Special offers like “buy one, get the second half price” and “three for the price of two” are an attractive proposition for many consumers. Though the sales may seem the perfect time to open our wallets, it’s important we know how to get the most out of them without jeopardizing our financial health.
“Black Friday” originated in the 1970s in the US as a way for shop owners to boost sales with discounts on the day after the traditional Thanksgiving holiday (on the fourth Thursday of November). It proved so successful that other countries began to jump on the bandwagon. It eventually became a key date for consumers worldwide to shop.
Behavioral economics gives us an insight into how cognitive biases enable emotions and perceptions to push logic out of the window when we make a purchase. The most familiar are:
- Fear of missing out. Though Black Friday now tends to be spread over several days (especially online), not taking advantage of a discount that is only available for a limited period can trigger a sense of missing the boat, causing us to act on impulse.
- Peer pressure. We probably buy more on Black Friday because everyone else is doing it. This is known as the cluster effect, where we make decisions that have been subconsciously influenced by others, discarding our own judgment.
- The need for now. The “present bias” is the reason we have no problem spending money on Black Friday. We see buying items at discounted prices as a reward that overshadows saving for the future or hitting a financial target.
- Price expectations. Special offers are what make Black Friday so appealing. Our temptation outweighs any real need or use we have for an item. Because we buy so as not to pass up the opportunity, it’s not surprising to find stashed away things we only bought because of a discount.
Should we buy things on Black Friday?
Tech devices, clothes, and entertainment are in high demand on Black Friday. This highlights a trend towards impulse buys that stem from emotions (cognitive biases) and not from actual necessities like food or hygiene products.
A simple trick to help control the influence of cognitive biases on our purchasing during sales and avoid getting carried away by the plethora of products we had previously no intention of buying is to draw up a list of items we’re interested in. That way, we can compare the RRP with the discounted price in shops and on websites and, ultimately, keep our spending down.
It’s also worth asking whether we would buy the product at full price at another time or if we’re going to get enough use out of it. This way of thinking will help us tell the difference between saving 40% on something useful and overspending on something unnecessary.
Every year, more people are shopping online during sales seasons. This Finanzas para Mortales (Finance for Mortals) article (in Spanish) will give you tips on how to shop online safely this Black Friday.