Why Frugal Actions Lead to Increased Spending

Why Frugal Actions Lead to Increased Spending

As part of our 90 Day Frugality Challenge, we’re discovering all sorts of new things about our lifestyle and therefore, about ourselves. Luckily for us, there is a bit of behavior science out there that has studied what we’re trying to achieve. This article will break down one of these mental phenomena known as “moral licensing”, and explain why frugal actions lead to increased spending.

Focusing on frugality can sometimes feel like wandering through the desert. We often trick ourselves with mirages in the distance that are temporal and will not lead to happiness.

We have been catching ourselves on a Saturday night feeling ecstatic that we spent close to nothing (relative to our previous budget). That sounds great, but here’s where it gets tricky — we suddenly feel a need to go out and celebrate; to reward ourselves. Our week of frugal behavior makes us feel like it’s only fair for us to take a break from our overall goal.

It is an odd paradox so you can imagine my delight when I discovered something in behavioral finance that speaks to this situation.

What is Moral Licensing and Why Should I Care?

The term has been around for at least 15 years.

When it comes to the human psyche, we should be very careful because it has the power to create and destroy wealth in ways that make our W2’s jealous. The brain chemistry is a powerful force that can either be understood and utilized, or — remain unknown — and work against us.

At the very least, maybe we can find ways to trick ourselves to get our brain on our side.

Moral Licensing is an example of such a cognitive bias. We humans have a tendency to want to act in alignment with our morals and values. This makes us good. Moral licensing presents us a unique problem AFTER we have acted well.

Once we behave in a positive way, our self-esteem goes up and we feel better about who we are. We feel positive emotions as the affirmation of, “I am a good person”, takes place.

Here’s where the problem kicks in.

With an elevated self-esteem from our good actions, we then become more likely to commit an immoral act, or an act outside of our values.

In the most simple of terms: we feel we’ve been good, so now we can be bad.

To read more on moral licensing, I recommend checking out these 5 case studies performed by two PhD level academics.

To illustrate moral licensing in action, I’ll share the ending of my story.

Why Frugal Actions Lead to Increased Spending

 

After the end of one frugal week (two weeks ago), we broke with protocol and went out to dinner. It was, as mentioned already, our reaction to having had our most frugal week to date. It was a mini celebration, plus, we were travelling and just so happened to be presented with the opportunity to eat the most delicious tacos in the state of Texas.. The stars had aligned and the jalapeno infused margaritas had taken us over.

If right now you’re thinking, “If Mr. and Mrs. Distilled Dollar can’t say no to tacos, no one can!”, then you are both right and wrong. Kind of like we were when we found ourselves when faced with moral licensing. None of us are anywhere close to perfect so of course we’re susceptible to the same cognitive biases as everyone else.

Our Solution to Avoid Moral Licensing the Next Time

We thought ahead to moments like the one described above, and we came up with how we would handle the inevitable temptations along the road.

Early in the frugality challenge we were fueled by pure optimism; the newness of everything, and, of course, some stoicism reading I was doing. Alas, these emotions and tend to fizzle out.

After another week (this past week), we knew we would come face to face with another instance of moral licensing. We were ready this time.

To, “reward,” ourselves, we set up an evening of frugal activities – specifically, cooking, reading and watching television. This might sound easy, but what we essentially did was block out the entire evening to something we normally do anyway (such as watch Hulu or Netflix from our Roku which doesn’t require cable.)

By committing to activities that lined up with our goals ahead of time, we closed the door on an impromptu decision to go against those values later in the day.

We made our commitment very specific — as in we knew what meal would be cooked and what television show we would watch. By making our commitment more specific, it became harder to turn down our night of guaranteed fun for something we knew we would feel guilty about later.

We learned our lesson on what it takes to drive home a successful week. Frugality continues to inspire us and remind us what we truly care about.

I’m starting to think this 90 Day Frugality Challenge will continue into next year… 🙂 Thought I’ve yet to discuss the idea with the Mrs…. 😉

Have you had any similar experiences where activities come up as a reward for past behavior? Know any behaviors we exhibit that might ultimately lead to irrational spending? What do you do to stick to your goals even near the very end of a long week?

-Matt
Master Distiller

18 comments… add one
  • Jay Nov 7, 2016, 6:33 am

    Glad I’m not the only one struggling with this (and that there’s a dedicated term for it!) I also generally feel a pang to splurge around Saturday evening, after a week of sticking to my routines and keeping costs low. Hopefully by identifying this phenomenon, and specifically planning for it like you’ve done, we can better avoid it in the future.

    • Distilled Dollar Nov 7, 2016, 3:11 pm

      Yep – the weekend is our danger zone. I’ve also heard some people have the opposite reaction – where the weekday is their time to be careful. Either way, as long as we have awareness then we can better plan our approach to a full frugal week. 🙂

  • Amber from Red Two Green Nov 7, 2016, 7:39 am

    This is a really interesting perspective. I think it is kind of the same reason why people sometimes gain all of their weight back after going on a diet. Its the binge, purge mentality. When we feel to restricted, the rebel in us will take over.

    • Distilled Dollar Nov 7, 2016, 3:13 pm

      That’s an interesting analogy! I know when I fall off a diet, I tend to splurge on the items I wasn’t allowed to eat.

      It is kind of like that problem people have when told not to think about the purple elephant on roller skates. There’s no way you can stop that exact image from coming into your head.

