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Don’t blow your savings

Don't blow your savings

Don’t blow your savings.

The endless restrictions and lockdowns Australians experienced during the pandemic did more to us than make us want to socialise and dine out.

In many people, they create a pent-up sense of not being able – or allowed – to spend money on the things we want and love.

Compounded by the increased savings stored up by months of lockdowns, many commentators and financial experts are now expecting consumers to go on a sustained spending binge.

Online sales over the coming months – from Black Friday and Cyber Monday through Christmas past Boxing Day and right up to New year sales – are expected to hit record levels.

On top of that, hotels and restaurants have re-opened and the borders are re-opening. Airlines and tourist operators are tooling up to increase capacity – and that means a flood of overseas and inter-state travel marketing is about to hit the public.

Millions of Australians’ credit cards and buy now, pay later accounts look set to blow out.

But the resulting temptations – and pressure – to spend up holds a serious threat to something incredibly important to anyone wanting to improve their financial wellbeing and reduce their financial stress.

That precious asset is our savings.

Why shouldn’t I spend my savings?

Of course, you can spend your savings – especially if it’s yours alone.

But should you?

There are powerful reasons it’s very unwise to spend your savings.

Draining savings is a sure way to begin an unhealthy habit of living beyond your means – exactly the opposite behaviour that allowed us to grow savings in the first place.

Saving from a low base is hard, it’s like struggling up a tall ladder.

Living beyond our means has an inevitable outcome too: without the capacity to continually increase your income, it will lead to acute and probably chronic financial stress.

In other words, living beyond our means is trying to live in a fantasy.

Splurging from our savings is akin to tumbling down that ladder.

If it’s joint savings we are talking about, then spending from that without the consent of your partner is a breach of a relationship boundary.

What if you both agree to splurge your joint savings? See the opening point above – you can, but it’s unwise.

Why do I need to safeguard my savings?

A big reason spending your savings is a negative is you will fall further and further behind in wealth creation goals.

‘Hanging onto savings is an opportunity to get ahead financially which generally is what the wealthy are doing,’ says Hamish Ferguson, of Vision Property and Finance.

“They are purchasing assets and not spending as much proportionally on consumption,” he says.

Paying attention to successful wealth creation strategies is crucial for people who wish to do more than survive.

To put it crudely, how we save and what we do with those savings may determine which one of these two categories we fall into: the ‘haves’ or the ‘have nots’.

“If our desire is to be in the earlier category then we need to limit our consumption and ensure that a savings/investment plan is part of our budgeting,’ Mr. Ferguson says.

“If this is not the case, then we will end up in the have nots and as suggested only have enough to survive.”

Mr. Ferguson says there are financial ‘headwinds’ coming so keeping a buffer now is a sensible idea.

These include the bogeyman of the economy: a rise in inflation.

“Inflation is expected to rise so the cost of living is going up, interest rates are expected to rise which as well means mortgages and probably rent will go up over the next few years,” he says.

The power of a financial ‘buffer’

The final reason to hang onto savings seems intangible – but also something most of us can relate to.

Having a financial buffer or emergency fund improves our confidence, stress levels and gives us choices in life.

“The research suggests our stress levels are lower when we have a healthy buffer,” Mr. Ferguson says.

‘This, in turn, helps us to make better future decisions and have better relationships.’

Government guidelines are that a useful financial buffer is around three months’ worth of expenses.

‘Even if you can only save a little, make a start and keep saving. The more you can regularly save, the better,’ according to moneysmart.com.au

If you put $20 a week into a savings account, you’ll have over $1,040 by the end of the year. That’s the start of a good amount of savings to give you some financial breathing space.

Choice is an important concept in all this.

“Choice is powerful, but with choice comes the discipline and responsibility to make wise decisions,’ Mr. Ferguson says.

The power to choose wisely is something that comes to us when we can practice financial mindfulness.

Is there a way I can spend or treat myself safely?

This is a great point and an important one. Life should not be relentlessly difficult and it is not meant to comprise only self-denial.

But before we prepare to treat ourselves it’s important to understand one of the universal truths of wealth creation:

“’Save then spend, don’t spend than save’,” is a great famous quote that might be helpful here, Mr. Ferguson says.

The key is having a plan to reward yourself, that is the healthy way to go.

But what does that look like?

Here’s an example. If you can set a goal and boundary to save $12,000 before rewarding yourself with a $2,000 holiday, your net benefit is $10,000.

But that benefit disappears if you ‘spend then save’.

Don’t play catch-up with money, it’s fraught with danger: it’s far better to save than spend.

Returning to the above example, once you reach $22,000 savings you can have another $2,000 holiday, or reward yourself to the tune of $2,000.

Saving before spending can be a win: win strategy.

For this strategy to work, you must – must – prioritise savings over spending, every day, every week, every month.

Don't blow your savings
Don’t blow your savings
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What you need to know to be a mindful shopper

Mindful shopping

What you need to know to be a mindful shopper.

The pandemic has placed enormous pressure on the global supply chain, which has led to retailers warning goods will take longer to arrive than they would have before the pandemic.

This message has been distilled in recent weeks and days into attention-grabbing headlines, such as ‘start Christmas shopping NOW, retailers warn’.

Another one, is ‘Christmas is just around the corner’. Or maybe you’re seeing ‘don’t miss out!’ reminders about the upcoming Black Friday/Cyber Monday shopping period, from November 26 to 29.

While it’s a fact that the movement of goods will be slower than usual, it is not an objective fact that people need to rush, ‘get in early’ or even panic about their shopping and gift-giving as some people do.

This week we look at the sense of urgency created by warnings to ‘get shopping’ – why this happens, how it can affect us – and our personal finances – and why we need to exercise caution and practice a little healthy scepticism.

Understanding what is behind public messages from retailers

Public messages from retailers about buying anything originate from marketing department.

While it is true that good marketing identifies consumer needs and brings buyers and sellers together, as a discipline marketing falls short if it doesn’t increase sales.

Ultimately the main point of almost messages about shopping is to encourage you to increase or at least maintain your spending.

“Marketing tactics such as one time only sales offerings, promotions and discounts are all designed to get us to spend big,” says Lea Clothier, a money behaviour coach who helped design the Financial Mindfulness program.

