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CHAPTER 2

STUDIES AND REVIEW OF RELATED LITERATURE

This chapter presents the review of literature that are related to the

subject matter of this research. These literatures were taken mostly from

websites on the internet and some are on journals, books and other

publication. Research abstract published by college or universities are also

source of these ideas.

2.1 Understanding the Habits of Spending

Spending habits are often contextual. You spend the same way with the

same set of conditions. Because it’s a habit, it may be so natural and

involuntary that you don’t even realize it (Corporate Wellness, 2019).

 You always spend a lot of money right after you get paid. That might

mean taking your family out to dinner every payday.

 You always give to charity at the end of the year.

 You have a habit of spending on souvenir T-shirts on vocation.

 You always wait until the last minute to buy a plane ticket.
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1. How do Spending Habits Form?

Where do our spending habits come from? It varies, but we are largely

influenced by what’s around us. This includes:

 Observing and following the spending habits of our parents or other

significant people around us. If your mother always brought flowers

when visiting a relative, you may do that too. However, you may not

even realize it’s not what everyone does (Faith Based Organizations,

2018).

 Our culture and society. Different cultural norms dictate what

spending habits are normal. One culture may always spend lavishly on

a weeding while another culture may not spend much at all. An Asian

culture may see spending in different ways than a Latino culture.

Someone raised in great wealth may have spending habits that are

very different from someone raised poor (HR Professionals, 2018).

 One’s religion and spiritual beliefs. As a facet of culture, religion can

have a strong shaping force on spending habits. For example, to tithe

and give money to one’s church becomes a natural spending habit.

Many religions reinforce giving alms or donating to charity (Financial

Educators, 2018).

 Our own unique personalities and experiences also play a role. Two

siblings raised in the same environment may have very different

spending habits. One might be a hoarding saver while the other may
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be a free-spirited spender. This includes other forces such as gender

and the gender roles one sees and perceives (Counselors, 2018).

 The media also has a role in how we spend and save. Think about the

spending habits of the characters you saw on TV as you were growing

up and today (Financial Planners, 2018).

2. Why is it hard to break spending habits?

Imagine the path a river wears into the earth. Every day the river follows

the same path. It takes a dramatic or catastrophic event to change the course

of the river. In much the same way, we habituate ourselves to how we spend

and save. Over time it becomes more and more difficult to change a habit

because that habit has become more and more natural. The challenge of

changing you spending habits is creating a new normal. That involves

behavior change. People often try to change their behavior. One of the most

common behavior changes people seek is dieting. If you’ve spent years and

years eating the same way. It is very difficult to change that pattern. That’s

true even if you want to change, know you should, and even if you

understand what the new pattern would be (Higher Education Professionals,

2019).

3. Better understand your spending habits with money habitudes

An important part of the behavior change process is not just

understanding.

What you spend, it is also important to understand, why you spend the way

you do. It means not just doing a budget and recording your spending. It also

means examining all the factors above to put your spending habits in context.

You can’t change what you don’t understand. Money habitudes helps people

understand their money habits and attitudes because (High school

Educators, 2020).

 It makes it fun and easy to understand how we spend, save, invest, go

into debt, give to others, etc. (Youth Leaders, 2020).

 Whether its financial education for adults or teens, no one likes to just

sit at a desk and listen to a lecture. Same thing goes for worksheets

and Power points. People find many typical learning and assessment

activities to be boring. Money habitudes isn’t. (International, 2020).

 Is nonjudgmental. One thing that makes people so hesitant to think

about their spending and to talk about the way they spend and save is

that it often feels judgmental. With Money Habitudes, there is no right

or wrong answer. Instead, the goal is for people to feel comfortable

discussing and explaining how and why they spend the way they do.

(Military, 2020).

 It helps people see spending patterns and the motivations behind

them. Often people discover that they spend with restraint when out
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with one friend but spend with reckless abandon hen out with

another friend (Relationship Counselors, 2020).

 The versatile financial activity can be used on one’s own, with a

spouse or partner, or as part of a financial education group, and class

or workshop (Coaches, 2020).

2.2 Factors Influencing Spending Habits

There are various reasons and influences that affect the spending habits of

people. Among others, the following are the factors that influence habits of

spending.

1. Ethnicity

A person’s culture has a huge influence on their thought processes and

behaviors. Because it’s so influential on how people perceive the world

around them, their place in it, and how they make decisions, it tends to play a

role in determining how and why we consume goods and services.

