In this month’s edition of “Money Matters,” Scott talks about impulse purchases: why people succumb to impulse purchases, how to control impulse purchases, and how to avoid spending too much money on impulse purchases.

Money Matters: How to Control Impulse Purchases Transcript

0:00:00.0 CJ: WTIP is pleased to bring you another edition of Money Matters, a monthly feature intended to help us understand more about managing our finances. Scott Oeth is a certified financial planner and adjunct professor. He's taught retirement planning and wealth management strategies to hundreds of financial professionals, and he's joining us now by phone. Welcome, Scott.

0:00:22.2 Scott Oeth: Hey, good morning, CJ.

0:00:23.4 CJ: Good morning to you. I am really glad we're gonna be talking about your topic today, Managing Impulse Purchases. So I think we all know that impulse purchases can be harmful to your financial situation. Why are they so hard to resist?

0:00:43.1 SO: So hard, aren't they?

0:00:44.0 CJ: Yeah.

0:00:44.5 SO: I've been thinking about this personally myself recently. I, many years ago, had tried to buy something off of eBay and I had some issue with the log in. There was actually a hacking attempt and so I just left it alone. I'm not great about digging and resolving tech issues. And so once or twice I needed something, I found off eBay, and what I would do is I'd send my brother a note, say, "Hey, can you order this for me, I'll pay you back." And so that happened maybe a couple of times for the last five years. Well, recently, I got the whole eBay thing sorted out. I'll tell you, CJ, every time I go in there now, I see something, a couple of things that I just need, I want them so badly. And then I don't buy them, maybe I'm strong. And guess what? The next morning, I open up my email and there's an email from eBay with a photo of the thing I was looking at and saying you're almost there, just press buy. And so I am feeling myself, these urges are real, and there's a lot that we're dealing with, it's really interesting. Psychologists and behavioral finance people who've studied into this, they say, "We know. We'd like to think we're purely rational beings when it comes to money, but we're not.”

0:01:58.1 SO: You're dealing with emotions, you're dealing with past patterning, you're dealing with your personal identity when it comes to a purchase decision, what type of physical or emotional state you're in. If you're hungry, that can affect you. If you're tired, your willpower may be down. If you're tipsy, all those things can affect your decision-making at the moment. But our brain is really the big issue, and it appears that there's a couple of different parts of the brain that are kind of battling each other. There's this newer part of the brain called the prefrontal cortex, which is good at rational, deliberate, long-term decision making, but that's kind of riding on top of this whole older limbic system in your brain, which runs on emotions and instinct, and it can really overpower that prefrontal cortex and release these powerful neurotransmitters like dopamine that can just fuel that urge to acquire. So it's important to think about this, I'm glad we're talking about it. But people, I think... Don't beat yourself up too much. You're dealing with a lot of powerful drugs and wiring in your body that makes you want to make that purchase.

0:03:00.3 CJ: Well, okay, so sometimes they're just really, really good deals. It isn't a bad thing if I snap up a bargain, is it?

0:03:09.3 SO: Yeah. No, not at all. In fact, I'm a big proponent of bargain hunting and I actually try and to encourage people and say, "Hey, think about the things that you need in your house so that you buy... Why not buy them in bulk, buy them when you see them on sale, buy a year's worth of stuff if you can afford it," and then you'll save yourself time and all the shopping in the future, you'll probably get a better price by buying a large quantity and hopefully buying on sale. So I think it can be a good thing. But the key is like maybe your grandmother or some other wise person in your family used to say, "Is it a need or is it a want?" And you wanna avoid going broke trying to buy all these good deals, which certainly can happen. I think, there, stepping outside of that limbic system, the emotion in the moment, list can help in this case. So a grocery list, household goods list, things that you're putting together, hopefully when you're not stressed, you're well-fed, you're not in an emotional state and sticking to those lists can maybe help acquiring all these things at great deals that maybe you really don't need.

0:04:16.4 CJ: Okay. Well, list-making is probably a good thing. Do you have any other advice for managing these impulse purchases? I mean, does the list help you prioritize? Is that an important part of it?