“Tactics such as the use of time, or volume-based limitations and ‘buy now or miss out’ messages create a sense of scarcity and trigger a fear of missing out (FOMO).”

Creating a perception of scarcity is a successful way of making goods and services seem more appealing. Big companies spend millions unlocking the psychology of shoppers, because doing so is worth billions.

Generally, red flags include words, phrases and images such as:

    • for a limited time only;
    • 24-hour sale;
    • hurry;
    • don’t miss out; and
    • any symbol suggesting a countdown, such as a clock.

The consequences of shopping with high urgency

When we are rushed into any decision, we are more likely to base that decision on emotion, rather than logic.

“Scarcity and FOMO are emotional triggers that play on our sense of not having enough and our fears of missing out and therefore not ‘fitting in’ or belonging,” Ms Clothier says.

Any financial decision made from a place of emotion or fear, particularly when spending, can bring negative consequences to our finances.

For a decision to be rational and balanced, it requires time and consideration of whether we truly need or want it, whether we can actually afford it, and whether it is planned purchase or not.

This is the essence of mindful shopping online.

When we are rushing to shop online, or we are emotionally driven to purchase, we are more likely to impulse buy.

Impulse buying is exactly as it suggests, when our impulses or urges drive our spending habits.

Impulse spending can lead to many consequences such as overspending, ‘buyer’s remorse’ leading to emotions such as guilt and shame, difficulty paying bills, financial disagreements and financial stress as well as increased credit card debit or buy now pay later debt hangovers.

These kinds of consequences will invariably create financial stress in our lives.

Financial stress is complex, but when it is a constant in our lives it can put pressure on relationships .

Mindful behaviour with money

Faced with such powerful sales and marketing strategies, it’s important to be mindful of how they can drive our spending habits.

Why? Because we much as you might trust a brand or a store, or online retailer, it is not their brief to help you avoid financial chaos, let alone build wealth. That is up to you.

What does being mindful with money mean?

We refer to it as financial mindfulness.

Financial mindfulness means being aware and paying attention to your finances, and that may mean seeking help.

The help required will vary from individuals. It may be practical financial support, or learning budgeting skills, or seeking assistance to manage the stress of money worries.

The first step to being financially aware is to determine how stressed you are by your finances.

You can do this by measuring your current financial stress using our Financial Stress Indicator, which you can access in the Financial Mindfulness app.

You can read more about the Financial Mindfulness app here and download it from the Apple Store or Google Play store.

You can also read more detail about the complex problem of financial stress here.

We also have more information about techniques to lower financial stress and stress in general.

But what about those supply chain issues?

Marketing messages often do contain universal truths, or real facts about the world, that is partly what makes them seem important.

News of supply chain difficulties in late 2021 caused by the pandemic are not fake news.

Deliveries of gifts may take more time to arrive and no-one wants to have to say ‘sorry your present is in the mail’ at Christmas.

There is a balance to be struck with online shopping – which applies any time of the year.

“The key is to plan ahead,” Ms Clothier says.

“There is still plenty of time between now and Christmas.  The better planned you are, the more chances you have of being able to shop around and find the item you’re looking for.”

It can pay to have a plan “b” or “c” for gifts for your loved ones. That way you won’t feel pressured into purchasing something purely on urgency or scarcity basis.

Ms Clothier suggests getting creative about gift-giving.

There are many ways you can give a gift.

“Gifts don’t necessarily have to be product or something you purchase brand new.”

“In fact, there is a lot of research to say that the best gifts are shared activities and experiences that create memories and a sense of longer lasting happiness.”

Some of these ideas might include:

    • Booking a fun holiday with loved ones;
    • Teaching them to do something;
    • Creating a photo album for them; and
    • Making something meaningful for them.

There is also a considerable amount of research that shows how highly we value something that has no pricetag – time. So even if you are broke, calling someone regularly and making time to visit someone, listen and talk together, will almost certainly strengthen relationships with loved ones.

The Golden Rules of mindful shopping

If you are paying attention to the real purpose of marketing, open to becoming more financially mindful and to examining your behaviours with money, positive changes are possible.

You will hopefully be able to start shopping for what you really want and need rather than be dragged into buying by emotions, or hooked by urgent-sounding messages.

We’ve come up with a checklist of ‘Golden Rules’ to use when online shopping that may be useful as you try to navigate the busy shopping season ahead.

    • Remember to slow down and try to operate without that sense of urgency and excitement. Even if you cannot get a particular item, remember that there are plenty of great gifts out there for everyone. You’re not going to miss out altogether.
    • Be mindful of how marketing tactics such as scarcity and urgency might be influencing your purchasing decisions.
    • Plan ahead. Having a list for shopping whether in person or online, and sticking to it can help avoid impulse and emotional spending.
    • Set a budget for your online shopping each time you shop.
    • Track your spending to ensure you stick to the amount you’ve set as your spending limit. Remember to check your bank statements.
    • Shop around. There are so many retailers and competitive offers available but oddly we can easily forget this.
    • If you’re not sure about a purchase – just wait! You can always add a product to the online shopping cart and come back an hour or two, even a day or two later.
    • Check return policies. If you are prone to online shopping and aren’t always happy with your purchases, make sure you can return the items and get your money back.
    • Check your emotional state before shopping. Don’t shop to make yourself ‘feel better’, or if you’re over-excited. Our emotions can cause us to make unnecessary or excessive purchases in an attempt to make ourselves feel better.We all like nice things, but it’s also a universal truth that you can’t spend your way to happiness.
    • Don’t drink and shop. It’s a thing! Late night purchases after a few glasses of wine can lead to weak boundaries – forgetting sensible limits we made because they matter – and easily blowing the budget.
    • Do a quick stocktake of what you already own before you go and purchase more. This is particularly relevant to clothes!

Being mindful with online shopping is about being awake and alert and aware of what we are doing before we do it and while we are doing it.

When we can do that, we tend to buy what we actually need or truly want and almost certainly spend less than we do when we are mindlessly spending.

And we avoid painful regret around money.

Good luck with your online shopping, enjoy!

