The employer’s role in addressing the psychological roots of overspending

We’ve all heard over and over again that Canadians spend more than they earn, a trend that has been around for a couple of generations. I’m not referring to people who don’t make enough for a decent living but to those who earn plenty but still spend beyond their means.

What are the real reasons Canadians spend too much on today and not enough for the future?

As an industry, the investment world doesn’t spend a lot of time educating people on proper spending habits because there’s little money to be earned from someone who’s broke. Besides, I don’t think anyone needs to be told they should spend less than they make and save something for the future. We all know this without taking a class, but why do we continue to make the same mistakes?

Read: How to bring financial literacy into the workplace

Much of this behaviour doesn’t stem from financial unawareness but from roots that have little to do with financial circumstances. Here are five reasons why people really spend too much:

1. Self worth:

This is by far the No. 1 reason people overspend. Many people equate the things they buy with their self worth. In order for them to feel good about themselves, they need to spend money, even if they don’t have it. This behaviour is very similar to other addictions; the spending is compulsive and the thrill makes people feel good for the moment. Advertising is targeted at making people feel unfulfilled if they don’t buy certain goods or services. This effect is multiplied when the message is received by a compulsive spender or those who continually compare themselves to others. There aren’t enough products in the world to fill the needs of those types of spenders.

2. Underestimated expenses:

According to a 2008 study in the U.S. journal Organizational Behavior and Human Decision Processes, humans focus too much on inflows and not enough on outflows, whether estimating how much water is in a bathtub to the volume of greenhouse gases in the atmosphere. By underestimating outflows, it’s hard for humans to foresee an unknown expense or take into account the real cost of that expense.

3. The belief that things will get better:

Even though they don’t have it at the moment, some people spend with the expectation they’ll have more money soon. Maybe they’re banking on a raise or a bonus from work. Many times, these expectations turn out to be too optimistic and the money can’t be paid back.

4. Entitlement:

Some people shop because they believe they deserve things, even if they don’t have the money. There are many reasons people feel self-entitlement; many times, it’s behaviour patterns based on their family’s relationship with money as they were growing up.

5. Lack of patience:

In our society people need things right now. No one wants to wait.

Read: Beware the legal risks of providing financial advice to staff

A financial planner, whether or not it’s accessed through the workplace, is not necessarily the way out of overspending. The majority of people who spend too much know what they’re doing and can make a budget. The reason they spend too much is psychological. An article that appeared on in March 2016 suggested psychological help may be a more productive way to deal with overspending than working with a planner or trying to stick to the budget.

Working with a therapist can help people gain greater emotional awareness and healthy emotion regulation strategies. The underlying need being served by overspending will be uncovered during therapy, and this will help people identify the self-protective nature of their behavior, while acknowledging its negative consequences.

Therapy also helps to identify healthy alternatives to the problematic behaviour. According to therapist Angela Wurtzel, “It is essential to validate both the destructive and the useful sides of compulsive shopping to help a person discover how the behaviour serves the self. Ultimately, the goal is to incorporate more adaptive skills over time that leads to a more balanced and less self-destructive lifestyle.”

As any employer knows, the time spent on personal financial matters at work is significant and costs the company real dollars. It’s also destructive to the employee’s health, which may cause absenteeism and affect morale in the workplace. Knowing that, an employer may want to ensure the proper therapists and financial wellness consultants are available to their staff through an employee assistance or wellness program.

Read: Financial wellness: The missing link in your employees’ financial plan