Impulse Spending and Credit in Our Immediate Gratification Society

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March 19, 2018
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Do you remember Veruca Salt, the spoiled rich girl from the movie Willy Wonka and the Chocolate Factory? You know, the girl who yells at her father, “I want it now!” And her clueless, abiding father would get her whatever she wanted, which consequently did more harm than good.

Well, we all have one of those fathers. Not the one that we buy a Father’s Day card for every year, but one that we carry in our wallet. One that typically says yes to whatever we want to buy, regardless of how that may spoil our budget, or worse, our credit score. It’s called a credit card.

Please understand, I am not calling you spoiled or demanding. However, in this instantaneous age, it’s very easy to spend impulsively or unconsciously. How many of us have gone to Target to purchase one or two items and ended up walking out with a full cart? How many of us have passed some idle time perusing one of our favorite online vendors, one who may even have our credit card information stored in their system? We may have had no intention to buy when we got on the site, but when we spot a good “deal,” it only takes a few quick clicks to make it ours.

You see, it happens a lot more often than you think. Study after study has shown that people will spend more money when they use credit cards than when they use cash, sometimes as much as twice the average cost for the same item1. Not only does the method of payment affect the quantity, it can also affect quality, with consumers willing to purchase unhealthy or unnecessary items when paying with a credit card as opposed to cash2.

The convenience of clicking or swiping to purchase, rather than handing over tangible cash, has spurred on overspending and racked up national credit card debt to $905 billion3. The truth of the matter is that we have lost sight of the fact that credit cards are essentially a thirty-day loan, which is becoming more and more apparent with the younger generations. Based on Experian’s Millennial Credit and Finance Survey Report Part II, 58 percent of millennial credit card holders polled in 2015 had maxed out a credit card, been charged a late fee, had an increase in the interest rate on a credit card, had a credit card declined or had defaulted on a credit card payment4. Financial behaviors like these can wreak a lot of havoc on a young person’s credit score and financial future. Such a small, seemingly innocent looking piece of plastic can do a lot of damage.

Now I am in no way advocating a credit-free lifestyle. Not only are credit cards a convenient way to build up your credit score, but many cards offer rewards programs where users can earn discounts, airline mileage and cash back. Most importantly, though, there are an increasing amount of vendors that no longer accept cash. This is not simply limited to online purchases. Have you ever tried leaving an airport parking lot or paying to access a toll road with cash? In most places, it is nearly impossible.

What I am saying is we need to start being a bit more mindful with our money, a bit more critical of how we spend. I mentioned the perks of credit cards rewards programs earlier. How many of us, though, have actually stopped to determine how much those perks really cost once you start adding up interest and impulse purchases? If switching over to cash purchases helps us become a bit more mindful with our money, then so be it.

Before you end up with a pile of debt and regret.

1. https://www.nerdwallet.com/blog/credit-cards/credit-cards-make-you-spend-more/

2. https://www.psychologytoday.com/blog/the-science-behind-behavior/201607/does-it-matter-whether-you-pay-cash-or-credit-card

3. https://www.nerdwallet.com/blog/average-credit-card-debt-household/

4. https://www.slideshare.net/Experian_US/experian-millennial-credit-finance-survey-report-part-ii

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By
Jeff Motske, CFP®
February 11, 2022

Here’s a tip: Review your spending habits. It's really hard to mitigate or manage financial anxiety if you don't have a clear sense of your spending.

When talking with clients, questions that come up all the time are “Where's my money going? I don't know where all of our dollars go, we’re making a good income, but I don't know where it's going?”. To get cash flow will start answering that question. It will start reducing the anxiety in those particulars because we can't continue this path of “how do I fix this?”. That's what we do as Advisors – we train, and we help people fix and solve those particular problems. I always ask this question, where's my money going? But more importantly, is your money in sync with your financial why? And your financial why is customized, it's, what do you want it to be? And that could be financial independence.

I can tell you in the course of my 30 plus years I’ve sat down with many couples, individuals, and businesses and I've said, “Hey, congratulations, you now have financial independence”. In other words, you don't have to go to work anymore, work is now an option. You can still choose to go to work – you could change jobs, you can do whatever, but you don't need to anymore. You've built up enough that you can replace the income, enjoy the lifestyle that you want to enjoy, spend the time with family, friends, and loved ones that you want to do. And that comes from good planning on the front end and understanding that you can get there much faster if you work with a coach or work with an advisor and understand your cash flow.