Mindful shopping
Mindful shopping
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Why you need to stay mindful with your use of ‘buy now pay later’ services

Buy now pay later

Buy now pay later.

Popular new payment services like Afterpay, Openpay, Zip Pay and soon, Paypal’s ‘Pay in 4’ – collectively known as ‘buy now pay later’ services – perform something of a trick in the minds of consumers.

The trick results in people walking out of a store with a television, a carry bag of clothes, and high-end vacuum cleaners before they have fully paid partially switches off a healthy fear of debt.

But like credit cards, they are a form of credit – basically a loan – and with the real potential to increase financial stress in users.

With buy now pay later services, the consumer can purchase items with only paying the first instalment of the purchase value, then paying the remaining instalments in the future over the next 6 – 8 weeks. It’s like a cross between a layby service and credit cards but you get the product or service now.

The appeal of BNPL payment services

Buy now pay later is attractive for the buyer because the buyer had to only pay a portion of the item before they could take it home.

This appeal combined with clever marketing has become hugely popular.

In one recent Afterpay ad, Hollywood actor Rebel Wilson tells her on-screen boyfriend Afterpay is like eating a whole tub of ice cream at once but spreading the calories over six weeks.

This brilliantly captures the allure of the ‘instant gratification’ culture that is not just popular with millennials but with many people in nearly all age groups.

Afterpay boasts on their website they let customers get what they want when they want it, increasing average order value by up to 40%.

It is estimated one-in-five Australian consumers use a buy now pay later service, with over six million active accounts. The Reserve Bank of Australia says Afterpay is most popular with 3.4 million accounts, ahead of Zip Pay with 2.5 million.

The value of purchases made nearly tripled in Australia between 2017-18 and 2019-20, from just over $3 billion to over $9 billion.

Retailers love the services because they give the appearance of a new, cool, easy option when paying for your shopping – one that lets you walk out with products after spending just a quarter or one-fifth of its value.

How BNPL taps into the psychology of consumer spending

Buy now pay later have cleverly tapped into the consumer spending psychology and convinced shoppers to open their wallets – even though they don’t realise that is what they are doing.

Deferring payments is a relief to consumers, a positive feeling that reduces the pain of paying cold hard cash and even the nagging ‘I shouldn’t be doing this’ feeling that comes with using credit cards.

According to Dr Carey Morewedge, Asst. Professor at Carnegie Mellon University, the ‘pain’ of paying feels like it is reduced when using a buy now pay later service because we actually equate an imagined ‘pool of resources’ to having more cash.

M2P’s fintech blog explains the idea in an article titled ‘Factors and Psychology Behind the Great BNPL Allure’.

The larger your resource, the greater will be the inclination to make costlier purchases. For example, when shopping using BNPL, you feel like spending a small fraction of money from a large reserve with no immediate deadline.

So, the pain of paying becomes dramatically less with BNPL.

Whereas drawing a few currency notes out of your pocket seems like you are consuming a large portion of the available fund. Thus the pain of paying in immediate cash payment is more significant.’

Of course, buy now pay later providers know exactly what they are doing.

If a consumer cannot meet their end of the deal – and repay the full price within the agreed number of instalments, they are hit with late fees and charges, which vary depending on the fine print in the terms and conditions of each BNPL service.

It’s a very different mindset to using credit cards, which were first launched in Australia in 1974 and have peaked in usage in the past decade.

In 2020, there were 14.8 million consumer and business credit cards in Australia – more than one for every adult.

As credit card use has declined, the card companies have tried various marketing ploys to boost the use of their services, such as loyalty points schemes to 0% balance transfers.

But because so many people got into trouble with the complex and expensive interest payments on credit card companies, providers go out of their way to make it clear how repayments work.

According to Illion, Millennials under the age of 30 are twice as likely as their parents to fall more than two months behind in their credit card payments, suggesting they have greater difficulty balancing spending and debt, regardless of their credit limit.

The perils of buy now pay later services

The perils of credit card misuse are now well-known and widely understood. But the perils of buy now pay later are still developing as they are relatively new.

Afterpay, Zip pay, Openpay and equivalents remain relatively unregulated compared to the banks – meaning the gloss has not yet come off the services.

The perceived ‘win: win’ does not consider that our spending behaviour sometimes doesn’t make sense – for instance, how we can spend money based on our need to distract or ‘feel’ better rather than our need to stay within our limits.

Who could say they have never spent without thinking through all the consequences of a purchase? Probably none of us.

While it is entirely human to do so, it is the definition of mindless spending.

According to the Australian Financial Review, in 2020, Afterpay made $70 million from late fees, representing 20 per cent of its revenue.

The Australian Securities and Investment Commission also found that one in five buy now pay later customers were regularly missing payments.

An alarming half of users aged under 29 had taken out other loans to pay their buy now pay later debts.

How to use BNPL payment services safely

Just because buy now pay later services are relatively new, and the mixed impacts don’t make them bad news for everyone.

Andrew Fleming, Founder and CEO of Financial Mindfulness, says; ‘the way to avoid trouble with these payment services is the same as using any type of credit.’

‘Budgeting and sticking to your budget is key to ensure you do not get into trouble with BNPL products, but it also relates to any type of credit product, impulse spending is not wise’ he said.

‘Understand the product properly, including the fine print. Use BNPL services following your spending budget.’

‘The line between safe and unsafe use of these services is the difference between spending according to your budget and ‘reckless spending and not paying on-time’, he said.

You’ll have to decide for yourself what constitutes reckless, but it’s safe to assume that putting everyday shopping on instalments is not sensible.

To make the most of buy now pay later services, the optimum state of mind is one of financial mindfulness, which we define as ‘having awareness and paying attention to your finances and financial behaviours’.

But you have to hand it to the Founders of Afterpay, who discovered early the behaviour change with Millennials preferring to engage in cashless and credit-free spending lifestyles.

They have become a huge success story. The company was started 7 years ago and recently sold to Twitter founder Jack Dorsey’s Square for $39 billion making it the largest deal in Australian corporate history.

Buy now pay later
Buy now pay later
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New clinical help on the horizon for shopalcoholics

New clinical help on the horizon for shopalcoholics

New clinical help on the horizon for shopalcoholics.

