The number of daily confirmed new cases of Covid-19 continues to rise and has confined millions of otherwise mobile Nigerians to the safety of their homes.
One consequence of this confinement is that many are probably dreaming about the vacation they will take the moment air travel is declared safe, or about that long-awaited dinner with friends when the restaurants reopen, but an unplanned splurge can dent your finances.
The heightened need to splurge is at least in part a result of the uncertainty and emotional distress that the pandemic may have caused. Here are some things you can do to keep this urge in check, inspired by an article from Nilanjana Chakraborty, a personal finance expert.
Retail therapy
In China, as shops started reopening when the worst of the pandemic seemed to have passed last month, shoppers returned to stores. A new phenomenon termed as “revenge shopping” or “revenge spending” emerged then. Having been deprived of going out to shop due to quarantine, people started making the most of this newfound freedom.
According to reports, luxury brand Hermes raked in sales of $2.7 million on the day it reopened its flagship store in Guangzhou. But the trend is likely to be short-lived and mainly in luxury segments. The trend has also been witnessed in other sectors like real estate and travel.
This kind of spending can be related to the psychological concept known as “reactance”. Reactance refers to the psychological response people have to something being prohibited or kept from them. As freedom is curtailed or choice is taken away, people are drawn more strongly to what is out of bounds.
It is this response that might partially drive the heightened need to indulge in luxuries like shopping, eating out, watching movies or travelling with a vengeance.
“During the lockdown people could not buy non-essentials or luxury goods for a long period. If they were in the habit of regularly buying these items before the lockdown, then they may overspend once things open again because they may feel the need to overcompensate the pleasure (positive emotion) of buying that was taken away during the lockdown,” said Ashlesha Swaminathan, behavioural economist and director, Subliminal Ideas, a behavioural economics research and consulting firm. But keep in mind that such indulgence can put a dent in your finances in already troubled times.
Shilpi Johri, certified financial planner and founder of Arthashastra Consulting, agrees. “The environment we live in is inherently consumerist, so this need to spend is not new. People have not unlearned their habits in the past few months, so naturally, they will want to go back to indulging in all the things they used to, as soon as the malls and restaurants open,” she said.
Fight the urge
To tackle the urge to spend, understand where it is coming from. “This behaviour is emotion-driven. It helps people feel secure while facing the uncertainty of the current situation. Uncertainty creates fear, a negative emotion. People generally behave in a manner that will alleviate negative emotions. The emotional need for security in the present overrides the need for financial security in the future,” said Swaminathan. But while there is nothing wrong with indulging in retail therapy occasionally, if shopping is the way you deal with stress and negative emotions, it can take a toll on both your mental health and finances over time.
According to Johri, given the uncertainty surrounding how long the crisis will last and to what extent the economy and job market will be hit, it’s important to conserve your resources at this juncture. “Whatever you have managed to save in these past couple of months because discretionary spends have been cut down, should be added to your emergency fund. Don’t commit to any long-term investments, as you might need the liquidity going forward. Don’t leave it lying around, or you might end up spending it once the lockdown is lifted,” she said.
Once the lockdown ends, you might feel the urge to spend on things that you have had your eye on for months. But keep in mind that the heightened need to splurge is at least in part a result of the uncertainty and emotional distress that the pandemic and its effects may have caused. Be mindful that the financial impact of the covid-19 crisis on the job market, as well as your investments, is likely to be harsh and long-lasting.