0:04:29.4 SO: I think so. I think the list helps you prioritize, it can help keep you on track. I think some other things that can be very helpful, age-old advice also, sleep on it. Give yourself some time and some space for that impulse urge and those chemicals to clear out and cool out of your system. Maybe put the thing in your shopping cart or not, maybe write it down. Give yourself a day or two to cool off and see if you really still have that same desire. Try and allow that long-term rational thinking to come in. We know it's taught standard sales technique, it's taught in negotiations to try and create artificial time constraints to urge people into action. So give yourself a little bit of time is big. I talked about the story with the email. I think that's really a big one today. It is widely taught in digital marketing and retailing. Sellers do everything they can to get your email address, and that's a lot of purchases are online today. And if you wake up or throughout the day, you're getting bombarded by sales offers in your email inbox. Do you need all this stuff? I think, go to the bottom, choose opt out. It'll make your morning routine a little simpler not having to wade through all that stuff anyway, and making your shopping intentional, on purpose, where you are going out to a site specifically because you need something or you thought it instead of it just being dangled in front of you. That's a big one.

0:05:55.1 SO: Studies have shown, CJ, people across the board spend more money when they use a credit card rather than cash. So tough to do online where a lot of shopping takes place, but in-person, if you use cash, if you give yourself a budget, there's a bit of friction there. There's that pain of handing over the cash. A credit card insulates you from that financial trade-off. So I think that's a big one. The last two are kind of big picture, some type of commitment device. Okay, that's a fancy term for something like a budget, everyone's favorite topic. But a budget could be very good, if you give yourself... Things are really tight. And you need to be serious about this. It's important. I'm a fan of the old-school, an envelope with a certain amount of cash and maybe that's your monthly allowance for things that are the wants as opposed to the needs if things are really tight. And if there's no money in that envelope, guess what, there's no spending that month on the frivolous stuff or maybe even the maybe stuff, if things are really tight.

0:06:52.5 SO: So a budget is a great starting point. Maybe a bit more elaborate, a financial plan, whether you're constructing one yourself or working with a professional, can be super-powerful because when you're going through that process, you're really engaging that cortex, you're doing long-term thinking. And we know that's where the cortex comes into play, that deliberate rational decision-making, and it can help you see where you're at and know, am I on track, are my future goals funded or not? And hey, the happy thing is, if you do a good job with it over time, you make it to that point and say, "Yeah, I'm pretty confident that I am on track. My future goals are more or less funded," and then the happy thing is maybe you have a bit of permission for more spending and that can become a larger item in your budget. But I'd say hand-in-hand with that, the one last thing, think about who you hang around. Alright. More great old-time advice. But if you hang around big spenders, we know this, they show you're more likely to spend as well also. So be careful who you go shopping with or who you go out to eat with.

0:07:56.8 SO: Some of those people, yeah, maybe they can afford it and they've got the budget, other people can't and they're just free-spenders, and that can impact your own spending and purchase decisions. So maybe you have someone in your life that's on the same page, is on your team, your goals are aligned. Someone in your family that can help keep you on track and you can talk about thoughtful purchase decisions. And of course, I'd always make the pitch for a financial professional to be in the mix as well, someone who can... Some of the weight loss clubs have success because you get together in a group and you talk about regularly where you're at, where your goals are, and then you step on the scale in front of everyone else, so to speak. That can work in terms of the financial side of things as well.

0:08:41.5 CJ: Wow, so that's good. I think the list-making and prioritizing and staying off Amazon and those kinds of things, unless you absolutely need something, is probably where I'm gonna start.

0:08:53.6 SO: Yeah, yeah. Well, me too, CJ. Maybe we can be each other's accountability partners.

0:09:00.8 CJ: Alright. I'll check in with you later tonight. Alright. We're talking with Scott Oeth. We'll be talking finances with Scott on the first Wednesday of the month on North Shore Morning. Anything you'd like to add, Scott?

0:09:11.1 SO: Just, I've enjoyed the conversation. Look forward to next month.

0:09:13.6 CJ: Alright, thanks for talking with us today.

0:09:15.9 SO: Thanks, CJ. Bye.