We all instinctively know that compulsive, mindless spending can be a problem.

We see it in those around us and even in ourselves at times – especially when stress drives the perceived need to ‘escape’ mentally.

Whatever is behind compulsive shopping, buying, spending, even shopalcoholism – whatever we call it – it can and does result in unnecessary financial stress and even distress if the behaviour goes on uninterrupted.

Financial stress is a condition that can respond positively to a mindfulness program, especially when coupled with other interventions, such as improved goal-setting, financial literacy, and behavioural tools.

These combined can help sufferers produce a preferred state of financial mindfulness.

But not many people realise compulsive shopping has also been described in clinical settings since the early 20th century – more than 100 years.

Despite this, until now there has been no officially recognised diagnosis for the disorder.

That seems surprising how commonplace it appears to be, and how it is widely accepted as growing and as a contributor to issues like personal debt and overconsumption at personal and even macro levels.

Now science has moved a step closer to being able to help people with this behaviour – which is finally being recognised as a condition to be treated.

Flinders University reports that for the first time, world experts in psychology have built a framework to diagnose Compulsive Buying-Shopping Disorder.

This means there could be new pathways for help for people struggling to manage their spending behaviour and mental wellbeing.

The framework, published in the internationally recognised Journal of Behavioral Addictions, confirms that compulsive over-spending can be regarded as a disorder.

The news gives researchers and clinicians tools to design targeted interventions for this potentially devastating condition.

The new guidelines, published in the Journal of Behavioral Addictions, confirm that excessive buying and shopping can be so serious as to constitute a disorder, giving researchers and clinicians new powers to develop more targeted interventions for this debilitating condition.

Evidence-based criteria for Compulsive Buying-Shopping Disorder (CBSD) will be developed by an international team, including Professor Mike Kyrios from Flinders University’s Órama Institute for Mental Health and Wellbeing and Professor Astrid Müller from the Hannover Medical School in Germany.

A study of 138 researchers and clinicians from 35 countries has begun the work.

The research was a collaboration with researchers from the Hannover Medical School at the University of Duisburg-Essen and University of Dresden in Germany funded by the German Academic Exchange Service and Universities Australia.

Professor Kyrios described the new work as a “game-changer” for research into the issue, which could underpin the development of much-needed treatments and improved diagnostic processes to follow.

“In over 20 years, since I started investigating excessive buying, there has been an absence of commonly agreed diagnostic criteria which has hampered the perceived seriousness of the problem, as well as research efforts and consequently the development of evidence-based treatments,” Professor Kyrios said.

Evidence-based treatments should now be possible with agreement on diagnostic criteria.

New diagnostic criteria include the recognition of “excessive purchasing of items without utilising them for their intended purposes”.

In the context of the criteria, excessiveness is described as “diminished control over buying/shopping”.

Another feature of the disorder is that “buying/shopping is used to regulate internal states, e.g., generating positive emotions or relieving negative mood”.

“Clients who show excessive buying behaviour commonly have difficulties in regulating their emotions, so buying or shopping is then used to feel better. Paradoxically, if someone with Compulsive Buying-Shopping Disorder goes on a shopping trip, this will briefly improve their negative feelings, but will soon lead to strong feelings of shame, guilt and embarrassment.”

The Delphi research method was used to reach a consensus from the researchers and clinicians involved in a complex psychological disorder.

“The Delphi technique is an ideal method to integrate diverse perspectives from international and interdisciplinary experts in the field of Compulsive Buying-Shopping Disorder,” says co-investigator Dr. Dan Fassnacht, Senior Lecturer in Psychology at Flinders University.

“This helped us to developed diagnostic criteria featuring large agreement among experts in the field, and is an important milestone to better understand and treat this behaviour.”

Dr. Kathina Ali, Research Fellow at Flinders University and co-investigator of the study adds: “Previously, it was difficult to compare studies without agreed criteria.”

“Now for the first time, we can start examining Compulsive Buying-Shopping Disorder more precisely which should help us improve our treatments for this disabling condition.”

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How to stop spending too much at Christmas

How to stop spending too much at Christmas

How to stop spending too much at Christmas.

Christmas is by far the busiest time of the year for shopping and many of us deal with the pressure and financial stress of the annual retail frenzy with an increasingly popular new behaviour – self-gifting.

If you’re not familiar with the concept of self-gifting, you might be just a bit in denial. Think of it as December retail therapy: we all know that feeling – we are out shopping for Christmas gifts and we see a sexy new gadget, T-shirt with a funny slogan or a stylish home accessory in a store and realise the person it would be a perfect present for is actually ourselves. So, we buy it, you know, as a treat!

Retail therapy sounds nice – we fool ourselves it’s ok because it’s a type of therapy and we are told: “Therapy: Good!”

Retail therapy is of course popular all year round, especially after a shocking week at work, or an argument with our partner, or when we’re just feeling the blues.

But is it therapeutic if we buy non-essential to just manage predictable and recurring stress? Or is it really impulse spending?

Spending money impulsively can make us ‘feel better’ and ‘more alive’. But it can be a serious problem if this is something we begin to do regularly, especially with expensive items, as a way of coping. And let’s face it, jobs and relationships – and life in general – can be stressful for extended periods. New COVID-19 lockdowns are also very stressful especially on the eve of Christmas.

Data on impulse spending is contradictory – with one survey showing Aussies claim to have reduced our impulse buying while another shows that more than three quarters of us impulse buy when we shop via mobile. So it’s helpful to define it: when react to temptation by mindlessly spending money we haven’t budgeted on.

According to a poll of 1003 consumers by US website creditcards.com, five out of six Americans admit to impulse buying. One in five people had spent more than US$1000 on impulse, which rose to one in three for people earning over US$75,000.

Seven strategies to manage your impulse buying

  1. You are much less likely to buy on impulse if you plan your shopping trip therefore write a shopping list before you go.
  2. Avoid sales (or nominate an item you want and don’t break that agreement with yourself). A price discount is a real trigger for impulse spenders often buying things they don’t need.
  3. Don’t shop when you are emotional.
  4. Remind yourself of your longer-term financial goals before you spend.
  5. Wait a day before you purchase non-essential items.
  6. Make a budget for spending on ‘extras’ or treats and stick to it.
  7. Eat before you leave home to shop, this avoids spending extra money on food items as you will not be hungry during shopping time.