Sometimes, it’s really obvious how culture influences buying behavior.

Cultural prohibitions against consuming products such as alcohol or meat, or

cultural preferences for styles of clothing, make it easy to understand some

buying patterns. Cultural behaviors, such as household size or the role of

women in managing households, also influence who buys certain products or

in what size. But others are more subtle. Cultural elements such as time
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orientation (whether a culture tends to focus on the past, present or future)

seem to bear influence on elements of online shopping such as trust and

social interaction. Of course, human personalities vary and that variety

encompasses the extent to which an individual takes on board the particular

influences of their culture. Indian consumers tend to be more family

orientated than western ones but that doesn’t mean there aren’t Indian

consumers who don’t make highly individualistic purchasing decisions – or

Western ones that don’t think collectively. But culture never really quite goes

away. Anyone that violates cultural norms will be sanctioned by their wider

social group, whether they choose to resist that pressure or not. Individuals

are rarely uninfluenced by this effect and it will affect their behavior. To

some extent, culture is simply what comes most naturally to a person – what

fits within their values and belief systems, and what they see others around

them doing. Culture influences what feels right, normal and desirable.

Retailers that ask consumers to swim against the social current are making it

harder for the consumer to choose their services. It’s usually better practice

to make it possible and easy for consumers to choose your product within

their cultural comfort zone. (Williams, 2019)

2. Gender Differences
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In a separate study of differences in spending habits and credit use,

Hayhoe, Leach, Turner, Bruin and Lawrence (2000) study the relationship

between affective credit attitudes and gender on purchasing habits. The

researchers introduce a multivariate model that includes variety of

purchases, financial management practices, financial stressors, affective

credit attitude, and number of credit cards with a balance (Hayhoe et al.,

2000). They use this model to analyze behavioral differences, particularly

with regards to gender. Hayhoe et al. (2000) survey college students over the

age of eighteen from six different public universities. The sample consists of

an even split between males and females, the majority of which are full-time

students (Hayhoe et al., 2000). To analyze the results, the researchers use a

logistic regression analysis when studying the effect of credit purchases and

apply an OLS regression model when studying financial practices (Hayhoe et

al., 2000). Afterwards, Hayhoe et al. (2000) use a path analysis model to

show the relationship between credit attitudes, variety of purchases, number

of financial stressors, number of financial management practices, and

number of credit cards on which the student carried a balance. As the

researchers use an exploratory analysis, they 16 first run a saturated model

where all paths are initially specified, followed by a restricted model, where

they only include significant paths (Hayhoe et al., 2000). Results show that

there is a strong influence of gender and affective credit attitudes. In

particular, financial management practices, financial stressors, affective

credit attitudes and number of credit cards differed by gender (Hayhoe et al.,

2000). The responses received allow researchers to draw conclusions about

the ways men and women vary in their financial habits. Females tend to use

credit cards on appearance goods, like clothing, while males use credit cards

for electronics, entertainment and food (Hayhoe et al., 2000). Women are

also found to exhibit more financial practices such as keeping a written

budget, planning spending and saving regularly (Hayhoe et al., 2000).

However, both genders feel that overall, they do a good job managing their

finances (Hayhoe et al., 2000). The shortcoming of this study is the lack of

testing for differences in ethnicity. The variable has proven to have

significant effects among other studies in the field and is also a variable

included in the model used for this study. While there was a large sample size

in Hayhoe et al.’s (2000) analysis, it is unclear the various backgrounds of

individuals that were captured by this study, which may provide further

understanding and examination of the results. Among various pieces of

literature, gender often acts as a strong determining factor. In a study of

money attitudes and credit card debt, women report having a self-imposed

budget more frequently than men (Norvilitis et al., 2006). Contrary to

Norvilitis et al. (2006) and Hayhoe et al. (2000), Roberts (2000) finds that

women have been raised and enculturated to find satisfaction from shopping.

Thus, they are more likely to exhibit spending behaviors, particularly

compulsive buying, as compared to men. This finding suggests that spending

for 17 females may only be greater than that of males in the context of

shopping for appearance goods, such as clothing, shoes, accessories and

cosmetics. The conclusions from different researchers focusing on gender

appear to agree on these statements across the board. Roberts (2000)

acquires data strictly from students at Baylor University, a Baptist university

in Texas. The student body of Baylor University may attract many students of

this religious demographic, which can hold certain beliefs towards spending

and saving. Researchers could have extended their research to a non-

denominational university where this religious aspect would not have been

an issue.

