The Telegraph recently reported that more than 14 million Brits have increased the amount they’ve been spending on themselves since the start of the coronavirus pandemic.
During the first lockdown alone, UK adults spent more than £40 billion online on non-essential items, according to a Barclaycard survey.
“Retail therapy” can be exactly that – a form of therapy. As Covid-19 led to money and health worries, as well as lockdown loneliness and boredom, many used shopping to manage their mood.
Some of your clients may have turned to “emotional spending” in the last twelve months. Spending money on ourselves can make us feel pampered, giving a mental boost at the point of purchase, along with the anticipation of a future boost when the package arrives.
Having something to look forward to, especially in the middle of a national lockdown, can be a good thing. But it can also get out of hand.
Here are five ways your clients might look to manage, curb, or put an end to their emotional spending.
1. Pay their future selves first
Emotional spending becomes a problem when individuals are buying more than they can afford. Paying their future selves first is a simple budgeting technique that can help ensure your clients’ money goes to the right place.
Rather than turning to retail therapy on payday, your clients should instead use their wages to contribute to their pension, to add to savings or investments, and to pay household bills. They’ll need to budget for the rest of the month at this point too.
Disposable income can be used as an individual sees fit but if the amount is large, increasing a pension contribution or ISA subscription might be a better use of the funds.
We at Boolers can use cashflow modelling to help your clients decide how much disposable cash they have, and the best way to distribute their income.
2. Keep track of spending – and understand why they spend
Keeping and collating receipts and confirmation emails gives an individual tangible proof of the cost of their purchases. This can help your clients to budget more effectively.
It might also allow them to look for patterns in their shopping, identifying potential triggers for their emotional spending. Whether it is boredom, anxiety about job security, or money worries, pinpointing moments of weakness, and understanding what causes them, allows your clients to limit their spending opportunities at those times.
Tackling boredom or speaking to someone about money worries can make a real difference. A Royal London study last year showed the emotional benefits of receiving financial advice. Those in regular contact with an adviser feel more confident about their financial decisions and more in control of their finances.
3. Create barriers to their spending
There has been a huge increase in online spending since the start of the pandemic. With shops shut and people confined to their homes, retail spending’s online share soared. It jumped from 19% to 33% in just four months, according to figures released by the Office for National Statistics last year.
In contrast, the rise from 9% to 19% had taken seven years (2012 to 2019).
The ease with which items can be bought online makes this form of spending convenient. But it can also be dangerous when shopping is used as a form of therapy. Buying things we don’t want or need, based only on our emotional state, can lead to massive overspending.
One way your clients can curb this is to put barriers in place. Retailers want to make it easy to spend. Websites save our card details, offer “buy now, pay later” schemes, and allow one-click purchases.
However, deleting saved details and disabling options that make spending easy can help. As can turning off or hiding devices at times when an individual feels emotionally vulnerable. This is where an understanding of our triggers can help.
Anything that makes the process more difficult and time-consuming gives us extra time to contemplate the reasons behind our decisions.
4. Use cooling-off periods
It is all too easy to turn virtual shopping baskets into internet wish lists, filling them with items that we don’t want or need. And because it is so easy to “proceed to checkout” and make a payment, these wish lists can become real-life purchases with the click of a mouse.
A simple budgeting trick your clients might employ is to give themselves a 24- or even a 48-hour cooling-off period.
Sleeping on a decision can make it much easier to decide if the purchase is necessary, or even desired. A client checking an online basket a day or two after originally picking an item might find the emotional need has passed or been filled elsewhere.
If employed each time an item is placed into an online basket, this technique could make a real difference to your clients’ expenditure each month.
5. Have a long-term plan in place
Speaking to a professional and putting a financial plan in place puts an individual back in control. We use our experience and expertise to get to know our clients, aligning our advice to their long-term goals and aspirations.
Focussing on a goal, even one that is still decades away, can help give purpose to budgeting, helping a client feel more confident about their finances.
Get in touch
At Boolers, our years of combined experience and expertise help our clients manage their wealth throughout their lifetimes.
If you have clients who would benefit from help managing their money through the pandemic and beyond, please get in touch. Email firstname.lastname@example.org or call 0116 240 7070.
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