It’s not a huge leap to switch from a default state of mindless impulse spending to one of financial mindfulness– which means having awareness and paying attention to your finances and financial behaviours.

Working through complex and difficult problems that may trigger impulse buying is of course not easy. But let’s not forget what a hugely painful thing financial stress is. Ask yourself honestly, is your impulse buying adding to your financial stress? It’s a question worth pausing to consider honestly.

Financial worries are now accepted as a leading cause of stress in people’s lives throughout the western world.  Impulse spending therefore just compounds the problem.

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The real cost of gift-giving: financial stress – part 3

The real costs of gift-giving: Financial stress

The real cost of gift-giving: financial stress – part 3.

In ancient history giving gifts began as part of the ritual of worship and over the centuries it has morphed into a show of appreciation. In the age of mass consumerism gift-giving has become an expensive habit too, especially in holiday season.

While most of us worry about money to some degree, gift-giving has costs we usually bear without much complaint; giving is a respected value, it feels good and it’s accepted as a cultural obligation. Besides, we have special labels for people who don’t play along with gift-giving: who wants to be labelled Scrooge or the Grinch?

Let’s take a look at one specific festive custom: the excessive expectation everyone will have a present for everyone else who arrives on Christmas Eve or Christmas Day – whether they are young nieces and nephews, twentysomethings, cousins, partners of relatives.

Even exes in attendance get a gift. It’s probably no exaggeration to say half the gifts exchanged in these situations are politely put in a cupboard when they arrive home – and forgotten. The obligation to provide a pile of gifts – of appropriate value – across extended families can add tension to what is often already awkward family gathering. It almost certainly adds to seasonal financial stress.

Never mind that in the affluent West that many of us take months to repay debts incurred at Christmas time and in Black Friday and Boxing Day sales. So, at least reasons to buy expensive gifts are out of the way after Christmas, right?

Wrong. February and March tend to have the most weddings in Australia, which means wedding costs and wedding gifts for guests. February and March also have a lot of birthday spending, as those are the second and third most common months to have a baby. From there, the retail calendar kicks in: with gift-giving the norm in Easter, then for Mother’s Day – not to mention birthdays and anniversaries for the rest of the year.

Another type of gift-giving that is anecdotally growing is also worth noting: buying ourselves gifts and treats for our birthdays or just ‘getting through hard times’ such as COVID, often just because we see appealing items in big seasonal sales.

So, how can we avoid the financial stress that comes from adding new debt to existing debt, and the symptoms and impacts of that financial stress?

Some of us at some point have completed a budget (even if we can’t always stick to it) and humble enough to get financial advice to try and do better. We are not clueless.

But without an overhaul in our thinking, choosing gifts will remain stressful for many people. There can be a huge array of options and a nagging temptation to show our appreciation – for ourselves and others – by over‐spending.

If you have tried every trick to rein in spending on gifts it could be time to try something new – using mindfulness with your finances, also known as financial mindfulness. Mindfulness is described as moment‐by‐moment awareness.

Take the example of a teenager who “needs” for a sleek iPhone 10 as a gift, if not the newest flagship Apple phone, an iPhone 12 Pro Max. An iPhone 11 Pro Max will set you back at least $750 and a Pro Max 12 starts from the mid $1500s and rapidly goes up beyond $2000.

“We all have urges that we really, really want a new gadget like an iPhone, including me,” says Financial Mindfulness CEO and Founder, Andrew Fleming.

“It feels good to take it out of the box and start using it. The feeling of having the latest technology makes you feel cool and the children love it. Like anyone else I’ve learned those feelings don’t last long and they certainly don’t improve your life, despite what the ads tell us.

“Always having the latest iPhone won’t make me or anyone else truly happy. In fact always giving in to buying the new iPhone – or the latest of any brand of device – will actually decrease happiness because it will probably contribute to increased financial stress.”

The reason those sentiments feel uncomfortable is because they’re true. Researchers from Washington University and Seoul National University, Joseph Goodman and Sarah Lim, found that giving ‘experiences’ increases the happiness of recipients more than material gifts – even if people are not socially close.

Hence the boom for online companies selling “experiential” gifts: in Australia, RedBalloon; in the UK, Red Letter Days and in the United States, retailers like Cloud 9 Living and Great American Days.

But focusing on experiential as opposed to material gifts is unarguably only half of the answer.

While the research shows a hot‐air balloon ride or chocolate‐making course should satisfy the recipient more than boxed gift wrapped with a bow, if you try to please someone with the dollar value of your gift your debt problems could get worse and that is undeniably a problem.

Ever looked at the cost of sky‐diving, rodeo‐riding or maybe cage diving with sharks? You will spend hundreds, if not over a thousand dollars on these.

Financial stress is irrefutably linked to health problems like depression, anxiety and sleep disorders so it’s not a big leap to see that the expensive gifts you buy – whether material or experiential ‐ could paradoxically lead you to feel less likely to connect with other people.

Most of us know overspending will put pressure on us, but since when did knowing right from wrong stop human beings from making mistakes?

A parent, relative or partner with poor self‐control around money will often buckle to badgering from a child, or give into a yearning to people‐please, and buy that new smartphone, tablet, a holiday or even a car.

A daily mindfulness practice will lead to a more mindful approach to gift‐giving, so we do not drift into autopilot when buying. It’s inevitable this will lead us to confront some fundamental uncomfortable truths about money. “Mindfulness helps to calm the mind and with a calm mind we make better decisions,” Fleming says.

“Sometimes it’s a better decision to treat ourselves to a book or a movie or a massage instead of the latest smartphone.”

It’s important to note mindfulness is no silver bullet – it can however help you begin to change in that area. From there we can make some deep, meaningful changes: when we are forced to face old assumptions about money.

“There’s a big mindset change some of us need to make at times like Christmas, birthdays and weddings: how much we spend on people is not automatically a sign of our value and love for each other.”

Which brings us back to gifts. You can create lasting memories with creativity and your knowledge of a person.

