Why do we spend more than we earn?

What deep factors influence our spending?
3 min
02.05.2023

1. Emotional spending: People may spend money on things they don’t need but that provide them with pleasure, such as clothing, gadgets, or toys. A person may buy a new pair of shoes even though they already have several similar pairs. This can be driven by a desire to experience joy and satisfaction from the new purchase or a sense of being valued as a good shopper.

2. Low self-esteem: People may feel that they deserve luxurious items even if they can’t afford them. A person may buy expensive things to feel better about themselves, such as purchasing a new car or an expensive dress they cannot afford.

3. Stress: Spending can be a way to cope with stress or to distract oneself from problems. It is not uncommon for individuals to engage in retail therapy or impulse buying as a means of temporary relief or escapism.
After a hard day at work, a person may decide to go to a restaurant and spend more money than usual to distract themselves from their problems.

4. Desire for social belonging: People may buy things to feel part of a certain group or social class. A person may purchase items that are popular among their social group to feel more integrated into that group. For example, buying expensive designer clothes that are popular among friends or colleagues.

5. Advertising: Advertising campaigns can influence our purchases by creating a desire for something we may not have considered necessary before. Marketing strategies, persuasive messages, and attractive visuals can stimulate a desire for certain products or services, leading to increased spending.
person may buy products that are advertised, even if they don’t necessarily need them, but which have generated a desire to purchase them after seeing the advertisement.

6. Imperfect human understanding: People may underestimate their capabilities or rely on future income, which can lead to excessive spending. A person may spend more money than they earn because they underestimate their abilities. For example, buying a luxury car.

7. Life perspective: Our outlook on life can influence our purchases, investments, and overall attitude towards money. Our values, beliefs, and priorities shape our financial decisions. For example, some individuals may prioritize experiences and travel, leading them to spend more on those aspects of life. Others may have a more conservative approach and prioritize saving for the future. People who strive for material wealth may spend more than they earn. Simply because you are pursuing an image rather than something tangible.

8. Lack of financial literacy: Lack of knowledge on how to manage money can lead to unnecessary expenses, debt, and other financial challenges.