“Wow…my brother has bought a new luxury car… maybe I should change my car too…”
“My colleague has upgraded to the latest model of smartphone…it has all these fantastic features…I want one too…”
“My friend has bought the latest designer handbag … I’d better buy one too otherwise I’ll look so uncool next to her!”
“My neighbor is renovating and has ordered the latest kitchen solution for her kitchen… oh no, now hers will look so modern and mine will look so old and shabby… I think I should renovate my kitchen also …”
Yes, these are the symptoms of a very common “illness” afflicting the average middle income Malaysian household… an illness known as “the Spending Syndrome”.
This serious illness causes the victim to attach overly high importance to status, appearance and “keeping up with the crowd”, and insufficient importance to prudent financial practices designed to build up their financial net worth over the long term.
As a result, the victim is easy prey for slick marketing campaigns and feel-good advertisements.
Unfortunately, the prognosis for this illness is, poor… that is, you would probably end up much poorer in terms of your cash balance at the end of the month after falling victim to it! ?
Now, it is not to say that you should not buy new cars, new smartphones, cool gadgets, designer bags or renovate your home to look like something out of a interior design magazine. Of course, we should feel free to do so – after all, we work hard for our money and life is short. We should not deny ourselves happiness and pleasure but should pursue our interests and desires to the best of our ability.
But…(and there is always a but) we should be mindful of the consumer spending trap which lies in wait for victims of the Spending Syndrome. The trap is called consumer debt.
Avoiding the Consumer Spending Trap
So, what‘s wrong with getting into debt to buy those attractive nice-to-have consumer goods that make us feel so good about ourselves?
The answer is that consumer goods are not assets. Unlike acquisitions of property or investments which also involve getting into debt, consumer goods do not appreciate in value – and there is usually minimal resale value as well (with the exception of collector’s items or limited editions, but even these need to kept for a long time before they could be said to have appreciated in value).
So, we cannot view consumer debt as “good” debt.
Truth is, consumer goods start losing their value the moment you buy them. So although we may confident that we can afford the item, we need to probe deeper into our financial position and analyse it in more detail, before we conclude that we can afford the item.
Is it affordable
Think about this. Does “being able to afford the item” mean “Yes, I can easily buy it as long as I max out my credit
card and then just try to pay back the minimum repayment every month” or “Yes, it is easily affordable, as long as I obtain private financing from the bank and pay back a huge portion of interest every month” or worst of all…”Yes, I can afford it, my Ah Long will easily be able to advance me the money…”
(OK, this is a joke… most people would not resort to the Ah Long method of financing just to purchase a luxury car or renovate their home?.)
But back to the questions – the answer is that being able to afford the item should not involve any of the above.
Instead, being able to afford it should mean that you don’t need to go into debt to acquire the item, and neither do you need to dip into funds which were earmarked for something else – be it payment of a bill, your insurance policy renewal, repairing the brakes on your car, paying your home loan repayment or even contribution to your kids’ long-term education fund.
What’s being really able to afford it?
Being really able to afford it means that you are able to allocate the funds to buy it, without the expense impacting your savings, investment or debt financing portfolio in any way. It means that you have sufficient funds to buy it with more than enough left over for your other commitments.
Unfortunately, most average wage-earners in the middle income bracket, do not fall into this privileged category. Wages have not risen in tandem with the cost of living in recent years. As a result, middle income households have had to tighten their belts. This is especially so for fresh graduates just starting out on the career ladder, and the 30-and-40 something group who are married with young and teenage kids. There are usually already, far too many financial commitments relating to basic needs such as food, housing, clothing, education and transport every month for these groups, to be able to save anything at the end of the month at all.
What this translates to for you and me, is that the purchase of consumer goods is a luxury that we probably cannot afford. We may think we can, and we may want to buy the item so much that we feel that we “need” it, but such purchases are often at the cost of long-term savings or investments, and result in a negative cashflow impact.
So the next time you are faced with temptation to buy an expensive consumer item, think carefully. One useful tip is to postpone the purchase until you have had time to evaluate your finances in more depth. Once the initial “excitement” has worn off, you may be in a better position to make a more financially prudent decision.
Always shop smart and be prudent.