How about home‐made cookies baked with personal messages – each describing why you love the recipient ‐ hidden in the dough? Or a hand‐made recipe book containing meal suggestions from the recipient’s family members?

Maybe get a t‐shirt printed with the recipient’s favourite funny saying or if you have time, plan a surprise outing and put thought into favourite stops and a destination, or even fill a tall jar with inspirational quotes written and printed in different colours.

If you have lots of time, learn the guitar then write someone a song and play it for them. If you don’t have much time, spend a couple of hours hand‐writing a letter telling the recipient what they mean to you. Could any gift feel better and teach about the real meaning of value?

Time is a key resource when it comes to gift-giving; you need to know someone or learn about them to know what might make them happy. And time is valuable. Benjamin Franklin was widely credited with the unforgettable line “time is money” in 1748 (although it’s been shown to have much earlier origins, perhaps even ancient Greece).

We can spend money and time, but where spending too much money might cause you crippling financial stress, spending a lot of time only enhances relationships – especially on children – by creating last memories.

Andrew Fleming says getting our minds to a state where we can see that spending time is just as valuable as money when it comes to gifts isn’t easy. “Everyone thinks they are time-poor.

One tool I know that can really transform how much time I think I have is mindfulness. Using mindfulness when I’m spending money means I make better decisions – no doubt about it.”

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The real costs of gift-giving: Financial stress – part 2

Last minute Christmas shopping guide

The real costs of gift-giving: Financial stress – part 2.

Who wants to buy something special for their partner, relative, friend or colleague on Black Friday or this Christmas? It’s a thoughtful idea given how tough 2020 has been – with bushfires, then the COVID-19 pandemic, various lockdowns and financial stress coming at Australians in waves all year.

If we are not aware of our underlying financial stress at this time of year, advertising pressure can trick us into an expensive false reality: that our usual safe spending limits don’t apply when it comes to proving our care for others.

It’s sad to think we actually believe that the price of gifts should be in proportion to what people mean to us – and yet our national gift-giving habits suggests we overlook the damaging realities of money stress at the checkout.

Megan McArdle of Bloomberg, argued “there is a higher logic to the gift economy … that mandates we keep giving and receiving objects of dubious value”.

Gift-giving, she wrote, was connected to “an innate human value called “reciprocal altruism” which makes the costs of gifts “a maintenance fee for your relationship”.

There are of course, real problems beyond warm and fuzzy feelings when altruism is all about money.

As well-intentioned as gift-giving is, the Christmas rush to buy gifts is sometimes only ‘generous’ financially; how often is our gift something the recipient really needs and will use?

Often, we believe we are too busy to understand our recipients real wants and needs. When we go into this kind of autopilot thinking, we can’t see that we are setting ourselves up for financial stress and its many impacts on our relationships, our work, and potentially making any existing anxiety and depression worse.

Research by Joseph Goodman (from Washington State University) and Sarah Lim (from Seoul’s Center for Happiness Studies) found people commonly buy material gifts over experiential gifts, despite the fact that recipients often feel happier receiving experiences.

Material gifts are those we can touch while experiential gifts are those that create a memory.

So, gift-giving becomes a stressful problem which we solve with money – by buying the latest expensive gadget, a heavily-marketed ‘luxury’ or some kind of timeless status symbol.

If it sounds mean-spirited to question gift-giving, that’s not the intention here. Only narcissists and debt collectors (and the occasional teenager) believe it’s better to receive than to give.

The problems raised here are not about gift-giving per se, it’s the headless chook race that it can resemble – and the financial stress and strain placed on many of us.

Last Christmas Australians splurged a mammoth A$28 billion on credit cards, according to finder.com.au – over $1,100 for every many woman and child.

Add the costs of Valentine’s Day, Easter, Mother’s Day, Father’s Day, birthdays, weddings and anniversaries and you can see how gift-buying has become a major driver of the retail engine in Western economies.

Of course, it’s a double-edged sword: retail spending is celebrated each year as a measurement of the strength of the economy. But at a personal level, buying gifts for everyone, and without mindful budgetary limits, will likely cause financial stress.

Debt consistently shows up in surveys as a leading cause of financial stress. But it’s now widely known personal money problems consistently show up in research as a major cause – if not the major cause – of stress in general.

The links between financial stress and poor mental health are well known, but recently the physical symptoms are being acknowledged and links to serious physical illness are emerging.

In the United States, the company Four Seasons Financial Education surveyed 511 employees in a national study and found disturbing correlations between financial stress and health problems. The respondents rated their level of financial stress, then the prevalence of health issues between two groups was compared.

People with high financial stress had higher reported incidence of health issues across all nine illnesses identified – heart attack, high blood pressure, depression, anxiety, infertility, gastrointestinal issues and sleeplessness, migraines/headaches and memory loss.

“The greatest disparities were found with anxiety and depression between these two groups,” the study findings said. In the groups with lower financial stress, 19 per cent reported depression and anxiety, but amongst the more financially stressed respondents, 55 per cent were depressed and 68 per cent had anxiety.

When the survey responses were further broken down, into the very highest and lowest levels of financial stress, people under extreme financial stress were five times more likely to have memory loss issues, more three times as likely to report depression and nearly twice as likely to have anxiety.

They were also twice as likely to have gastrointestinal problems.

Debt is a major cause of financial stress and the search for an answer has become a popular google search term in its own right, with variations of ‘how do I relieve my financial stress?’ common.

If you’ve tried all the usual advice and methods, it might be time to investigate a new approach, or at least, new tools to supplement what you are already doing.

In the final part of our series on the real cost of gift-giving, we look at how mindfulness can help reign in over-spending and the financial stress that often comes from increasing your debt burden at this time of year.

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The real cost of gift-giving: Financial stress – part 1

Last minute Christmas shopping guide

The real cost of gift-giving: Financial stress – part 1.

The tinsel and decorations are still under the stairs, but now is the time to think ahead so that you don’t join millions of Australians saddled repaying holiday debt well into 2021.

One of the leading pressures on many people’s already-strained financial position is the habit of over-spending on gifts; gifts that don’t necessarily prove our love for others.

