Consumers have always been encouraged to buy things they don’t need. That’s why companies have marketing departments and universities offer marketing degrees.
We study what makes people buy the things they do. While traditionally it’s been the interest of academics, public policymakers and marketers, a new breed of “spending coaches” and “money mindset educators” on social media have built large followings picking apart the psychology of spending. The purpose? To get people to buy less, not more.
Pre-internet, people could get away from advertising by turning off the TV and radio and throwing out catalogues. Now social media feeds blur the line between entertainment and marketing.
A YouTube tutorial on how to do a smoky eye is actually an opportunity to convince a shopper that they need a certain long-lasting eyeliner. An Instagram reel with a gym routine becomes an ad for pre-workout powder. A TikTok about how to pack for a city break has you buying the exact holdall in the video off Amazon that satisfies Ryanair’s under-seat dimensions.
Sure, you might have spent the money you have saved on buying baggage on a poorly-made viral bag but you feel like you’ve made a clever financial decision.
We all know that clearly labelled influencer #sponcon and #ad content is a brand paying someone to sell us something. But social media marketing has evolved into entire unmarked genres of content based on consumption. The “Amazon finds” creators receive money from affiliate marketing schemes when someone buys a product through their storefront. There’s #cleantok pushing certain sprays and sponges “ESSENTIAL FOR A CLEAN HOUSE.”
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There are the fridge restocks, featuring “must have” clear individual plastic containers and labelled jars. Then there are the “morning routine” and “clean girl” devotees who make it seem normal to use five different products in a shower, dress exclusively in matching exercise sets and only drink coffees from expensive machines using specially bought glass straws. The overarching presumption is “you too can live like this if you buy these things”.
Spending coach and founder of Overcoming Spending, Paige Pritchard has amassed more than 500,000 followers on TikTok and Instagram. Her weekly “deinfluencing” series is some of her most popular content as she breaks down how some influencers use products to earn commission from sales, not because people “need” it.
“There is no serum… no green juice that’s going to turn you into another person.”
The rise of influencer culture, online shopping and the pandemic created a perfect storm for overspending, with younger women more at risk, Pritchard told The Irish Times.
‘Research on windfall amounts like tax refunds or an unexpected gift says you are far more likely to spend it on something extravagant’
— Dr Deirdre Robertson, ESRI
“Most of the purchasing in a household is done by women, most of marketing targets women and it’s done in a way that it almost creates problems that you didn’t know you had,” she says. “It’s so subtle and tricky to pick up on because it’s positioned in a way like ‘we love you, we care about you, we want the best for you, that will solve this problem or let you be perceived this way’.”
“The buying and spending we do is to turn into the aspirational version of ourselves” instead of using our money in ways that would actually help us, says Pritchard.
And she would know, having “impulse-shopped her way through” her entire $60,000 (€56,750) salary in one year while living at home after university.
Pritchard says that most conventional “how to be good with money” advice starts with the “tactical” – budgets, savings plans and going over bank statements. But she stresses the need to start two steps back from that by looking at the “mindset” and “emotional” pieces around spending behaviour for long-lasting success.
She describes “mindset” as the fundamental thoughts and beliefs people have around money, derived from what their caregivers, education and religion told them growing up. She encourages people to think about the questions: “What is money going to do for you? Do you believe that money and things you spend on can fill voids? Do you believe that the more you have, the better you are?”
Pritchard finds in her work that women in particular tend to categorise themselves with negative self-concepts around how they manage money, which can make it harder to get help or change.
“They tell me ‘I’m bad with money, I’m a splurger or shopper’ like it’s a fact… but that’s just their perception of themselves,” she says.
The emotional piece is examining whether shopping habits are used to alter emotional states, good or bad, and the “quick dopamine hit” of buying something new that is preferred over processing an uncomfortable emotion.
“It’s an iceberg, that little tiny bit above the water you can see is strategy – that’s the budget but there’s so much under the surface that you can’t see if you’re not looking for it,” she says.
“That’s the mindset, that’s the emotional piece and if that’s not addressed, it doesn’t matter what you do above the water.”
People who make detailed budgets with the best of intentions might still find it hard to change if they haven’t done the internal work first.
