Times are hard now, as I mentioned in my previous post. Right now it is very important for all of us to do some tightening of belts so as we will not be so affected with the crisis going on. But I know we do at times hold back on eating at restaurants and then deny ourselves of the usual purchases for our hobbies, and then all at once we buy a new pair of shoes or a very nice dress. Have you ever wondered why we are sometimes like that?
This urge to spend can be very fast and it may happen during our unguarded moments. Before we know it, our hard-earned savings will be gone in no time at all. This irrational spending may result to major damage to our financial plans. So we must understand why this is happening normally and why this situation happened at all, so as to prevent the next one.
A marketing professor at the Sloan School of Management, Mr. Drazen Prelec, mentioned in a study that the “people’s complex behaviors towards money defy economic theory.” These findings are used by marketing companies so as to improve the conditions of shopping by the consumers to make them buy more.
One of the findings mentioned that each one of us has rules in our personal life with regards to spending. We think these rules will keep us out of money trouble. A typical example is never purchase an item if it is not on sale. Whenever we do not follow the rules, we feel guilty. This feeling of guilt is called the moral tax on consumption and gets in the way of the pleasure that we feel from buying what we buy.
So that is the reason why marketing companies offer those so-called bundled pricing. For instance when you buy a burger, it has a package (or value meal) and may go together with french fries and drinks.
Credit cards are even more “hideous” and if people do not understand how they work, because these cards just takes away the pain brought about by the moral tax and makes it appear that the pain is not present. A different study has shown that most people who use their credit cards have the tendency to spend more than what they should budget for.
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