In this three-part series we will explore the size of our national gift-buying problem, look at the health impacts of the financial stress that follows and then explore how a targeted mindfulness practice can help change the auto-pilot approach to gift-giving while potentially bringing us even closer to loved ones.

There is also a real likelihood that gift-giving becomes retail therapy in these stressful COVID times – a set of behaviours we use to try and feel a bit better. But as Financial Mindfulness has found, overspending has the opposite effect on our financial stress levels.

Overall, Australian households spent an average of A$969 on Christmas gifts in 2019 (the total spend on gifts was expected to be $18.8 billion) according to finder.com.au. Last December alone, A$28 billion was spent on cards, with millions more put on Buy Now Pay Later accounts too, which a third of us now have.

Nearly half a million of us will take up to six months to pay off holiday debts, while more than half of us still manage a spending binge for on Valentine’s Day (with Buy Now Pay Later schemes increasingly funding this). All this while also juggling mortgage, student loan and/or car repayments.

The national home loan bill this year topped A$2 trillion for the first time, according to Illion, with an estimated 60,000 mortgage holders at least one month behind on repayments.

But while we are weighed down with unavoidable repayments on big assets, the retail calendar rolls on. Easter is next (luckily the major supermarkets stock around 50 lines of chocolate each, not counting millions of Easter buns), then comes Mother’s Day (May 14), when consumer spending spikes to around $2 billion, according to the Australian Retail Association.

From mid-year there’s often a string of birthdays to buy for: the most popular months for birthdays in Australia include May, July, August, September and October, according to the Australian Institute of Health and Welfare.

Anyone who has hosted a children’s birthday party knows how expensive and high pressure they can be, with parents forking out anywhere between A$300 and A$3000. Then there’s the angst over how to please teenagers and other loved ones, a worry which is almost always settled by spending at or above our absolute limit.

Around this time, many of us come to accept we can’t afford a splurge we might want – such as a later winter or spring holiday, or a newer car – with so many expenses and December just around the corner.

The pre-holiday gift-giving hasn’t finished yet. Father’s Day is September 3, (on which about A$700 million is spent), followed by weddings and wedding anniversaries galore as the weather warms up. Spring and autumn are most popular seasons, April, September, October and November are the most popular months to get married.

At the end of November, comes the newish retail binge-fest that is Black Friday, when we spent $2.9 billion over that weekend alone.

While it seems like the right thing to show our love by buying new toys, trinkets, treats and gadgets for children, family and friends the cost is in black and white in our online statements.

We spend thousands upon thousands of dollars each year to try and please loved ones, when if the tables were turned, most of us would be happy receiving thoughtful, inexpensive gifts – or even just spending time with friends and loved ones if we knew they were battling financially.

According to the most recent data from the Financial Mindfulness – Financial Stress Index (FSI) Report – September 2020, the vast majority (89%) of us are worried about money. Digging deeper, we are completely overwhelmed (79%), downhearted (82%) and distracted (77%) by our financial situation. Financial Mindfulness estimates the resulting lost productivity costs Australian businesses is $32.14 billion per annum.

AMP’s 2020 Financial Wellness Report in November 2020 found financially stressed employees are ineffective at work for approximately 7.7 hours a week, and absent for a further 1.2 hours a week through sick days.

The report said nearly half of Australian workers are feeling financially stressed for an average of six and a half years or more.

To find out how financial stress affects our health, check out part two in this three part series.

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Shop till you Drop

Shop till you Drop

Shop till you Drop.

We are still on holidays, right? Well the majority of us are enjoying the holidays somewhere with our family and friends.  The hangover from Christmas and New Year is all but over, but one hangover that hasn’t left us is our credit card bill from Christmas and the so-called holiday ‘sales’, financial stress looms.

Chances are we still can be engaged in the frenzy of ‘The Stocktake SALE’, ‘The CLEARANCE SALE’, ‘Super Daily Deals’, ‘50 months interest free, no deposit, no interest (read full terms)’, ‘It’s the Season to SAVE BIG’, ‘After Christmas SALE and CLEARANCE’, etc.

That clever marketing pressure can flick a switch in our brains where we go into a kind of ‘trance’, handing over our credit cards, tapping away now in a cashless society on auto-pilot to suppress those logical thoughts of ‘we really shouldn’t be spending so much’.

According to BetaBait.com (a website helping start-ups connect with early adopters), 88 percent of the total impulse purchases are created primarily because the items are on sale.

Rather than purchasing useful or necessary items, impulse shoppers buy primarily because it puts them in a better mood. In addition, many impulse purchases are made because people feel that they can’t pass up an extremely attractive offer.  Retailers know this all too well and exploit it.

So, what do we do about it?

In a recent interview by Money and Life last month, I was asked to identify some helpful tips to break the cycle of spending and debt.

Dealing with the stress of debt and Christmas

BetaBait.com also found that when people shop with the purpose of buying immediate needs or forgotten items, the rate of compulsive buying falls by 53 percent.

Exactly how much do we spend on our credit cards?

The Australian Retailers Association expected Australians to spend $50 billion between mid-November and Christmas Eve. Aussie shoppers were tipped to spend a further $18 billion nationwide between Boxing Day and 15 January 2018.

According to ARA executive director, Russell Zimmerman, the jump is being driven by online retail. “With Amazon’s recent Australia launch, we are certain that online retail will be a driving force for post-Christmas sales with the ARA and Roy Morgan forecasting the ‘Other Retailing’ category to increase by more than four percent this year.”

Gumtree survey, which has found that Aussies are expecting to spend a staggering $10 billion dollars on Christmas presents alone, equating to more than $700 on gift giving per person.

Perhaps not surprisingly, the Gumtree research also found that almost 9 out of 10 Australians (86 percent) find Christmas puts a strain on their finances, with buying Christmas gifts dubbed as the biggest cause (66%) of this pressure.

The annual consumer survey by US company Statista found shoppers expected to spend an average of US$906 on Christmas gifts alone in 2017, not counting other holiday costs and sales spending. This is a massive jump from the 2016 average of US$752.

In 2017, Christmas retail sales are forecast to grow to about 680.4 billion U.S. dollars; a 3.8 percent increase from 2016. Net result, Americans seem to be in a generous mood of giving more this year.  Does the Trump effect have anything to do with this?

