Emotional spending fuels buyers’ remorse for younger consumers

Consumer spending behavior is often driven by emotions rather than logic, as evidenced by trends that emerged during the COVID-19 pandemic. Emotions are again running high, driving consumers to spend more as they cope with the possibility of a recession and layoffs, according to a study conducted by Qualtrics on behalf of Credit Karma.

According to the study, 39% of Americans identify as emotional spenders, which in this study was defined as someone who spends money to cope with emotional highs and lows. This trend was even more prevalent among younger generations, with 58% of Gen Z and 52% of millennials identifying as emotional spenders. In contrast, just 19% of respondents aged 59 and above — Boomers and older — said emotions drove spending. 

"We saw every emotion driving that spending — happiness, boredom, depression and more — and many use spending as a way to treat themselves, whether they’ve had a good day or bad day,” Courtney Alev, consumer financial advocate at Credit Karma, told Retail Leader Pro.

But Credit Karma saw spending sometimes led to regret – 45% of respondents felt a sense of buyer’s remorse after making a purchase driven by their emotions, and 59% said they wanted to cut back on their spending. Unsurprisingly, those doing the bulk of the emotional spending are the ones who felt the most buyer’s remorse – 56% of Gen Z and 52% of millennials felt a sense of buyer’s remorse from emotional spending. 

“While treating yourself is a form of self-care, emotional spending can have an adverse effect on your finances,” Alev said.

Emotional drivers

Happiness is the leading cause of emotional spending among Americans (29%), followed by boredom (28%) and depression (22%). Consumers said they were more likely to spend money as a way of treating themselves when they had a good day than when they had a bad day, 46% compared to 40%.

In both scenarios, Gen Z and millennials were most likely to spend money to treat themselves. On a good day, 58% of Gen Z respondents spent money as a way to treat themselves, along with 59% who spent money to treat themselves on a bad day. Other emotions that drove Gen Z to purchase included low self esteem (24%) and a fear of missing out.

Many emotional spenders found themselves making purchases when they’re alone (27%) and as a way to treat themselves (27%). Likewise, scrolling online before bed can lead to emotional spending, with nearly a quarter of Gen Z (24%) and millennials (21%) reporting they do the majority of their emotional spending while laying in bed. Another 18% of Gen Z and 13% of millennials did so while scrolling through social media. 

Retail therapy

More than half of respondents would rather spend money on retail therapy than actual therapy to cope with their emotions (54%), according to the study. However, Gen Z bucks this trend and stated they’re more likely to prioritize therapy (54%) than spending money in a store or online. 

Emotional spending is a mood booster for more than half of consumers who spend money to cope with their emotions (54%). Respondents said emotional spending feels like: 

• Reward — 53%. 
• Distraction to take their mind off of things — 49%. 
• Gratification — 42%. 
• Stress relief — 39%. 
• Control over their lives — 29%. 
• Confidence boost — 24%.

Accumulating debt

Nearly a quarter of Americans say their emotional spending is out of control, leading many to overspend and even go into debt (24%), according to the survey. Similarly, Gen Z and millennials were more likely to admit their emotional spending was out of control, 38% and 37%, respectively. 

During the last six months, 53% of consumers said they’d taken on debt as a result of emotional spending. This number jumps to 67% for Gen Z and 66% for millennials. Based on the study, a quarter of Americans have accumulated up to $200 in debt in the last six months as the result of emotional spending. Another 18% said they’ve taken on between $201 and $500 in debt, and 10% admitted to amassing more than $500 in debt during the last six months from spending while in their feelings.

What’s next: Emotional spending may be cooling off for consumers as they shift their attention to value and savings, especially in the post-pandemic period. The industry should be strategic in finding opportunities to drive impulse or emotional purchasing through social commerce as retail purchasing becomes less top of mind for shoppers.