Low Self-Esteem Leads to Credit Card Spending | CreditShout

Low Self-Esteem Leads to Credit Card Spending

By Dawn Allcot / July 19, 2011

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It doesn’t take a scientific study to reveal that many people spend money when they are feeling down. It’s called “retail therapy” for a reason! But it doesn’t take a major life event, (like a break-up or death of a loved one) or ongoing depression to send some people into a spending frenzy. When we feel down, we’re more likely to buy luxury items, because we think they will improve our self-image and, as a result, our self-esteem. (New designer shoes, anyone?) And when people shop to feel better about themselves, they’re more likely to charge their purchases.

The reason? Parting with cash, because of its connotations, is psychologically painful, researchers say. Credit card spending is perceived as simply swiping a card. (And I suspect that many people justify credit card purchases by thinking about the cash back rewards they can earn, too.)

The study, published in the May edition of Social Psychological and Personality Science, and led by Niro Sivanthan of the London Business School and Nathan Pettit of Cornell University, explored the thoughts and behavior of two groups of students who took a computer test. One group was told they performed well on the test, the other group was told they scored only in the 12th percentile. Students were then asked how they would pay for a consumer purchase they’d been considering. The students who were told, essentially, that they lacked intelligence, were more likely to charge the purchase than students who scored well on the test.

In a follow-up study, 150 students were given the same test and told whether they did well or poorly. Then students were asked about buying a pair of jeans, either every day jeans or luxury jeans. Not only were students who did poorly on the test willing to pay 30% more for the luxury jeans, they were 60% more likely to put them on a credit card. Likelihood of credit card use, or paying more for the everyday jeans, did not change for students who did well on the test.

Luxury Items = Greater Self-Worth

If something as minor as a computer test can cause students to pay more for luxury jeans and also pay for them with credit, it’s easy to imagine what poor financial choices major life changes can cause. For instance, if someone is feeling down, can’t manage their current bills, or even is about to lose their house (or has recently lost their job), this can lead to decreased self-esteem. That lower self-esteem can cause people to shop — buying luxury items they can’t afford — in order to raise their self-esteem.

Then the consumers feel bad about the debt they accrued. But the solution is still more spending on luxury items. It’s a vicious cycle that begins to explain the mortgage crisis and other economic woes in the country, which is exactly what the study is intended to do. Part of a series of studies designed to show how lenient lending policies can hurt people in lower socio-economic groups, the study helps prove what teenagers have known for centuries: having the “right” luxury items — cars, clothing, jewelry, etc. — can temporarily make you feel good about yourself.

How to Use this Information

Think about your past shopping behavior. Are you inclined to turn to credit cards and hit higher-priced boutiques when you’re feeling down? Do you want to shop after someone has said something that hurt your self-esteem? Are you in an endless cycle of shopping to increase your self-worth, always needing bigger, better and newer consumer items? Are you in debt because of it?

If you’re unhappy with your financial situation because of runaway spending to repair self-esteem, either continuously or occasionally, it’s time to find other ways to feel good about yourself. Meditation, exercise, or getting together with friends for some laughs are good ways to improve your mood without spending a lot of money.

You can also write a list of all your good traits — don’t stop until you fill up the page!

You may also consider putting your credit cards in a block of ice in the freezer to resist impulse spending triggered by low self-esteem. In the time it takes your card to thaw out, you can decide if you really need the item or if you can wait, save your money, and pay cash. (Or perhaps not buy it at all.)

At the end of the day, it’s important to remember that we are viewed by the people who really matter based not on how many luxury items we have, but by how we treat others. Read your list of positive traits you possess and judge yourself based on those traits, not the brand of jeans you’re wearing.

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