Why Do People Overspend?

Understanding financial concepts like debt, credit, and savings is critical to long-term success with money and finances. Equally important, however, is understanding the psychology that leads to overspending and debt. We can learn to recognize and control the thinking and behavior that influence how we spend. In other words, why do other people overspend? Why do I overspend? It turns out it has a lot to do with unrealistic expectations and the little lies we tell ourselves.

Why Do People Overspend? 

Much of why people overspend has to do with pursuing temporary or even false happiness. Heavy overspenders have a greater tendency to believe that the product that put them into debt is necessary for happiness. 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, will there be yet another need that then has to be fulfilled by yet another large purchase?

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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

There are a multitude of reasons people overspend. Here are some of the most common:

Emotional triggers

Some people are drawn to spending as a way to meet emotional needs and even to seek human connection. 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 belief may be, some people associate the number of belongings a person owns with financial stability, and financial stability is associated with success. When it's important what other people think, it's natural that an overspender might reach for their credit card. 

Desire for approval

The urge to keep up with the Joneses often has little to do with believing we need what other people have. Instead, it's about wanting to be accepted as part of the tribe. Acceptance provides a fundamental sense of belonging, safety, and security within a social group, and some people believe buying more stuff will 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 them more if their house is perfect, they drive the most impressive car, or they take world-class vacations. 

I will become more fun

Some believe purchases will make them a fun person and more fulfilled. A 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.

I will become a better person

Many overspenders believe purchases can help them become better people. 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. 

Impulse control challenges 

Among the chemicals the brain releases during a shopping trip are dopamine, serotonin, and endorphins—the so-called "happy hormones." ‌For some, the risk of unnecessarily spending money is overridden by a desire to experience these feel-good hormones. It can be challenging to control their impulses when spending money feels so good.

How to Stop Overspending and Reclaim Control of Your Finances

Fortunately, the brain can be retrained. In fact, it's possible to get the same elation from saving money that you once got from spending. Reclaiming control is possible when you:

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 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. Later, if you want to cut more, 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, it's up to you to 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 Things You Can Do Today to Start Building New Money Habits

1. 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. It means making no additional purchases, even if you come across something you want.

2. 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. 

3. Enlist an accountability partner: There's nothing like a friend who will kick you in the rear 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 you 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 help you understand 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.