3. Demographic Factors

Consumer behavior can be affected by several factors. It can be different

from person to person based on his age, income, sex, education and marital

status. You can easily notice the difference between the buying decisions and

consumer behavior of two different people from different economic groups.

A person with high level income makes big ticket purchases whereas one

from lower economic strata makes small ticket purchases.  These factors are

evident at the surface. However, there are several factors affecting buying

decisions and consumer behavior. Some of these differences are easily

noticeable whereas the others might be a little difficult to observe (Abhijeet

Pratap, 2019).

Age

Age does not just affect buying behavior, it is also an important factor

affecting market segmentation and marketing strategy. Marketers segment

their target market on the basis of age. There are several products that are

marketed only to the millennials. Similarly, there are products meant for the

elderly and which meet the needs of people past their middle ages. Lifestyle

gadgets and magazines are mostly marketed to the youth or the millennial

generation. Since, the taste of this generation is vastly different and they are

more digitally inclined, this affects not just the choice of marketing strategy

but also the marketing channels used to market to them. People’s choice of

brands and products start changing as they grow older. A young man’s

choices can be vastly different from the elderly since age brings changes that

affect our flavor. An older person may have more serious choices and will be

less fun loving than when he was young. Chocolates are meant for kids and

young people. Their consumption among the elderly is much lower.  Age

determines several things and when we retire our consumption patterns also

change according to the change in income.   Elderly people are less digitally
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inclined and therefore their consumption of digital products can also be

lower.

Income

Income is a very important factor that affects the buying decisions and

consumer behavior of people.  Across different income levels, the difference

in product choices and buying patterns can easily be marked.  A person in the

middle class makes his buying decisions based on utility. However, someone

from the upper class would want style, design and special features while

making a purchase.  The channels for the marketing of luxury items are

different from those for the ordinary ones. Luxury items are mostly marketed

through luxury magazines. The level of income determines what kind of

products someone regularly purchases. A buyer with higher disposable

income will spend more on luxury or lifestyle items. People with higher

disposable income also spend more on vacations and tours. Customer service

and after sales support also become important factors when it comes to big

ticket purchases.

Education

Education affects how people view things around them. It affects the level

of discretion they employ while making purchases. In this era, education has
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also become the determinant of social class and the easiest method to climb

up in the society. The more educated a person is, the higher the level of

discretion he will employ in making purchases. People’s preferences can

change with education. Every customer is well informed in this era. However,

the more educated ones take more time before deciding a purchase.

Education affects a number of things including the fashion you wear and the

programs you watch. It affects even your choice of stationary and the

magazines you are reading. It is why same ads do not work with all

customers. Highly educated customers look for information and do not rely

on ads alone. They question the information served before them. If observed

carefully, education’s effect can easily be seen on consumer behavior. An

educated customer would weigh his options carefully before going for a

purchase.

2.3 Importance of Analyzing Spending Habits

It’s easy to put off analyzing your spending habits because it seems like a

daunting task. It can also be quite eye opening to see just where your money

is going, and how much you are spending on certain things. However, if you

don’t do it then you will be completely blind to your spending habits. It’s

difficult to try and save money when you don’t know where your money is
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going. There are so many benefits in analyzing your spending habits, (Derek,

2014):

Opportunities to save

The best thing about analyzing your spending habit, is it highlights

potential opportunities to save. You can look at the long list of your outgoings

and identify things you really don’t need. Looking at your spending also

forces you to make a note of how much you are paying for bills. If you are

paying a lot for things like car insurance or energy bills then you can look at

the possibility of switching providers to get a cheaper deal. Once you have

identified ways to save you will start noticing a difference. It’s definitely

worth discovering ways to save money, because everyone can use a bit of

extra cash.

Discover what you can and can’t afford

By looking at you spending in detail you can get a more realistic outlook of

what you can and can’t afford. Therefore you won’t be spending money blind

and not really know whether you can afford things or not.

Know where you spend the most

When you break your spending down into different categories you will see

where you are spending the most money. Break your finances down into

groups such as food, bills, entertainment, fuel, and clothing etc. so that you

can see where most of your money is going.

Set goals for the future

If you have no idea how much money you are spending and what you can

afford then it becomes impossible to plan for the future. It’s important to set

future financial goals so that you feel like you have something to aim for and

things to look forward to. Work out how much money you would have to

save and how long it would take to be able to buy the things that you want in

life.