In Australia, the Credit Card Debt Clock is ticking away and ticking upwards.  The MoneySmart clock shows how much Australians owe on credit cards. With around $32 billion owing, that’s an average of around $4,200 per cardholder. https://www.moneysmart.gov.au/borrowing-and-credit/credit-cards/credit-card-debt-clock

In the US, Americans have now hit a scary milestone, the highest credit card debt in U.S history.  According to the Federal Reserve, Americans had US$1.02 trillion in outstanding revolving credit in Oct 2017. When it comes to individual households, the average American family owes US$8,377.

For the first time since the Great Recession, lenders have given more consumers with sub-prime, or below average, credit scores, access to credit cards, but they are giving them lower spending limits, according to the credit reporting agency TransUnion.

So, what does this impulse spending all mean to our Financial Wellbeing

Answer: Financial Stress.

Financial Mindfulness conducted a survey on Financial Stress in Australia and found 1 in 3 Australians suffer Financial Stress.

The results of this press release appeared in the Sydney Morning Herald and the Financial Standard.

Marian Russell, one of Financial Mindfulness Facebook followers shared her personal experience on financial stress in the Sydney Morning Herald article.

New research is constantly being released on the impact financial stress is having on our financial wellbeing and general health worldwide.

According to the European Society of Cardiology, research recently presented at the 18th Annual Congress of the South African Heart Association, significant financial stress is associated with a 13-fold higher odds of having a heart attack.

So how can we get through the holidays not regretting our spending, not dreading the bloated repayments to come, then show up to work without that nagging sense of fear that comes from surviving with financial stress?

The answer lies in applying the principles of mindfulness – the proven practice of moment-by-moment awareness – to our finances. It means training our minds to slow down and make decisions that we won’t regret later.

An Australian start-up – Financial Mindfulness – is developing a financial stress reduction program designed to revolutionise the way we think and behave with our money. In the process, we can stay within our means and feel better about ourselves by saying goodbye to the worry of money.

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Send yourself a valuable gift: get mindful

financialmindfulness blue Background color

Send yourself a valuable gift: get mindful.

Why do we spend money to feel good now, even if it’s clearly going to have negative consequences later? And why do we seem to make better decisions if they are planned and not impulsive?

The answers are complex, but just so you really get the idea, first imagine yourself under a lot of stress. Maybe you are working and studying, so you’re always flat-out busy, and there’s no end in sight. Or perhaps one of your parents is gravely ill and it’s hard to communicate about this with siblings you don’t get on with.

So you should feel really stressed.

Then without thinking, say which of these following suggestions sounds like a great idea a/ now, or b / in five years time: buying two pairs of the same fancy shoes you like because they are on sale, or selling your car today for $500 less than you could probably get because a buyer is ready with the cash and you want a weekend away.

You probably favour option a/ in most cases, meaning you want the ‘reward’ now.

Why? Because, according to behavioural scientists, “present rewards are weighted more heavily than future ones. Once rewards are very distant in time, they cease to be valuable,” so says behaivoraleconomics.com.

This was the finding of landmark research done in 2002 by Shane Frederick, George Loewenstein and Ted O’Donohue, and published in the Journal of Economic Literature.

Interestingly, when the reward is delayed, we are more prepared to wait to receive a greater reward. Research shows if given the choice between $100 in a year or $120 in 13 months, we will probably wait.

All this suggests if we plan for the future we are likely to make better decisions about money.  But it depends what that future event is, and how far off it is.
If it’s a skiing holiday in the Canadian Rockies, we will probably swing into action. If it’s retirement at age 70 (as the Australian Federal Government proposes from 2035), that feels somewhat less urgent, even though few would argue it’s more important.

In a 2014 report on savings, the Reserve Bank of Australia showed “younger households place more weight on saving for large purchases and emergencies to smooth near-term consumption rather than saving for longer-term (retirement) consumption.”

“Keys to managing decisions like these are to make those far-off outcomes feel closer,” Peter Sokol-Hessner, assistant professor in the department of psychology at University of Denver, told The Huffington Post.

He suggested “to imagine how you’ll feel when you can use those retirement funds, how grateful you’ll be that your younger self sent this gift into the future.”

If that sounds like a fairy story, there is research to back up the idea that we are more careful as ‘our future selves’. A study run by UCLA Anderson School of Management in 2011 found when people visualised themselves as 70 and were asked to imagine what they’d do with a $1000 windfall, they put more than twice as much money towards their retirement as those who were asked to visualise themselves now. They were more likely to choose short-term options like planning an extravagant outing or buying someone a gift.
So where does mindfulness come in?

Let’s be clear: a mindfulness practice, even one focused on money, isn’t going to directly impact your Canadian Rockies ski fund, let alone your retirement savings.

But if undertaken consistently, a mindfulness practice could help change the decisions you currently unconsciously make about spending.
For instance, you may decide to do extra research before selling your car or home, looking more carefully at trends and brainstorming other ways to find ready cash.

It does that by increasing time between your thoughts: that well-worn but accurate metaphor of busy thoughts as clouds against a blue sky that represents an untroubled mind.

“Thoughts are like clouds,” says Financial Mindfulness’s Chief Mindfulness Officer Tomas Jajesnica.

“When you can see more sky and less clouds you start to move out of an immediate, involuntary response state and towards the type of thought where you could think about your ‘future self’.”

A big benefit of a regular practice is a buffer against the power of marketing, he says. Think about the hype involved around the release of the next stage of a sought-after apartment development: it’s in the interests of a real estate agent to get you into a feeding frenzy state with other potential buyers, so the stage sells put, the project can go up and the next stage goes into marketing overdrive.

“But it’s not just effective in dealing with real estate,” Jajesnica says.
“A lot of marketing works on the idea of scarcity and urgency; some saying ‘quick, there’s only 100 in stock’ , or ‘hurry, it’s a brand new order’, or whatever. Marketing works on you by getting you to make a decision right now.

“A mindfulness process will help you to buy things rather than just be sold to.
“It’ll allow you to come from your own space, consider the consequences of your actions and respond by making decisions, rather than be manipulated by marketing.”