Psychology of Money: How Advertisers Get You To Spend

psychology of moneyAdvertisers have a boatload of cash that they use to conduct research studies to find new ways to get us to spend. They know the psychology of money and use it to their advantage to get us to spend our hard earned money. According to the Bureau of Labor Statistics, the average annual household spending for 2012 was just over $50,000. So what are some of the tricks that they use? Here are a handful of tricks that get you to spend more money.

Psychology of Money

Credit Card Rewards

The credit card industry lives off of the interest it charges consumers for not paying their balance in full. But as people get smarter with their credit cards and only charge what they can afford to pay off in full each month, the credit card industry has to come up with new ways to earn interest.  What is this new way? Enter credit card rewards. That right, you earn rewards for spending more!

Credit card rewards are a huge business today. Many wise consumers take advantage of credit card rewards and earn free products and free trips for using their credit card.

But, many more people fall victim to the rewards game. They spend more just to earn more points. They don’t pay off their balance in full each month, triggering interest payments and negating any rewards that are earned.

The crazy thing about the rewards people earn is that 1 rewards point is equal to $0.01, but you have to spend $1 in order to get 1 point. There are bonus points and categories where you can earn more points, but in many cases, you need to have a credit card that charges an annual fee.

To top all of this off is the complexity of many of the rewards programs. There are all kinds of hoops to jump through in order to redeem many of the rewards and in some cases, the rewards expire after a period of time.

If you are regimented with your money, credit card rewards can be a benefit for you. But if you are more carefree with your money, then avoiding credit cards might make the most sense for you since any benefit you get, you lose through the payment of interest.

Cash Back

In addition to the credit card rewards programs, some credit cards also offer cash back. In this case, instead of earning points for items, you earn cash back. As with credit card rewards, most cards offer 1% cash back with some offering bonuses of up to 6% cash back.

Everything I mentioned above with regards to rewards applies to cash back credit cards. They are great if you are smart and disciplined with your money and not such a great idea for you if you aren’t as strict with your money management.

Buy More, Save More

I personally love this one. It is pure genius. I haven’t met anyone that has not fallen victim to it. I’ve fallen for it many times and sadly I admit there are times I still fall for it.

The psychology of money advertiser’s play here is this: let’s say a sweater is on selling for $50. But if you buy one, you get the second sweater for half price. That is a sweet deal! Only $25 for a sweater! In fact, this is a good deal if you are shopping for multiple sweaters. But if you aren’t, you are spending more money. Sure the second sweater is only $25, but that is $25 more than you were going to spend in the first place!

This psychology of money trick isn’t limited to clothing either. It happens in the grocery store all of the time.

10 For $10

Speaking of the grocery store, they have their own great money trick to get you to spend more: the 10 for $10 trick. Here, an item will be on sale for $1. To get you to spend more money, they advertise this sale as a 10 for $10. It makes you think you need to buy 10 to get the deal when you don’t.

In some circumstances, you do need to buy a certain number of items to get the discount, but if you do, the store will clearly note this.

Fake Sales

I’ve seen this more and more recently. In the store circular I receive, they will list an item with a bolded price next to it, indicating that the item is on sale. While they never go as far as to say the item is on sale, we assume it is since it is listed in the sales flyer.

The only way to catch wind of this trick is to pay attention to what items sell for at regular price. It might seem difficult to do, but over time, you will learn the regular prices of items and will be able to spot when something is on sale or not.

Buying The Idea, Not The Product

If you take notice to the signs and banners of many of the products for sale, you will see that the person is attractive, fit and you would associate them with having a great, full life. This is done for a reason. Advertisers want you to buy the idea of a perfect life instead of the product. Once they get us to buy into this perfect life, they have us a customers. We aspire to have a great life and think that using a certain product will help us reach that goal.

In order to overcome this, you have to really be honest with yourself and ask yourself if you are buying the product or the image of how you think life will be with the product.

Your Action Plan

Overall, there are many tricks to the psychology of money. Advertisers have many resources to get us to part with our money. Many times, we do so without hesitation or really knowing that we are being tricked into buying more than we need. The best advice I can give you for overcoming these psychology of money tricks:

Shop With A List: When you have a list, you tend to stick with it. It sounds simple, but it works. I’ve shopped with and without lists and found that when I shop with a list, I only buy what is on my list. I don’t know why it works, but it does.

