Why Do People Overspend?

Understanding financial concepts like debt, credit, and savings is critical to long-term success with money. Equally important, however, is understanding the psychology that leads to overspending. 

If you learn to recognize and control the thinking that leads to spending too much, you can avoid living above your means, going into debt, and finding yourself in need of debt relief. Recognizing the behaviors and the lies people tell themselves that lead to overspending could help you avoid falling into that trap. 

So why do people overspend? How can you avoid doing so yourself? Here's what to know. 

Why Do People Overspend? 

Pursuing temporary happiness is a key reason you might find yourself spending too much. People who overspend often have a greater tendency to believe products that put them into debt will make them happy. But is it true? 

Sure, whiter teeth may give you a confidence boost and a new house might attract more visitors, but for how long? The question becomes, do you really need the things you're buying, and will there be another need you'll soon want to fulfill with yet another large purchase?

Unrealistic expectations

People with overspending and debt problems tend to share a costly trait: Unrealistic expectations of how material things will improve their lives. That's the chief finding of a study by two marketing professors at the University of Missouri.

The authors found that people who wind up deep in debt often expect “unreasonable degrees of change in their lives from their purchases.” These beliefs are “fallacious for the most part, but nonetheless can be powerful motivators for people to spend.” 

The psychological reasons for overspending

When you ask why people overspend, the answer is that a lot of it comes back to psychology. There are many mental issues around money that could prompt you to spend too much.

For example, you may be drawn to spending as a way to meet your emotional needs, or even to seek human connection. For example, one woman in the University of Missouri study wanted to buy a house so that she could host parties, be more social, and make more friends.

Societal pressures

As unfair as the idea may be, some people associate the number of belongings a person owns with financial success. If you care about what other people think and want to impress them, it's natural that you'd reach for your credit card. 

Desire for approval

The urge to keep up with the Joneses often has little to do with believing you need what other people have. Instead, it's usually about wanting to be accepted as part of the tribe. Acceptance provides a fundamental sense of belonging, safety, and security, and you may find yourself  buying more stuff to speed up the acceptance process.

People will like me more

For some overspenders, part of being accepted is making sure people like them. While it may be misguided, it's tempting to believe that people will like you better if you have a perfect house, drive an impressive car, or take world-class vacations. 

I will become more fun

You may think spending more will make you more fulfilled, and make you a more fun person. For example, one man in the study wanted a mountain bike because he figured he’d become more adventurous and interesting. 

Self-improvement myths

The typical overspender believes that purchases will make them better in some way. Several in the University of Missouri study said a new car would make them more independent and self-reliant. If you think you can improve something about yourself by spending more money, it may seem almost wrong not to, since you want to be the best version of yourself. 

I will become a better person

You may be tempted to overspend because you think it will make you a better person.  One woman in the study was confident that cosmetic dental surgery would improve her looks, increase her confidence, and help her become more successful.

I will become more effective

The University of Missouri study included participants who wanted to purchase things that would make them more effective. For example, you might think you need a new standing desk to be more productive at work. 

Impulse control challenges 

The chemicals your brain releases during a shopping trip include dopamine, serotonin, and endorphins—the so-called "happy hormones." ‌The risk of unnecessarily spending money may be overridden by a desire to experience these feel-good hormones. It can be challenging to control your mpulses when spending money feels so good.

This is what happened to one couple who found themselves $70,000 in debt. They were having so much fun enjoying life, until they discovered they couldn't pay what they owed and needed credit card counseling. 

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How to Stop Overspending and Reclaim Control of Your Finances

Asking why ‌people overspend isn't really the key question. The most important question is: How can you stop overspending? 

Fortunately, your brain can be retrained. It's possible to get the same elation from saving money that you once got from spending. Reclaiming control is possible when you do the following. 

Recognize your triggers

Do you spend more money when you're bored or sad? Do you overspend when you're out with friends? For some people, it's when they drink. For others, it's when they're with family. The first step in reclaiming control is identifying what's keeping you in debt, and when you're most likely to overspend. 

Set realistic goals

Just like promises to go on a diet or work out an hour a day, resolutions don't work if they're not realistic. If you're overspending and want to change, ensure your goal fits reality. If you're spending a small fortune on subscription services you don't need, consider cutting the number of subscriptions in half instead of doing away with them entirely. If you want to cut more later, you know you can handle it. 

Practice mindful spending

As the name suggests, mindful spending is about being aware of each and every dollar that comes out of your bank account. 

One method is to look at a purchase you're tempted to make—say, a stunning throw blanket costing $150—and figure out how many hours, days, weeks, or months you'll have to work to cover that $150.

Once you've figured that out, decide if it's worth trading that much of your life for the item. For example, if you earn $25 an hour, consider whether the throw is worth six hours of your time. 

Seek support

You don't have to go it alone. If you've developed a habit of overspending and are concerned about what mounting debt means for your future, a certified debt consultant could partner with you and help you learn more about your options.

3 Ways to Start Building New Money Habits Today

• Check your budget before leaving home. A great habit is to make a list of the things you need to buy before leaving home or going online—and stick to that list. This means making no additional purchases, even if you come across something you want.

• Adopt an all-cash habit for a while. As you build new money habits, consider paying cash for all non-necessities. Bringing only the money you plan to spend that day is a simple strategy for sticking with your budget. 

• Enlist an accountability partner: There's nothing like a friend who will call you out when you're getting off track. Enlist someone who will share the challenge, won’t judge, and will help you stay the course. 

Understanding why people overspend and trying to curb the habit are critical first steps to improving your financial health. Freedom Debt Relief is here to help. We'll go beyond helping you answer the question, “Why do people overspend,” and work with you to explore your options for dealing with your debt, including our debt relief program.

Our Certified Debt Consultants can help you find a solution that can put you on the path to a better financial future. Find out if you qualify right now.