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Understanding Your Spending Demons

Who does not want to change their spending patterns? The problem is that it is easier said than done. Your spending patterns are determined by your financial DNA and were then refined by the lessons learned from your family, friends, beliefs, and society. You are either a spender or a saver/investor.

For some people, controlling their spending habits is as easy as making a conscious decision and executing on that – these are the habitual savers. For others, it is an endless struggle of good versus evil.

Let us start by understanding the FOUR most influential drivers of your spending patterns:

Driver 1: Parents

Regardless of how hard you fight this, you are a product of your parents. Parental influence is overwhelming. At times you are a carbon copy of your patents, and other times you are polar opposites as you make a conscious effort to rebel against them. When it comes to money, the most likely outcome is that you are a carbon copy.

To understand the impact of parenting, it is worthwhile looking into generational trends. To refresh your memory, we are currently four dominant economically active generations currently in play: Baby boomers

Also known as the Me Generation, are the people born following World War II from 1946 to 1964. The boomers were a product of the post-war spike in libido and were strongly influenced by the counterculture and revolution in the social norms of the 1960s - Beatlemania, Twiggy, JFK assassination, Woodstock, Cassius Clay, the Cuban missile crisis, a man on the moon, Vietnam and Jim Morrison. Time named the Baby Boom Generation as its 1966 "Man of the Year".

Generation X

Or Gen X for short is the cohort following the baby boomers (for full disclosure, I am part of this generation). The generation is generally defined as people born between 1965 to 1980. They are neatly sandwiched between the baby boomers and the millennials. Time referred to the Xs as the "unsung generation, hardly recognized as a social force or even noticed much at all".


Also known as Generation Y (or Gen Y for short), are the generation following Generation X who grew up around the turn of the 3rd millennium. The generation is widely accepted as having been born between 1981 and 1996.

Generation Z

Or Gen Z for short, are the people succeeding the Millennials. Researchers and popular media typically use the mid-to-late 1990s as starting birth years and the early 2010s as ending birth years.

This is what you need to understand. The majority of millennials are kids of the boomers and the majority of Zs are products of the Xs. To better understand the spending patterns of generation Z, do not look at their older millennial siblings. You need to look at their parents. To understand the spending patterns of the millennials, you need to look to their parents.

Boomers and Millenials are the Spenders

The wildness of the millennials is explained in part by their hippie upbringing from their baby boomer parents. The boomers wanted it to be easier for their kids and they succeeded. They spoiled the little buggers and created a strong sense of entitlement in them and this has lead to a generation of compulsive spending. Millennials are a nightmare in front of a financial calculator. A 2015 PWC survey showed that only 24 percent of millennials have basic financial knowledge and only 27 percent seek financial advice on saving and investing.

Gen X and Z are Savers

Gen Xs are products of the stress and turmoil of the seventies and the eighties. We had Nixon leopard crawling down a government passage with a flashlight between his dentures, the collapse of the Berlin Wall, assassination of Indira Gandhi, Chernobyl, the Challenger explosion, the launch of Fox television, and the Exxon Valdez oil tanker belching 240,000 barrels of oil into the ocean. Socially, the 1970s saw a spike in divorce rates. The confluence of all these factors created a cynical, pessimistic, and hardnosed generation. This has had a profound impact on our kids.

The Zs, like their parents, are more financially literate at a much younger age than previous generations. This is thanks largely to the financial anxiety that we Xs have passed down. The Zs are also more likely than millennials to save a good chunk of their change. They are more likely to use budgeting apps like Mint and Acorns. They also stay out of debt. They would rather rent assets than buy them.

This same financial discipline and austerity are manifested in their social activities. The Zs are not a wild bunch. You will not find them passed out on the couch at Keith Richard's annual vodka and anthrax party. Bryan Gildenberg, the chief knowledge officer at Kantar Consulting, says that Generation Z is a "very old group of young people." They drink less, take fewer drugs (except for pot, which they don't view as harmful) and have less sex. Again, there are parallels here with their Generation X parents, many of whom saw sex and drugs as dangerous due to the AIDS epidemic and Mrs. Reagan's "Just Say No" campaign.

Frugality is the religion of Gen X. They love to hear words like "value for money", "responsibility" and "sustainability". They are also more likely to buy second-hand clothing.

Driver 2: Culture and Society

Americans are spenders while the Chinese are savers. Culture and society go a long way to explain why spending patterns of these two nations are diametrically opposed? The Chinese typically save up to 40 percent of their income. Analysts and policymakers have attempted to trace the causes of China's high savings rate and to predict how long it will last. Some point to a precautionary savings motive: Because Chinese people are worried about costs of health care, education, and old-age pensions and are unsure about how much these costs might change over time, they respond by saving more. What happens if your kid was the next Albert Einstein and needed to go to Harvard? In the US, on the other hand, which boasts more developed education, healthcare, and retirement systems, this same anxiety does not exist. This, coupled with decades of economic prosperity that goes back to the 1950s, has created an intensely consumerist society that does not think twice about driving an hour out of town for a $25 pizza!

Driver 3: Religion and Spiritual Beliefs

Religion can have a strong impact on spending habits, such as tithing, giving alms, donating to charity, and participating in traditional celebrations that require significant expenses. Take for example the phenomenon of the Quinceañera - the celebration of a girl’s 15th birthday, marking her passage from girlhood to womanhood; the term is also used for the celebrant herself. The quinceañera is both a religious and social event that emphasizes the importance of family and society in the life of a young woman. It is celebrated in Mexico, Latin America, and the Caribbean, as well as in Latino communities in the United States and elsewhere. Humble families do not think twice about heavily indebting themselves to pay for this celebration.

Driver 4: Social Media

Social media has done a sterling job in equating happiness with physical possessions and lavish experiences. Sumptuous mansions, Italian sportscars, first-class airline tickets, expensive gadgets, and shining jewelry creates the impression that happiness can only be achieved through spending. It has never been more challenging to keep up with the Joneses. The social pressure to move away from saving and into the camp of spending is immense but as with all trends, there are counter-trends. This counter-trend comes in the form of minimalism as more people realize that spending does little to enhance human happiness.

Why is it hard to break spending habits?

Over time, it becomes more and more difficult to change a habit because that habit has become more and more natural to who we are and how we act. And research shows that we automatically favor what is familiar to us—even if we know it's not to our benefit. The challenge is creating a new normal, which involves behavior change. Think about dieting: If you've spent years and years eating the same way, it's obviously very tough to change that pattern. That's true even if you want to change, know you should, and understand what the new pattern would look like.

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