April is Financial Literacy Month in the United States, and since its inception in 2004, it has raised public awareness and focused attention on the need for, and current lack of, financial education. While most of this is directed at students, there is a dire need for increased financial literacy at all ages. The ability to understand how money works and how to manage it, is vital to everyone in order to be successful in life. Being equipped with the knowledge to navigate saving, investing, student loans, debt, taxes, retirement, etc, should be mandatory education starting at a young age, not an elective afterthought.
In my experience I have found that the root of almost all financial problems starts with an individual’s spending habits, rather than their savings patterns or level of income. It is easy to point the finger at self-indulgence, lack of willpower, or financial ignorance, but is that all it is? There are so many forces working against the average consumer, telling someone their “spending is out of control” may be more accurately stated as being “out of their control”.
Consumer brainwashing begins at a very young age – children as young as 2 watch tens of thousands of TV commercials a year. These commercials often feature licensed toys and favorite characters from shows and movies they are familiar with. Young children are unable to grasp the advertising concept, and view the commercial as part of the program. They are also exposed to commercialized peer pressure, and soon notice that the popular kids in television or movies always seem to have the name-brand best of everything. Even babies are not immune – ‘cradle to grave’ is a marketing concept used with the hopes of creating lifelong brand loyalty.
Blame your Brain
Research has shown that for those who love the shopping experience, there may be a coinciding increase in dopamine released by the brain, leading to a feeling similar to the ‘runners high’ that keeps one ‘addicted’ to running. The brain is learning, and transferring to memory, that the pleasurable dopamine high can be experienced again and again by repeating the behavior (in this case shopping).
Major retailers spend a fortune to control every aspect of your shopping experience. There is nothing random about product placement or any other part of your in-store experience. From the moment you walk through the door you are psychologically manipulated through a path of obstacles (things you don’t need) in order to get to what you came for. Products that are considered a luxury, or at the very least unnecessary, are placed in locations that begged to be touched and picked up. The strategic use of color, music, or aroma when you enter the business, sets the tone for a pleasurable shopping experience.
Pricing is one of the biggest mind games of all. At the end of a day of shopping, the consumer may be ecstatic having saved $200, when in reality, they spent hundreds of dollars and saved nothing. A sea of red SALE signs is a shoppers dream/nightmare, with very little attention paid to the actual value of the product compared to the 70% off sticker.
Government and Banks Sending Mixed Messages
Consumer spending makes up 70% of the American GDP (Gross Domestic Product – the total value of all goods and services produced by a country, and used to measure the health of their economy). In fact, the government is so reliant on consumer spending to keep the economy ‘healthy’, they routinely cut interest rates during economic downturns to keep people buying. In some instances, the encouragement to spend is anything but subtle:
“…This work begins with keeping our economy growing and I encourage you all to go shopping more.”
– President George W. Bush, 2006
An abundance of easy credit that literally pursues people via phone, mail, online, or in-store solicitation, has helped propel the US to reach levels of household debt that are within a percentage point of the all time highs reached during the start of the financial crisis. According to the OECD (Organization for Economic Co-operation and Development), the U.S. household debt was 112% of net disposable income in 2015. As bad as that is, it pales in comparison to the household debt/disposable income in Canada at 175% and all the way up to Denmark’s at a staggering 292%.
In a twist of irony, governments at all levels are introducing financial literacy programs that are usually implemented to encourage financial success through saving, budgeting, paying off debts, and preparing for the future. A similar paradox exists with financial institutions, who on one hand offer loans, mortgages, and credit cards (often at a higher amount or limit than can be afforded), and on the other hand provides financial planning, savings, investment products, and advisors to help you with problems such as debt repayment.
Knowing how easy it is to get manipulated into spending is also an important piece of the financial education big picture. There is a lot to be said for commercial free programming, particlarily for children. Their first money lessons should not come from a television commercial trying to con them into ‘needing’ a particular toy. Money education needs to start young, and continue through life in order to keep up with an ever-changing world.
If you manage to overcome the shopping habit and see it for what it really is, give yourself a pat on the back. Turning things around financially is a major accomplishment for anyone – coming back after falling prey to a lifetime of consumer programming is remarkable.