It will be liberating once you go through that process, but it does require taking action. Here's some take actions on what you can do. There are the knowns and the unknowns.

In the knowns, we control whether we want to have a plan or not, we control whether we want to do cash flow and budget analysis, we control that reduction. If that's really your number one goal is to get debt-free well, then let's build a plan that makes you debt-free. We control how much is in our emergency fund; so that if we lose a job or income drops, maybe we've got adjustable income or we want to change jobs, we've got this money set aside so we don't have anxiety during that period. We control all those things. We control how much protection we have against risks; you know how much life insurance that we have if we have state documents that are there those are all known things. Now, here's an unknown, you don't what day you will leave this world. Do you have plans in place that make sure that loved ones are protected the way you'd like them protected? Again, you control these areas, these are all things that are in your control.

The one thing I'll say is even though we don't have control over the unknown, we always want to stay informed, especially around new laws and new rules. This is what Advisors do for a living. For instance, if you take money out and the market's down or maybe you took it out and it's taxable- now it bumped your taxes up.  It’s important to meet with your Advisor and to have a coach to help interpret these known rules that are probably unknown to most Americans.  It's probable these types of things will come up and once you pick a strategy, whatever that strategy is, you can't change it.

But you have to always ask yourself “Maybe this impacts me, and if I don't know about it, I'm not going to do anything prudent to help myself get on to financial independence”. If you do know about it and your Advisor knows about it, they're going to help you make good decisions that will work well for you in those areas. It's important to understand that there are unknowns out there, and you can plan your best for those unknowns, but it's important to accept that you never have full control of the unknown. So. think about what you do have control of, and make sure that you are making the best decisions for yourself, your family and your loved ones.

 

 

By
David McDonough
July 2, 2019

Retirement is a big deal, and there are a lot of moving components to plan out. Those issues multiply when there is another individual added to the mix. My definition of retirement is the financial freedom to move into the next chapter of your life, and that next chapter is different for everyone –especially spouses! This is not the time to assume the two of you are on the same page or decide that the two of you will figure it out later. Most people know that I’m a big proponent of talking to your spouse about everything financial, and retirement is no exception.  Be sure to take the guess work out of this process so you can enter the next chapter of your life in harmony.

It’s not uncommon for couples to not see eye-to-eye on retirement. About half of couples don’t agree on what age to retire[i]. Less than 10% of surveyed couples retired at the same time[ii]. And 47% disagreed on how much they would need to save for retirement[iii]. With so many areas to disagree, from where to retire to how to spend your days, how do spouses work together to achieve their cumulative goals?

I always like to recommend the couples start off by taking my financial compatibility quiz. Not only does this show the areas you may not see eye-toe-eye on, but the quiz generates a lot of conversations. Continue these conversations at monthly financial date nights to make sure that the two of you continue on the same path towards the same goals. Talk about the details – at what age do you want to retire, how do you want to spend your days in retirement, and how much of that time will be spent together. Keep in mind that most people have spent over 40 hours a week away from their spouse for decades. Retirement frees up all that time, which can be too much “togetherness” for some couples. This is why I like to take my clients through a discussion on “your time, my time, and our time,” well before it is actually time for retirement. Discussing these things in advance can allow you to compromise on issues before emotions flair and make a world of difference between living together happily in retirement or, in worst cases, filing for divorce.

Once you have an idea of what your retirement goals are, you need to formulate a plan. An experienced financial planner can be a great resource at this time, bringing up things you may not have touched on and running “what if” scenarios for you to see how your retirement dreams can be converted into actionable goals. Please start these discussions early because financial independence takes many forms, but you can’t figure out when you’re going to get there until you plan your route.

Marriage is many things, but ultimately, it is a partnership. The two of you work together to move the household forward. You may not always agree, but you find common ground by talking and sharing and compromising. If you plan ahead and plan together, you can find the right way to your coupled vision of retirement.

Take our FREE Financial Compatibility Quiz here.

[i] https://www.fidelity.com/bin-public/060_www_fidelity_com/documents/couples-retirement-fact-sheet.pdf

[ii] https://assets.aarp.org/rgcenter/general/retired_spouses.pdf

[iii] https://www.fidelity.com/bin-public/060_www_fidelity_com/documents/couples-retirement-fact-sheet.pdf

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

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