Consequences of Impulse BuyingPosted on by steve.jones
When your family doesn’t have a budget in place and daily spending is not monitored and tracked, it can be easy to find yourself purchasing items that are unnecessary, or at least not essential. These purchases are often called “impulse buys” and in today’s economic climate, when money is tight and household budgets are stretched to the breaking point, the consequence of these “impulse buy” can have severe ramifications for any household. Personal debt loads in Canada are at historic highs and impulse buys can add up to cause serious debt and financial problems in both the short term (broke until your next pay cheque) and long term (reach the point where you can’t pay your monthly bills).
A recent report from the Bank of Montreal (“BMO”) indicated that 59% of Canadians spend impulsively (click here to see the full story). What was more worrisome in the BMO report, however, was that 43% of consumers spend more than they earn, adding to their debt problems with every purchase. As a result, 23% of Canadians were unable to purchase an essential item or something they actually needed because they had bought something that did not need. High income households can be just as likely to fall prey to the “impulse buy”, as another statistic showed that 19% of households that earn over $100,000 per year could not afford something they needed because they had spent the money on something else.
The report indicated that “impulse buys” are often made to make us feel better, or because the item is on sale; however, the report stated that some these items that are purchased are never used. The study lists the following items as the most common types of “impulse buys”:
Overall Men Women
1. Clothing 1. Dining Out 1. Clothing
2. Dining Out 2. Clothing 2. Dining Out
3. Shoes 3. Magazines & Books 3. Shoes
4. Magazines and Books 4. Shoes 4. Magazines & Books
5. Movies and Music 5. Software 5. Cosmetics
Another statistic indicated that 31% of Canadians have been forced to borrow money, take out a loan and/or use their credit cards to support a non-essential purchase. This becomes problematic when you start paying interest on the borrowed money. Is this interest payment taken into account in your budget and if it is not, where is the money coming from to pay the additional interest costs? Also, if you are using your credit cards to support these purchases, you are often incurring extremely high interest rates. Interest rates in the 18-20% range profoundly worsen (or create) debt problems and make getting out of debt a much steeper hill to climb in order to take control and regain financial stability
In some cases, debt help professionals frequently see some consumers using one credit card to make minimum payments on another credit card! Many actually think this is a ‘good idea’, as they incorrectly believe their credit rating won’t be . by using this strategy. When this approach is used to make monthly bill payments, an “interest death spin” has started whereby the person is now paying interest on interest. Most of the time, it is highly unlikely that this spin can be corrected and the person will have sufficient income in the future to pay off all your debt.
At this stage, debt problems can reach a critical point very quickly affected the family in numerous ways. When debt warning signs like this appear, it is recommended that people get accurate, legitimate information about the options that exist in their individual circumstances to legally solve their debt trouble and take control of their future.