How spaving could harm your finances.

The practice of overspending to save more has become a risky behavior for financially constrained Americans due to rising inflation and increasing debt.

Despite a decrease in inflation in April, the consumer price index remained 3.4% higher than the previous year.

Despite higher prices, Americans continue to spend.

In the first quarter, the Federal Reserve Bank of New York reported that credit card debt reached $1.12 trillion.

'Consumers are hyperreactive to deals'

To combat their narrower profit margins, retailers are intensifying promotions. Between March 2023 and March 2024, temporary price reductions increased by 72%, and overall promotions rose by 15%, according to data analytics company Numerator. Free shipping offers, "buy one, get one free" deals, and order minimums are effective strategies for enticing consumers to "spend."

Charles Chaffin, co-founder of the Financial Psychology Institute, warns that it becomes extremely risky when you prioritize the deal over what you're actually getting.

TikTok may not always be the best source of financial advice. The average consumer now carries $6,218 in credit card debt. Some women are choosing to opt out of work and embrace the "tradwife" lifestyle.

The decline in the personal savings rate, which represents the percentage of income saved by households, has been observed as people spent their pandemic savings and stimulus checks. In April 2021, the savings rate was 3.6%, compared to an all-time high of 32% in April 2020, according to the U.S. Bureau of Economic Analysis.

""The retail environment is unique due to consumers' hyperreactivity to deals, which stems from their perception of having less money than ever before," stated Melissa Minkow, director of retail strategy at consulting firm CI&T."

Unplanned, impulse purchases can negatively impact consumers' long-term financial goals, even though overspending isn't always negative.

If we can't pay back the debt, it will negatively affect our credit score, which will significantly impact our ability to purchase a house and finance large purchases.