The world of financial influencers and ‘money coaches’ on social media is still a new frontier for many legal jurisdictions
While it might have gained traction on social media recently, the concept of how we think about money influencing how we spend it isn’t news. Especially to Dr Deirdre Robertson, senior research officer in the behavioural research unit at Ireland’s Economic and Social Research Institute think tank.
Using psychology and behavioural economics, Dr Robertson investigates what influences us when it comes to financial decision-making to improve public policymaking. She says “mental accounting” is the term used to describe how we think about money. While humans tend to think we behave rationally with something as black and white as money, we don’t.
“Money is fungible, one fiver is the same as any other fiver and we should be willing to spend it the same whether we think it’s good value for a fiver but the way we think is more complicated,” she said.
Dr Robertson says we tend to categorise money into mental accounts that ringfence money – we might be okay spending €3.50 on coffee daily because we have budgeted for that and if there’s any left over we still spend it on coffee rather than paying off a debt.
“Research on windfall amounts like tax refunds or an unexpected gift says you are far more likely to spend it on something extravagant” instead of paying down the mortgage, she says.
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While that seems reasonable to some, she says, it is just proof that we tend not to be completely rational when it comes to cash, leaving us vulnerable to marketing ploys on our cognitive bias and counterproductive decision-making.
“When we decide whether something is good value or not, we can be easily swayed by extraneous factors,” said Dr Robertson.
A really classic example of this, she says, is the 2017 Nobel Prize-winning research which questioned the law of one price and the assumption people buy rationally based mostly on price. All via getting a simple beer on a beach.
Richard Thaler asked one group of participants to imagine they were on the beach with a friend. Your friend is going to pop to the nearest local corner shop for a beer (a Budweiser to be exact) but it’s a long walk, they don’t know the price and they won’t be able to call you. How much would you be willing to pay for the beer? This group said about €4; however another group who were told that the beer was being bought from a fancy hotel instead of a local corner shop said they would pay nearly double. Even though it was the same beer and it was being brought back and drunk on the same spot on the sand.
“How willing we should be to spend should be based on the value of beer not on the place you bought it from yet it makes perfect sense to us that we would pay more from the hotel,” she said. “We can be easily swayed into thinking something is high-quality when it’s not.”
This is important to keep in mind as we enter Black Friday sales, Dr Robertson says.
“We might see a jumper reduced by €100 as really good value because we see something that costs more as being better quality and it makes us more willing to spend.”
Another trap to be wary of is paying subscriptions monthly as research shows consumers tend to underestimate the total annual cost by “5-10 per cent” when they paid smaller, frequent amounts, said Dr Robertson.
The world of financial influencers and “money coaches” on social media is still a new frontier for many legal jurisdictions. Which means, unlike certified financial advisers or other professionals, “spending coaches” and “educators” are not regulated by the Central Bank or other financial authorities. That leaves consumers unprotected from dodgy advice or expensive courses promising a “millionaire mindset in 28 days”.
Pritchard is transparent that she is not a certified financial planner (she’s a life coach) which is why her content has strict boundaries.
“I can’t give anyone any sort of advice in terms of securities to buy or investment decisions,” she said.
When working with uncertified coaches, Pritchard says people should do due diligence before making big financial decisions. “See if you can tap into the person’s motivation… take everything with a grain of salt,” she said.
“Money advice is a buffet. My recommendation to people is don’t fall deep down into the rabbit hole of one person and one way to do things.”
Be wary of those selling 1:1 mentor programmes who try to suck you in with get-rich-quick assurances. Even if, according to Dr Robertson, our brains make us predisposed to them.
“We tend to value money we can have or get tomorrow more then [great sums of] money we can get in future,” she said. “We could be better with money through techniques leveraging what we know about psychology to avoid falling for ploys but switching bank accounts is not as interesting as making money fast.”
The ESRI is trying to find out more about how people in Ireland make financial decisions so they can help people to get better deals. They are looking for volunteers to do two short online anonymous surveys. Everyone who takes part will get advanced access to a new webpage that takes a user-friendly and fun way to show you how to get a better deal. The link to sign up is esri.ie/survey
