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The New Abnormal: Pinching Pennies To Justify Splurges

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.

  • Nicole@RainyDaySaver - The only way this thinking works is if you pinch the same amount of pennies it would take to actually purchase the splurge. My husband and I wanted new cell phones with a data plan, and we know we'll be spending $20 less on groceries a month to justify that "splurge." Any other way won't work. ReplyCancel

  • Jaime - The only way to really save is to keep the money in your bank account.

    I used to work in retail and I always used to laugh when our retail store ran ads telling customers if they spent $75, they could get a $25 coupon that day. Also its not saving if people spend $500 on a tv, when another model costs $900. The only way to save is to keep it in the bank. Really if people want to save they should evaluate small and big expenses. ReplyCancel

  • Money Reasons - I don't, but I have a friend that doesn't buy pop to save money at work, but then goes out and buys very expensive things that aren't necessary, like new expensive furniture or a top end snow thrower…

    People's spending habits never cease to amaze me :) ReplyCancel

  • Link love (Powered by a week of epic fails) « Musings of an Abstract Aucklander - [...] Heeled on pinching pennies, yet justifying splurges.  [...]ReplyCancel

  • ashley - My boyfriend spends like this from time to time, and it drives me nuts. He'll say he can't go out to dinner or something because he shouldn't spend money, but then goes and buys Guitar Hero. I mean, a dinner is way cheaper than a video game if you're trying to save money! ReplyCancel

  • Money Weekly Cache 2010, August 9 | Money Reasons - [...] Blog:  The New Abnormal: Pinching Pennies To Justify Splurges - The spending choices that people make always amaze me.  This is a great article of such [...]ReplyCancel

  • Samurai - I really enjoyed that article on how people are opening up their wallets again. It's good for the economy! It just goes to show that people want to spend money and want to live life now. Good on us!

    Where's PF Ninja btw? ReplyCancel

  • Sunday Link Love: 8th August 2010 - [...] The New Abnormal: Pinching Pennies to Justify Splurges at Well Heeled Blog [...]ReplyCancel

  • onegirl - I didn't read the article, but isn't this they way most people spend? I know that I save my money for larger expenses, and a majority of the time, I think "Should I bring my lunch to work to save a few dollars for my big expense or buy my lunch and hold off?" I usually end up bringing my lunch. I thought we are supposed to make sacrifices in order to purchase the luxury items that we want. Perhaps I should read the article and get a better understanding of what's happening. ReplyCancel

  • When to NOT to Splurge | Barbara Friedberg Personal Finance - [...] Well Heeled Blog wonders if Abnormal Penny Pinching Justifies Splurges? [...]ReplyCancel

  • Carrie - for me this isn't anything new or abnormal, it's the way my family has always shopped. save on the things that don't matter much to you and spend on the things that do ReplyCancel

    • WellHeeled - I think the article is talking about something different, and I probably didn't clarify it as well as I could. It's the strange trick that our minds play on us when we use thrift on something small and then use that as license to make a big purchase without considering if we can truly afford it. If you can't afford to spend $100 in discretionary spending, then it doesn't matter if you save $2 on toothpaste but then spend $100 on a new chair, or haircut, or something, you haven't really improved your situation any. In fact, the fact that you saved money on something may be counterproductive because it made you feel you have more license to spend. Does that make sense? ReplyCancel

  • Tea - I really like this post. It gives me a new way to think about spending. ReplyCancel

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