Having scrimped and saved these past few months it’s only fair to have dinner out tonight, right?
Are you truly meeting your financial goals or does it just feel that way? If your savings account is not robust (despite your efforts) you may be experiencing what is known as The Licensing Effect.
The Licensing Effect is granting yourself permission to indulge based on the availability of goal-related options as well as previous self-concept boosting decisions. It occurs when we perceive that we are achieving a goal (saving money) and move on to the next goal (eating a delicious meal).
According to Psychology Today, a study conducted by Beth Vallen, a professor at Loyola College in Maryland, showed that an individual can experience goal fulfillment by merely having the option to behave in line with a goal, rather than doing the work to achieve it. (Wilcox, Keith, Lauren Block, Gavan J. Fitzsimons, and Beth Vallen (2009), “Vicarious Goal Fulfillment: When the Mere Presence of a Healthy Option Leads to an Ironically Indulgent Decision,” Journal of Consumer Research 36 (October), 380–93.)
Vallen studied The Licensing Effect within the context of healthy eating goals.
Presented with a menu that included french fries, chicken nuggets, and a baked potato participants (who rated high in self-control) typically chose the baked potato. But when the menu included a salad, in addition to the fries, nuggets, and potato, participants ultimately chose the deep fried potatoes slices. Rather healthy individuals chose the least healthy option available when a salad was present.
Having the option to spend less may be enough to put your mind at ease and enable you to spend more than intended.
The mere presence of bargain items may prompt you to get the luxury item instead.
The Licensing Effect also occurs when taking a step towards a goal and subsequently taking a step (or two) back by later granting oneself permission to act in a way that does not support the goal. Previous decisions affect future choices. In a research paper titled, “Do Green Products Make Us Better People?” the authors found that people exposed to green products showed greater concern for the welfare of others. Those who actually purchased green products, however, were shown “more likely to cheat and steal”. Having satisfied the desire to do something good for the planet it was then okay to take a little off the top.
What does this mean for financial health?
It appears that by shopping at Bargain Store, Inc. with its multiple dazzling signs of “Savings, Savings, Savings!” the odds of spending outside of your budget go up (not down). And while attempting to pay off debts, clipping coupons, and saving for the future, you may wind up purchasing “rewards” that set you off course.
Yes, it’s okay to say, “I’m worth it!” now and then. But make sure this is not happening too often.
How often is too often? That’s up to you and the financial goal (or goals) you set. Studies, like those documenting The Licensing Effect, continue to emphasize that the mind is an amazing beast. We may think we have it tamed, but it’s always going to be a bit wild. Tracking spending habits is a great way to remain objective when evaluating true progress towards financial goals.