Secrets To Resisting Impulse Buys In A Recession
Dear Rich Lifer,
If you’ve read the classic The Odyssey, you may recall Odysseus’s ingenious plan to hear the voices of the sirens, without succumbing to their tempting call and leading to certain death.
Odysseus made every member of his crew plug their ears with beeswax and tied himself to the mast of his ship, so he could not escape or steer the ship off course.
With just a little forethought, Odysseus managed to be the only human ever to hear the sirens’ song and tell the tale.
The funny thing about this story is it’s as relevant today as it was 3,000 years ago.
Every time you or I walk into a department store or open a web browser to shop online, we come face-to-face with our own modern-day sirens.
The Siren Call Of The Shopping Mall
If you find it hard sticking to your budget because you always find yourself straying from your shopping list, don’t feel bad.
Research shows that half of consumer spending is unplanned.
What’s worse, most retailers know this fact and try to exploit it further. The most common weapon deployed on shoppers today is a psychological principle discovered in the early 20th century by a young architect-to-be, named Viktor Gruen.
Viktor grew up in Vienna where he wandered the cafes and squares. He loved the sense of collective life in his home city. When he eventually moved to America, his goal was to recreate this sense of community.
His solution was the mall, the first of which was built in Edina Minnesota in the 1950s. What separated Viktor’s design from others was his use of sensations — colors, lights, textures — when shoppers enter a store.
Even though Viktor’s malls never became the community-enriching spaces he’d hoped for, his idea accomplished one thing very well – stores sold a ton of products.
The Gruen Effect
There’s a reason why grocery stores have fresh baked goods, flowers, and sometimes racks of clothes on display as soon as you walk in the store.
These grocers are taking advantage of the Gruen effect to try and overwhelm your senses, with sights, smells and textures. This shifts your mind from thinking of shopping as a means to an end, to thinking of it as an experience to be savored.
The master of the Gruen effect is Ikea. If you’ve ever shopped at an Ikea store, you’re familiar with the racetrack layout, the delicious Swedish meatballs, and impeccable product displays.
If you’re interested in learning more about this phenomenon, check out this video explaining how Ikea masterfully uses the Gruen effect to sell more products.
How to Outsmart the Gruen Effect
If half of our spending is unplanned, we can assume the triggers to buy more must be emotional.
The best way to separate emotion from our purchases is with something behavioral economists and social scientists call “pre-commitment mechanisms.”
These mechanisms are powerful tools in stopping impulsive behavior, and specifically, overspending.
Here are three pre-commitment mechanisms you can incorporate into your financial decisions.
Mechanism #1: Automation
The most famous example of this pre-commitment mechanism at work is the Save More Tomorrow program, popularized by Richard Thaler and Shlomo Benartzi.
According to its creators, this program “involves pre-commiting to the auto-withdrawal and auto-escalation of retirement savings over time.
Effectively, it allows a retirement saver to make a good decision once that benefits them for the entirety of their savings lifetime.
People are busy, their willpower is weak, and their decisions can be inconsistent. By ‘setting and forgetting’ decisions like saving and escalating retirement contributions, human frailty gets turned on its head.”
Simply having your savings taken out automatically from your checking account allows you to pre-commit to a savings strategy that’s hard to stray from. This is especially important in our current economic climate.
If you grocery shop online, writing out your list of most-frequently bought items and saving this list on your computer somewhere you can easily reference everytime you shop, eliminates your need for willpower to have to recreate the list and avoid adding items to your cart everytime you shop.
Subsequently, you can also set up automatic-orders for household staples, like laundry detergent, shampoo, and toilet paper.
While this might seem counterintuitive, to voluntarily sign up for automatic spending, you’re removing the temptation to seek out alternative brands that might end up costing you more by sticking to what’s tried and true, and within your budget.
Mechanism #2: Social Consequences
If impulse spending is a serious problem in your life, you may benefit from pre-committing to social consequences should you fail to abstain from these types of purchases.
Researchers find that the negative social consequences of reneging on a publicly stated goal is stronger than the immediate temptation to spend.
How this might work in the real world is you could set up an automated alert from your bank or credit card issuer that texts your spouse anytime you make a transaction larger than a certain amount.
The consequence of having to explain your purchase to your spouse can often be enough to make you pause from purchasing an item like that in the future.
Looking for more ways to protect your hard earned money? Learn how to avoid the coming financial crisis now.
Mechanism #3: Remove Temptation
The final pre-commitment mechanism at your disposal is to change your environment so you’re less tempted.
This works surprisingly well for dieters. By removing sweets and unhealthy food from your home and replacing it with healthy alternatives, you make it easy to overcome moments of weakness.
If you want junk, you have to go out and get it or go through the hassle of ordering food to your house and waiting for the delivery.
These small barriers often are enough to deter the decision altogether as your temptation subsides.
But how can you change your environment when shopping?
In-store is not as easy, but online you can remove payment information from your favorite online retail sites. You can unsubscribe from retail email newsletters or hide them in folders, and immediately trash any paper catalogs you receive to avoid the siren song of spending.
Take a page out of Odysseus’s playbook and outsmart impulse buys by leveraging these three mechanisms.
To a richer life,
The Rich Life Roadmap Team