Did you take a short vacation recently? If so, did you spend more money than you were expecting to during your vacation? Most of us have similar spending experiences. What explains our spending behaviour during vacations?

You typically take a vacation with your family after a continual period of hard work in the office. You, therefore, believe that you are entitled to splurge on luxury products and services.

Psychologists call this self-licensing. In other words, you are spending more on vacation not because you do not have self-control but because you believe you deserve a treat.

But not all of us experience the self-licensing effect. You and your spouse may actually agree to be careful about your spending decisions during the vacation. Yet, you will most likely let loose your purse strings when you go vacation-shopping. Why?

Switching state Picture this. At the start of the vacation, you and your spouse may decide not to buy new clothes. But what if you both spot a generous discount sale of your favourite brand when on vacation? You will most likely indulge.

The reason is what psychologists call as hot-cold empathy gap. You took a decision not to buy when you were in a “cold” state — a state when you did not feel the urge to spend. So, taking the decision was easy.

But you switch to a “hot” state when you observe a discount sale — a state where you feel the urge to act on your desire. You can also suffer from what psychologists call shopping momentum. That is, you weigh the costs and benefits while making your first purchase decision during the vacation.

But subsequent purchases become easy because the brain fails to switch-off from the initial buying decision.

Reducing spending The question is: Can you reduce your vacation spending? If you are spending because of the self-licensing effect, you need to re-evaluate your decision. But if your spending decision is driven by hot-empathy gap and/or shopping momentum, you are suffering from self-control issues. So, what should you do?

You should find ways to prevent yourself from making impulsive purchases. Suppose you are interested in an expensive tribal painting. Walk away from it first. Why?

Taking time to decide on the purchase can help you in two ways. One, when you distance yourself from the object that you touch and feel, your desire to own it may reduce. Call it dampening the endowment effect. And two, the shop may have sold the painting by the time you decide to spend. Either way, you would have avoided spending. Of course, walking away from the object you desire is not always easy.

(The author is the founder of Navera Consulting. Feedback may be sent to >knowledge@thehindu.co.in )

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