As mentioned in some previous blogs, it’s not surprising so many people don’t follow the first of the 3 rules of wealth:
Spend Less Than You Earn
The reason people don’t follow this important rule is that companies spend millions, collectively billions, on marketing to get us to spend our money. Many of these marketing tactics use psychology so we don’t even realise that we are being convinced to spend our money.
In this blog, I want to highlight 5 clever marketing tricks companies use to get us to spend more money. I hope that you tell your kids about them. The more our kids know about them, the less likely they are to fall prey to them when they are older.
The tricks referenced in this blog are different from the ones highlighted in Grandpa’s Fortune Fables (‘The Trip To The Village Story’).
After reading this blog, you can learn: 5 Tricks Supermarkets Use To Get Us To Spend More
5 marketing tricks to avoid
ONE: The sunk cost fallacy
Have you ever rented a movie, then within a few minutes of watching it you knew it was a poor decision, however, you’ve kept watching it until the end as you’ve already paid for it?
This is the Sunk Cost Fallacy. As we have purchased something, we need to use it, even if we don’t like or need it anymore to ‘get our money’s worth’. Companies know this and use it to their advantage.
A classic example is Amazon Prime. Part of the monthly subscription fee includes delivery costs. Lots of people will feel as they have already paid for delivery they have to use it. As a result, they will buy more things they don’t really want or need to get a sense of fulfilment from using the delivery costs they have already paid for as part of their subscription.
We need to make sure our kids are aware of this fallacy so they feel comfortable in abandoning sunk costs rather than spending more time or money on something they don’t really need or want.
TWO: Exclusivity
Have you ever gone into a high-end store and felt the staff looking down on you? You get the impression they are thinking “They probably can’t afford anything in here and won’t buy anything so I’m not going to waste my time helping them!”
This mindset works exactly in the favour of the store. Potential customers are made to feel they aren’t part of the exclusive club so end up wanting to prove they can afford to be part of it by buying something.
We should make sure our kids understand that companies use the notion of being part of an exclusive club to help sell more of their products. The more our kids realise this approach is actually just a simple marketing tactic, the less likely they will want to be part of the club.
[I note that I have no evidence to say that sales staff are trained to give the impression they are looking down on people].
THREE: Clever Wording Trick
Have you ever been tricked into buying an expensive version of something due to some fancy wording?
For example, a lot of people will pay a lot more for something that says ‘organic’ on the packaging. This is because they believe the food has been grown naturally and free from many chemicals. In some cases , sadly this isn’t true, they just use a slightly different chemical.
The same can be true for ‘free range’ eggs. We believe ‘free range’ eggs come from chickens that are running around a big field, free and having a happy life. In truth, in cases chickens are squashed inside a big barn with a very small outdoor area which only a handful of chickens can fit in to at any one time. This isn’t always the case such as if you buy eggs direct from a farm, but can be the case for mass produced eggs sold in many big supermarkets unless you really drill into the packaging’s fine print.
I’d encourage you to watch the documentary Super Size Me 2: Holy Chicken. It’s really interesting to see how the wording and the reality differ for many products.
It’s not just food. People spend a lot of money buying expensive painkillers as they believe they will work better to target specific areas such as headaches or, work faster. However, some tests show that unbranded painkillers (with the same amount of paracetamol or ibuprofen) can work just as well.
We need kids to know that companies understand we want products which are better for us and the world. They will therefore use wording to imply their products do just that. A little bit of research will save our kids from spending a lot of money on expensive items which don’t add much value compared to buying the generic version.
FOUR: The IKEA effect
Have you noticed that when you construct something you value it more? This is called the IKEA effect.
This is why Subway restaurants are so popular - we get to construct our own sandwiches.
With technology, more companies are using this IKEA effect to get us to spend more money. Go to a car website and you can construct a car to your liking. Computer games also use this as you can create your own characters. Even companies like Nike allow you to customise your own trainers, for a premium.
Let your kids know about this effect so they are aware that companies are trying to get us to spend more by offering to allow us to self build.
FIVE: Loyalty cards
Have you noticed that once you sign up to a loyalty card, your inbox starts to be filled with ‘special deals’?
Companies know that developing a large email list is worth a lot of money. This is why they are willing to give discounts to people who sign up to a loyalty card. They use email addresses and spending habit history to target individuals with tailored deals to get them to spend more.
Companies who want your email address want it so they can sell to you in the future. Make sure your kids know this so when they grow up they are protective of giving away their email addresses to companies.
Personally, I have a separate email address I use for companies. I turn off all notifications so that ‘special deals’ never pop up and therefore I avoid the temptation to spend.
Two tips for overcoming these tactics
Whilst knowing about these different tactics can help your kids avoid falling prey to them, we have to remember that just knowing something doesn’t stop us from acting a certain way (the G.I. Jo Fallacy). Also, there are so many different tactics being used by companies that I’ve not listed in this blog.
We therefore need to help our kids form two really important habits so that they can follow the first rule of wealth: Spend less than you earn
1. Saving before spending
Help your kids form the habit of saving at least $1 out of every $10 they receive EVERY TIME THEY RECEIVE MONEY. This habit will ensure that some of their money is protected from these clever marketing tactics.
2. Delaying spending
The other important habit is to get your kids to delay spending on things they want to buy. Most marketing tactics focus on getting us to spend right now. If we help our kids form the habit of waiting to buy, even by a day or two, it will allow our kids to realise that they might not really want or need the item.
Summary
Our kids will be bombarded by very clever marketing tactics (as we all are) so we need to make sure our kids are aware of these to give them a fighting chance.
I hope you tell your kids about the 5 clever marketing tricks companies use to get us to spend more money.
The best way to defend against these tactics is to get into the habit of:
Saving before spending
Delaying spending
Remember, kids form many of their money habits by the age of 7, so help them form these habits from as young as possible.
I’ll be writing another Fortune Fable about spending in the coming weeks, so make sure you subscribe below so you don’t miss it.
Thanks for reading,
Will
p.s. Help your kids learn about money with a copy of Grandpa’s Fortune Fables. Get your copy here or buy at a wholesale price for friends, family and your local school here.
