We’re all guilty of an impulsive purchase or two; in fact, in four out of every ten stores we visit, we’re likely to make an average of three unplanned purchases. Impulsivity — also known as impulsiveness — is something that even the most organised of buyers can suffer with from time to time, but just how drastically can an impulsive personality affect the financial decisions that we make?
From frivolous purchases, to investment or trading decisions, let’s dig a little deeper into how our level of self-control can impact important financial choices.
What Is Impulsivity?
Impulsivity is the tendency to act on a whim, with little, if any consideration for the consequences of the action. When it comes to our finances, this usually refers to making a purchase or investment without thinking over the potential ramifications following the purchase, whether financially, emotionally or even physically (think: when we buy something we don’t have room to store at home).
While a bit of impulsivity isn’t usually an issue, those with heightened impulsive tendencies, or with disorders relating to impulsive and compulsive behaviours could run into issue. In these cases, the help of a medical professional is advised.
How Does It Affect Financial Decisions?
Impulsivity in finance isn’t uncommon, particularly when it comes to consumer decisions and purchases. Studies suggest that up to and above 84% of all shoppers have made an impulse purchase in their time, with 40% of all money spent on e-commerce coming from this purchase type. When you consider those statistics, it’s clear to see that a bit of impulse drives the global industries a considerable amount, putting money into the economy.
For the purchasers themselves, however, this impulsivity may not always be so positive. More than 54% of US shoppers alone have admitted to spending over $100 on an impulsive purchase, with 20% spending more than $1000. Couple that with the 46% of men and 52% of women who regret their impulse purchases, and it’s clear to see that things don’t always work out.
Strategy or Emotion?
With the above in mind, we have to ask ourselves this — should we be putting a stop to emotionally-driven impulse purchases and turning towards more planned, strategic purchases and investments? Well, the experts seem to suggest that a proven financial strategy is the way to go. But why?
Whether it’s a trip to the supermarket, a walk down the high street or a step into the world of trading, having a strategy or plan in place will not only ensure you’re setting goals for what you really need to buy or hope to achieve, but can keep you on the right path with your finances. This is particularly crucial if you know you’re the kind to lean towards the impulsive way of life.
Consumer Research found that typically, those who are impulsive in their financial activity tend to conveniently forget just how much was spent, which can lead to deeper financial problems throughout any given money. They can be prone to tricking themselves into justifying a future splurge purchase, but this is where a strategy or plan can come in. By taking the time to produce a plan, budget, strategy or even a step-by-step journey to follow when you are making an investment, it’ll be easier to stick to it, rather than make that impulse spend that you may regret.
From introducing automation into the budgeting and planning process to keep things factual rather than emotionally-driven, to limiting the money you have available at any one time, you can better shape your choices according to more strict criteria. A professional trader may limit their available budget to ensure they don’t go over the amount they can realistically afford to invest, while the average consumer could stick to cash when they’re out and about, and close down any credit cards they have to prevent the more frivolous purchases.
Impulsiveness can be a driving force behind potential financial concerns, but when handled properly and effectively, can actually push us to not only try new things, but help the economy as we go.
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