HAS THE PANDEMIC CHANGED OUR MONEY PSYCHOLOGY?

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By Nandita Rai, Kalindi College

The world of behavioural economics studies how humans function around the commodity we so fervently call "money". The idea behind this fast emerging field remains that human beings in fact are not spreadsheets and neither do our decisions come from formulas. Another recent discovery supporting this belief has suggested that even though the pandemic might be coming to an end we are very likely to be hit by a tsunami soon, the tsunami of wants. Wants that have increased after a year of no festivals and no outings and are more likely to increase as the deadly virus is believed to be in its final stages and as the ‘no you can’t” slowly transform into ‘yes you can’ with more than 70 percent of adults having at least one dose of the vaccine in India itself. This has led to numerous studies being conducted regarding the sudden urge that many of us are feeling to overspend, irrespective of our disposable income levels.

As the next normal continues to evolve it has been observed that India’s consumers, for example, are displaying higher levels of optimism leading to more households planning to increase their expenditure. Consumer spending has definitely increased in 2021 due to a number of factors like increasing vaccination rates, positive outlook toward the economic recovery and the general reopening of the economy. Another interesting aspect of this financial psychology is that cash usage that had already been decreasing now for over a decade saw an even steeper decline since the pandemic began as a rise in phone apps selling everything under the sky was seen with further incentives like the ‘buy now pay later’ options being considered as the preferred means of payment have also been established in the market.


Image Source: Google Images


The pandemic has most certainly altered the money psychology of the people and the way they handle their finances. Researchers concluded that consumers’ pent-up demand and willingness to spend in some discretionary categories like E-commerce saw significant increase over the last few months. While lower and middle income consumers brought in much of the increased spending through the spring of 2021 we can now see it coming primarily from higher income groups.

Along with this, economists are also working on studying our present bias, which is perhaps making us overvalue what we have and devalue what our future self might have, a trait similar to a person with a credit card on vacation who might not be carefully considering the future repercussions of his present actions.

A lot of people assume that this theory does not apply to them and their consumption levels are not likely to be affected by the pandemic but that too could be a sign of their restraint bias talking, the bias that makes us overestimate our ability to resist impulsive behaviour.

Another bias that came into action since the pandemic became a part of our lives was the availability bias which causes the formulation of an illusion in our minds that the more we see something, the more likely it is for that thing to occur and vice versa. The pandemic caused our sense of availability to be reset. For example we acted as if movie hall tickets were completely scarce just because our availability analytics were reset around it which made us consider it as an option. Our entire sense of what is available and what is normal has been skewed since the virus outbreak.

These biases that distort our thinking and influence our beliefs are known as cognitive biases and another group of people studying them are the marketers who are well equipped by now to know when and where to poke them. The capitalist society has trained people into believing that for every problem we might face, there is a product out there to fix it. This temptation to solve any past traumas caused since the lockdowns were imposed could also lead to a lot of unhappy customers overspending just in order to feel better after the horrific scenes of the recent months.

Hence to avoid financial danger while still trying to reconnect with reality and enjoying the present wave of freedom it is advisable to set aside some cash now for your future self which can be described as ‘safe to spend’.

Just as biases are not essentially bad, spending does not have to be too if done slowly and without causing a crisis. After all, our spending is going to be one of the key components alleviating us from the Covid-19 inflicted financial suffering.


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