What is impulse buying?
Impulse buying is unplanned spending where the decision to buy is made immediately before purchase. Impulse buying is normally motivated by emotional thinking where there is a perception that a purchase will bring a change in mood.
Impulse buying is commonly associated with ‘buyer’s remorse’ and feelings of guilt following the purchase. It was once thought to only apply to small purchases, like those that appear at the grocery store check out: chocolates, chewing gum, or soft drink – or those found by chance at never-to-be-repeated prices: bargain bins, 50% off sales, closing down sales, or promotional deals.
How your brain tricks you into impulse buying
New research suggests that impulse buying also applies to large purchases like cars and houses. A recent research paper called ‘Projection Bias in the Car and Housing Markets‘ published by the National Bureau of Economic Research suggests that impulse buying is a real psychological phenomena and is more widespread than first thought. It is related to a type of psychological bias known as projection bias. This is the tendency for the mind to think that current conditions are going to continue into the future and that current tastes will be the same as future tastes.
The extensive study examined more than 40 million car sales over eight years. Some of the surprising findings of the research include:
- A day that is nine degrees hotter than normal saw an 8.5% increase in convertibles sold, even in winter. To support the notion that they were impulse purchases, convertibles bought on these days were many times more likely to be returned than normal.
- Houses with pools sell for $1,600 more on average in summer than in winter.
- In the three weeks following a snow storm of more than 10 inches, 6% more four-wheeled drive cars are sold.
- Less black cars are sold on hot days.
These are all examples of irrational purchases that are influenced by current events. The brain expects the future to be like the present, even when logic dictates quite the opposite. The first thing to know about impulse buying is that it is irrational and not necessarily in accordance with our long term views and plans – particularly if you are living on a tight budget or aiming for financial independence.
The effect of hunger on decision making for the future
Daniel Read and Barbara van Leeuwen proved that shopping on an empty stomach is more likely to lead to impulse buying, as did making decisions in the spur of the moment.
In a study they published they found that making future decisions while hungry led to poor nutritional choices and that decisions made on the spot were also more likely to lead to a preference for junk-food than healthy food (I think we’ve all been there).
We are more likely to choose poorly in the present because we are irrational and overestimate the value of our current feelings. Decisions are best made when we are stable and psychologically neutral (in the case of food, sated) and also when they are made in the course of planning for the future rather than made quickly in the moment.
How businesses trick you into impulse buying
Businesses are well versed in the irrational nature of consumers and play to them at every opportunity. Infomercials exploit our tendency to make poor decisions on the spur of the moment – they only have a very limited time to explain their product and make you want it.
They play on fear (your stomach is flabby, buy an ab-roller-pro-5000!); they offer you a money back guarantee to ward off lingering fears of potential buyer’s remorse and have endless testimonials. They convince you that it’s perfectly normal and quite an everyday experience to purchase something from the television at 3am that not even 15 minutes ago you had never heard of – let alone realized that YOU COULDN’T LIVE WITHOUT!
Then there are the rows of colorful packages that greet you at the check out – the point where you wait ready to purchase perhaps $100 worth of goods - so what’s the harm in another $1 chocolate?
They also rely on another psychological bias known as the anchoring effect. This is where you value an item by comparison to those around it, rather than for its intrinsic or universal value. Businesses place a television that is on sale between two much more expensive televisions to make the one on sale much more attractive – despite it still being overpriced.
Wine lists in restaurants will often feature very expensive wines to make the mid-range look more appealing.
The list of techniques used by businesses is endless and it’s important to realize that they exist before your enter a shop so that you can try to assess whether it’s your irrational mind and biases taking control or whether you are really seeing good value. Preparation and planning are key to overcoming impulse buying.
10 ways to stop impulse buying
- Realize that you don’t know when you’re being irrational. The best way to avoid impulse buying is to make it impossible. Take your credit cards out of your wallet, and don’t take money with you unless you are shopping for a specific item you have already decided on. Turn off one-click ordering on Amazon and the like.
- Plan purchases in advance. Take a shopping list when grocery shopping and don’t deviate.
- Use a 30 day purchase list for items above $100. You can’t buy the item on the list until 30 days have past. What you will find is that you don’t want the item any more, or at the very least, you’ve found it for much less somewhere else. Delayed satisfaction leads to greater satisfaction anyway – and you’ll be much less likely to experience buyer’s remorse.
- Make a game out of avoiding spending. Have a budget and know how much is left in each category for the month. Learn to get a sense of satisfaction for beating the shop you’re in when you leave with nothing.
- Watch less television. TV is packed with advertising which is very carefully designed to take advantage of our psychological biases and irrationality. It’s good at making us want things and good at making us feel like we’re worth less if we don’t have a particular product. If this were not true consider how and why the advertising industry is worth billions of dollars world wide.
- Eat before going grocery shopping. The study I referred to above is proof that shopping on an empty stomach will cost you money. Same goes for shopping when upset. Our irrational mind can convince us that purchases will make us happy in the short term.
- Track your spending. Knowing where your money is going is a great way to prevent future spending.
- Write down your financial goals. Have a short version of them on a sticky note on the inside of your wallet or purse so you see it before you spend anything.
- Be wary of special offers or never-to-be-repeated deals. Compare prices on the internet and between other retailers before committing. It’s not a bargain and it’s not saving you money if you weren’t going to buy it in the first place.
- Shop alone. Don’t shop with someone you know is a bad influence on your spending habits. If you have a friend who has convinced you to splurge in the past – try to avoid shopping with them in the future.
I think making the realization that I was wasting thousands of dollars a year thanks to impulse buying has made a huge difference to my early retirement plans. I feel much more in control of my spending and go days without spending a cent. For example, so far in January I’ve only spent money on recurring expenses (phone, registration) and haven’t spent anything at a shop.
Have you ever regretted a purchase or been a victim of impulse buying? What do you do to stop it? Share your tips below.