Know What You Need: When you are out shopping for clothing, know what you need. If you need a sweater, there is no need to buy two or more. The more you know what you need, the better you will be at fending off the advertisers tricks.

Be Honest: Even when we have a list and know what we need, we still need to be honest with ourselves. When you find yourself wanting to buy something, call a timeout and wait a minute. You need to think things through. Do you really need it? Can you afford it? Asking yourself these questions will go a long way to helping you beat the tricks advertisers use to get you to spend your money.

Readers, what psychology of money tricks do you see or have you fallen for?

23 thoughts on “Psychology of Money: How Advertisers Get You To Spend”

  1. I don’t fall for much now that I’ve taken some courses on it, but when I was a kid I fell for EVERYTHING.

    1. Same here. Aware of many and looking out for them. But, I’m human so I still fall victim now and then!

  2. Good post Jon. We see this all the time with our marketing business and know full well that it happens. The biggest thing that most need to do is be informed – informed about their budget, their need, the product and why they do/don’t need it. In so many cases they’re not and it comes back to bite them.

    1. Great information! Thanks for sharing that. I really try to stop before I buy things and think if I really need something or if I just want it. Doing so has helped me not buy many things.

  3. Great post! I still struggle with using rewards effectively. For example, a store I shop at regularly offers “virtual dollars” that amount to $25 off $50 on a future purchase when you spend a certain amount. Since I’m a loyal customer, I often bite and spend more than I intended just to get the offer. Then, I feel compelled to shop with them again to get the full value of the deal — dumb! I shouldn’t let stores dictate when I shop. Working on that!

    1. Excellent example! My mom shops at Kohls a lot and your comment lead me to think about their program which is similar to what you describe above.

  4. The First Million is the Hardest

    Another trick of grocery stores is the “Everyday Low Price”. They advertise and highlight these items in the store as if they’re on sale, when in reality you’re paying the normal price for them.

    1. Great point! I do see this one in the store all of the time. The signs they put up do catch your attention.

  5. I use cash (got fed up with the banking costs in my country) and go to shop WHEN I NEED TO. I don’t care about the sales, unless they happen with the items I’m interested in, don’t care for rewards etc. Even if you get ‘deals’, if you didn’t really need said items, you have actually lost money.

    1. That’s what so many fail to realize. They say that they got it on sale, but if they never needed it in the first place, then it was just a waste of money.

  6. John @ WILD about Finance

    I always get caught out with the buying in bulk deals, even though I shouldn’t as I hate the way capitalism makes us greedy for more. Good post!

  7. I definitely take advantage of credit card rewards but I don’t believe they make me spend more. I just put boring stuff on them – groceries, gas, etc. and pay it in full each month.

  8. Good article Jon! It’s true, they are crafty and there are many ways to end up spending far more than one should. I’m not easily swayed though, and I am taking for advantage of travel hacking credit cards. You can do really well through that if you are careful.

    1. Very true. It doesn’t take much effort to play the travel hacking game. Other than get our honeymoon paid for with points/miles, I haven’t jumped too heavily into the game but have read many great stories.

  9. Rewards can be really good, and it can make sense to choose credit cards based on rewards (and the absence of fees, of course). That being said, they should never influence your purchasing behavior. Some of us can do this, but it’s remarkable how many people can’t control themselves. Hard to imagine people looking at rewards as some kind of competitive arena, but some do. With me, I don’t alter my spending even 0.001% for rewards.

    1. I agree. Many people get caught up in the “fuzzy math” of buying more just to accumulate the most points possible. The thinking should be that you are getting a reward for buying the things you need, not everything you want.

  10. One of biggest things the advertisers that do that I can’t stand is the signs saying “75% off” Really, you marked it down that much…I must be getting a great deal. I’m pretty sure they marked up the prices first and then dropped 75% off the inflated price. But yes sometime when I see a big discount…I get lured in…

    1. I worked in a retail store for about a year and learned that even on sale, very few items sell “at a loss” in most cases, it’s DVDs and CDs to get you to buy the DVD player and home theater system.

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