Spending more to save more, also known as “Spaving”, can be a risk to your financial life!
“Spaving”, also known as the practice of spending more money to take advantage of deals and save in the long run, has become a risky behavior for many Americans facing high inflation and increasing debt. Although inflation has slightly decreased, the consumer price index in April was still 3.4% higher than the previous year. Despite these higher prices and costs, consumer spending continues to grow. In fact, credit card debt hit $1.12 trillion in the first quarter, according to the Federal Reserve Bank of New York.
Consumers and Deals
Retailers are offering more promotions to counteract their shrinking profit margins. Between March 2023 and March 2024, temporary price reductions increased by 72%, and overall promotions went up by 15%, according to Numerator, a data analytics company. Offers like free shipping, “buy one, get one free” deals, and order minimums are effective in encouraging consumers to “spave”.
“If you’re spending more money because now you’re focused on the deal as opposed to what you’re getting, that’s when it becomes really, really dangerous”, said Charles Chaffin, co-founder of the Financial Psychology Institute.
The personal savings rate, which measures how much people save as a percentage of their income, has been decreasing. In April, it was 3.6%, a sharp drop from the all-time high of 32% in April 2020, according to the U.S. Bureau of Economic Analysis.
“Consumers are hyperreactive to deals because they feel like they have less money than they’ve ever had. It’s just a weird mix of variables that is creating this very unique retail environment”, said Melissa Minkow, director of retail strategy at consulting firm CI&T.
While spaving can sometimes be beneficial, continuous impulsive and unplanned purchases can seriously harm consumers’ long-term financial goals. “If we incur debt we can’t repay, it will negatively impact our credit score, affecting our ability to buy a house or finance large purchases”, Chaffin added.