Blame it on momentum!

The recently celebrated Aadi festival in Tamil Nadu deserves some pondering. Aadi, a month in the Tamil calendar, is considered inauspicious for events such as wedding and housewarming. Due to the lack of festive occasions to boost sales during this supposedly inauspicious month, shops offer discounts to lure customers. This was how it originally began, but has taken a totally different form today wherein sales promotions start way ahead of the actual month to cater to a larger crowd and thus increase sales. The month is a nightmare for commuters caught in traffic snarls and cops who try to control them. Though usually I try and stay away from the commercial zones during this period, I give in at times, wondering how these sellers instigate the shopping bud in people.
Often I go to a store merely to explore the new collections and end up coming out with a huge cart –more often than not, the shop would have had nothing new to offer. There have been instances when I went to a departmental store to buy wheat flour, but came back home with a roti maker, with or without the flour. I googled to check whether I was a “shopaholic” or if there was a deeper reason behind this urge. Apparently Yale scientists describe this as “shopping momentum”, which occurs when an initial purchase provides a psychological impulse that drives the purchase of a second, unrelated product. Eminent psychologist Gollwitzer defines two important mindsets--deliberative and implemental. A deliberative mindset weighs the pros and cons of pursuing a specific action, whereas an implementation mindset focuses on the timing and sequencing of goal-oriented actions. In a purchase context, “shopping momentum” can be viewed as a switch to “implementation” that is propelled by the first purchase which is deliberative. A few examples in our shopping behavior to cite the relevance of this theory are:
 We invariably end up visiting a store which has a better window display, or a display containing items that interest us. This acts as a deliberative trigger forcing us to consider the purchase of the same, if the cost fairly matches the value. In the process, we also look for other items the store has to offer and end up buying more than what was initially thought; this explains the implementation mindset.
 In the purchase of high value goods (e.g., car), it is the initial analysis that acts as the “deliberation”. We conduct a detailed study of the pros and cons of various models. But once the decision is made, we do not spend as much time to finalize the accessories – alloys, music system, interiors, etc., which also come at a high price.
 When gifted with a Landmark or a Lifestyle voucher for Rs.500 or Rs.1000, the initial barrier is already broken, as this came at no cost to us. How many of us would restrict our bill to the said amount? One would directly assume the implemental mindset and splurge into a purchase worth much more than the face value of this voucher. Had the gift voucher not landed out of the blue, the need for that article would have never arisen in the first place.
Shopping momentum arises from the idea that shopping has an inertial quality, that there is a mental hurdle in the shift from browsing to shopping, which once crossed makes further purchases more likely. The rate with which this hurdle is broken accelerates when there is a free product offered with a purchase of one extra item. With a couple of shirts, you get a trouser free; with a camera, you get a memory stick and pouch free; with 2 best-selling books, you get a subscription to a best-selling magazine free; and the worst of it all, a garlic bread combo with 2 pizzas. One may just end up buying two shirts even if one needed only one, or buying a camera even if all one needed was just a pouch or devouring a cheesy meal even if one’s stomach could have accommodated just a few nibbles. Neither the wealth nor the health is spared. Those bitten by guilt discern the ‘necessary’ from the baits. The rest blame it on shopping momentum.


Go green
An offshoot from the previous piece: How many of us have felt we were better-off with a lower pay in the past than what we currently earn? The discussions that my colleagues indulge in--and which inadvertently fall into my ears--assure me that I am not the only one to think that way. Is it an insatiable human need to find an expenditure channel for every new source of income, where with every additional penny earned, the penny lost is exponentially larger? The credit cards associated with the level of income justify the equation, or ‘inequation’ thereof.

Some behavioral concepts to explain the proliferation of credit spending are as follows:
1. Decoupling: A possible reason behind the use of cards is decoupling, which means separating payment from consumption. Human beings are possessive about their belongings and any other self-earned goods (for instance, cash). And when one pays cash, the immediate sense of parting is being felt and the brain starts to evaluate if the deal gives as much pleasure in return for the sacrifice made. Plastic is totally devoid of this aspect, and swiping it ruthlessly at stores registers nothing emotionally except for the piling debt that the hard-earned paper has to make up for at a later date, in most cases, with interest. Moreover, with credit cards the connection between specific purchases and specific payments gets obscured, resulting in further decoupling of payment from purchase.
2. Irrational spending: An expense seems far bigger when it’s looked at separately, but appears smaller when it is part of a much larger payment, so when an expense of Rs.500 is added to a credit card bill of Rs.5000, it looks smaller than how it would seem on its own. Grouping transactions in credit card bills, therefore, reduces the perceived size of individual expenditures, resulting in increased spending. Rational behavior would never attribute different values for the same 500 rupee note.
3. Retrospective evaluation: It refers to how much the past memory of spending affects future purchases. A deep hole in the pocket caused by past purchases tends to caution us the next time we enter a store or stand in the bill counter, making us to rethink. Credit card purchases are mostly forgotten and we never realize the actual cumulated amount outstanding until the statement is received.

Nothing could be worse than people having multiple cards with different billing cycles to facilitate the effective management of finances, or the lack of it. They receive a rude shock when each of the cards delivers the statement at periodic intervals; quite often they strain their grey cells to recollect when, where and how all the money was blown away. Stricken by guilt, sometimes I decide to leave three of the four cards at home and carry just one, in case an emergency should crop up. It is quite astounding to see how the power of credit beats human logic and rationale.
Various other spending patterns are explained by “mental accounting”, a term coined by Richard Thaler, Professor of Economics and Behavioral Science at the Graduate School of Business, University of Chicago. It affects how, when and how much we choose to spend and has enormous ramifications in our daily life. It primarily deals with how one chooses to treat money differently depending on the source of money and circumstances. Some examples are:
 Extravagant expenditure from a windfall gain like bonus or lottery, while a similar extent of expenditure would have never been a possibility with the monthly paychecks
 The tendency to exceed the budgeted limit while using a debit card instead of ready cash, and to further exceed the limit while using credit instead of debit
 A parsimonious bargain for a Rs.20 discount in a Rs.100 deal, while casually letting go a few grands in a deal worth a few lacs. The absolute worth of money in both instances is the same.
Of all the lessons learnt from such spending patterns, credit spending is best learnt when the fingers are burnt. To conclude, ‘if’ you have the slightest doubt of giving in to the temptations that lurk around, stay green and say no to plastic. Do not think you are being smart by being card rich, for you fail to realize that you are playing with a multi-billion dollar industry that’ll outsmart you.