have not saved at all. Instead, I spent $600 whereas I could have spent $610. That’s not to say I shouldn’t get an IPad or that it’s bad to spend – it’s not bad to spend (and in fact it is quite enjoyable, especially if you spend on things that make you happy, which in my case includes food, travel, books, and let’s admit it, clothes).
It IS, however, very important that we don’t subconsciously sabotage our own saving efforts by thinking that we are justified in making certain purchases if we really are not able to afford them.