  • Financial Panther Nov 7, 2016, 9:26 am

    I have the same issue with moral licensing. I’ll bike around for example and get a ton of exercise, then I reward myself by grabbing a burger or something, basically cancelling out everything I just did. Instead, I need to be rewarding myself with some healthy yogurt or some broccoli!

    • Distilled Dollar Nov 7, 2016, 3:14 pm

      Haha – I’ve done this on too many occasions. I wonder how my cooking process will line up with my tri training next year… 🙂

  • Tawcan Nov 7, 2016, 10:19 am

    Interesting perspective. Maybe instead of celebrating every week or two only celebrate once a month and set an upper limit on the spending?

    • Distilled Dollar Nov 7, 2016, 3:10 pm

      That’s a good idea in theory, but I know for us, it doesn’t work out so well. In a larger sense we are doing that exact approach anyway with our 90 day frugality challenge since we have a vacation booked in January.

      We’ll try a bit harder now to stick to that upper limit.

  • Mrs. Picky Pincher Nov 7, 2016, 10:21 am

    Oooh, care to share the taco joint to a fellow Texan? Please don’t say Taco Cabana or Torchy’s lol. 😉

    I’ve fallen prey to tacos many times before: you’ve been so frugal that week, so surely you deserve a treat. And that’s how you spend $50 and negate all of your goals in the first place.

    I think it’s important to build in positive rewards once you’ve achieved your goals, but I try to make mine non-monetary. For example, if we do really well one week, we’ll go to the library and rent a special date night movie for free. Or I’ll treat myself to an extra-long hot bath.

    You can still reward yourself for not spending money; the rewards just need to be free/cheap as well.

    • Distilled Dollar Nov 7, 2016, 3:08 pm

      Acenor – a block off the river walk in San Antonio. The taco shells were the best I’ve had!

      The rewards being free/inexpensive is what we’re focusing on now – especially during this 90 day challenge.

  • Penny @ She Picks Up Pennies Nov 7, 2016, 5:22 pm

    Hmmm…We try to plan going out around gift cards. So I pretty much hoard them. For me, the biggest shift was learning how to celebrate in different ways. Now, we keep frozen pizzas in our freezer, some of my husband’s favorite beer on hand (but out of sight) and make a night of it that way. Getting outside helps a ton, too! I also think there’s nothing wrong with planning spending as part of your frugality. We spend $200/month on groceries and we have for over a year. We give ourselves $300 in spending to cover everything from hair dyes and doctor copays to lunch out or drinks after work. $300 seems like a ton at the start of the month…but it basically limits us to one treat a week or every other week. Ideally, we bank the extra, but I’m also not going to cry about spending the full amount. And I think I still get to keep my frugal card! 🙂

    • Distilled Dollar Nov 9, 2016, 10:01 pm

      I like this! I will now adopt this a bit! We currently have a bit of a monthly “f-you” fund for monthly expenses but we seem to avoid blurring that with our food budget.

      Now that our food budget is pretty close to all out optimized, I might need to reintroduce this to keep our approach sustainable. This 90 Day Frugality Challenge will only last so long.

      How dare you say you have a frugal car…haha jk. I think that whole “are they truly being frugal…” argument can always vary depending on the individual. In the end, the race we face is against ourselves. If you’re more frugal than you were a month ago, then I say that card is well earned!

  • Mrs. PIE Nov 8, 2016, 11:52 am

    fascinating stuff.
    I remember reading an article a while ago that seemed to describe this phenomenon in terms of exercise and weight loss. the same Moral Licensing apparently makes it harder to lose weight when exercising. Something along the lines of “I went to the gym today so I can have that chocolate”. Unfortunately we’re not good at mentally balancing the good from the gym with the bad from the treat, and invariably end up over consuming calories on gym days. I can entirely believe that our brains have just as much trouble when it comes to money!

    • Distilled Dollar Nov 9, 2016, 10:04 pm

      The gym is a great example since much of the workout takes place outside of the gym. Diet & sleep/rest are critical to weight gains and performance, but they’re often overlooked. I remember my cheat days used to evolve into cheat weekends and into cheat weeks. A nasty road to walk down, especially after putting in the work upfront.

  • Daniel Palmer Nov 8, 2016, 4:42 pm

    Fascinating psych lesson! And yes, I’ve definitely fallen prey to this too.

    • Distilled Dollar Nov 9, 2016, 10:02 pm

      I like to think we all have. If anyone is reading this who has not, CONTACT ME on how to avoid this altogether 🙂

  • Liz@ChiefMomOfficer Nov 12, 2016, 3:53 am

    Ah, the bounceback. I find that I need to be careful about it, or I’ll end up doing something like saving $10 from paper towel bargains but then spending $30 eating out. I find that I need to make sure the splurge doesn’t exceed what I saved, and I try to make sure my days and weeks are full of free/cheap fun things. In fact I just wrote about how I occasionally do a “Chopped” challenge at home with my kids-it’s an evening of fun, we all get weird things for dinner, and it’s absolutely free. I find if we all feel like we’re having fun, the actual cost of the event doesn’t matter. I call it “making the ordinary a little bit extraordinary.”

  • Steve Goodwin Nov 12, 2016, 10:18 am

    What a great way to describe my weight loss program lol! I will do good things most of the week and then blow it on weekends all the time it feels like!!! It’s so frustrating! I need to set more realistic expectations for my “rewards” and stop
    tying my goals to food and maybe I could actually make some progress!

    It’s just like when you get a $5,000 annual raise and you go buy a $20,000 car to reward yourself! How is that progress? Thanks for the thought provoker!

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