Why we buy: Decoding the psychology of shopping

Why spending feels good

At the core of spending lies a biological response. When you make a purchase, your brain releases dopamine, a neurotransmitter associated with pleasure and reward. This is particularly true when the purchase is tied to something you’ve been wanting or when it feels like a good deal. Sales, discounts, and limited-time offers amplify this effect, creating a sense of urgency that triggers impulsive decisions.

Research from a 2020 study published in Psychological Science shows that while buying something new can increase happiness temporarily, the effect wears off quickly as people adapt to their new possessions. This is known as the "hedonic treadmill” introduced by Philip Brickman and Donald T. Campbell in 1971, which says satisfaction diminishes over time, pushing consumers to seek new purchases to replicate that initial high.

Feeling sad or stressed often drives us to spend on unnecessary things in an attempt to buy happiness, shown in research from the Journal of Psychological Science. For instance, a bad day at work might lead to indulging in an expensive meal or an impulsive outfit purchase for a fleeting comfort boost.

The influence of marketing and social norms

Marketers are well aware of the psychological triggers that drive spending. They use a variety of strategies to nudge consumers toward making purchases. For instance:

• Scarcity tactics: Words like "only a few left" or "limited edition" create a fear of missing out (FOMO), prompting people to buy now rather than later. As simple and obvious as it may sound, it stil works!

• Social proof: Seeing others purchase a product—through reviews, endorsements, or influencer marketing—creates a sense of trust and desirability.

• Anchoring: Setting an initial high price for a product and then offering a discount makes the reduced price seem like an excellent deal, even if it’s still overpriced.

• Social norms: If everyone around you is upgrading their phone or wearing a particular brand, the pressure to conform can lead to unnecessary spending. A 2019 survey by Charles Schwab found that about 35% of Americans spend more than they can afford to impress their friends.

Spending as emotional respite

Spending is not always rational. Many people shop to cope with emotions, a behavior known as "retail therapy." Studies, like one from The Mediterranean Journal of Sciences, reveal that women often gravitate toward purchases like clothing or home décor to seek emotional comfort, while men may indulge in technology or cars for a sense of power or achievement.

These patterns underline how spending habits can reflect emotional needs rather than practical ones. This kind of spending provides temporary relief but can lead to financial strain and guilt, perpetuating a challenging cycle.

Separately, a study led by Dr. Nikhil Masters explored the "emotional carryover effect", how emotions from one situation can influence decisions in entirely unrelated contexts. In the study, 186 people watched emotional news stories and were then asked to make risky financial decisions with real money. Interestingly, women’s financial decisions remained unaffected by the emotional tone of the news, while men showed a clear tendency to play it safe.

The findings told us about gender differences and how emotions impact risk-taking, offering fresh insights into how we navigate high-stakes choices.

Choices aren’t made in a vacuum—sometimes, life-changing financial moves like buying a home or big investments need a "cool-off" moment to let the emotions settle.

Payment methods equals spending

The way we pay for items significantly affects how much we spend. Studies have consistently shown that people spend more when using credit cards as compared to cash. A 2008 study published in Marketing Letters found that consumers are willing to pay up to 100% more for the same product when using a credit card instead of cash. Why? Because paying with cash feels more tangible and immediate, creating a "pain of paying" that curtails overspending.

Digital payments, like mobile wallets and one-click online shopping, further reduce this pain. The ease and convenience of these methods can lead to a disconnect between spending and financial reality, making it harder to track where your money is going.

A fine-ancial balance spending vs. investing

Each rupee saved from impulsive spending can help meaningful investments. Skipping small luxuries, like a daily coffee or opting for a simpler weekend outing, and redirecting those savings into more productive investment avenues can lead to significant financial growth.

Think of your spending as a mirror of your priorities. By choosing to spend on essentials and experiences that align with your long-term goals, you unlock the potential to grow your financial portfolio while still enjoying the present. A shift in mindset from "spend what you earn" to "invest what you save" can redefine your financial future.

Peetz and Davydenko's 2021 study found that creating your own money-saving strategies boosts self-control, as personalized plans fit your habits better and make you more mindful about spending.

In summary

Spending is a complex interplay of biology, emotions, and societal influences. While it’s natural to enjoy the occasional splurge, unchecked spending can lead to financial stress and long-term consequences.

By understanding the psychological factors that drive your habits, you can take control of your finances and align your spending with your values and goals. After all, the best purchases are those that bring lasting joy and meaningful benefits.