By Teresa Rivas
America runs on shopping -- and the urge to splurge is what keeps the economy going. Yet there's a dark side to the equation, even over the holidays.
Zoe, a 40-year-old from Alabama, struggled with compulsive buying for nearly her entire adult life. When she blew through $30,000 that wasn't hers to spend in just a few months, she realized she had to get help for her addiction.
The money represented her household's life savings -- an insurance payout after a car accident and her husband's liquidated 401(k), earmarked for him to return to school. Yet instead of securing reliable transportation and paying tuition, Zoe spent most of it on small things she didn't even remember buying. She often shopped half-asleep online at 4 a.m. or splurged at her local Dollar Tree. The spending has caused problems in her marriage and, Zoe says, altered her life forever.
"I bought things that weren't needed; I always went for quantity over quality," she says. "People downplay it like it's not a big deal, but it is."
Zoe isn't alone. Americans are expected to spend as much as $5.28 trillion at stores in 2024 on everything from Ugg boots to the videogame Halo 5. Consumer spending accounts for about two-thirds of U.S. gross domestic product. Those dollars cover everything from factories to advertising to store clerks. The strength of consumers and their willingness to spend separates the U.S. from just about every other country.
Shopping has never been easier -- and that can be a problem. Retailers keep finding new ways to feed the urge. Affiliate links and algorithms target consumers, Buy Now buttons make buying as frictionless as possible, and older methods like emails and texts provide constant nudges. Instagram, TikTok, and other forms of social media sell the dream of a perfect product leading to a perfect life. The problem is particularly acute among Gen Z and millennial shoppers, with one-third admitting to being addicted to shopping, according to a 2024 survey conducted by Qualtrics for Intuit Credit Karma.
The result is an increasing number of shoppers like Zoe, who burn through cash they can't afford to spend. While that may be good for the economy -- retail sales climbed a stronger-than-expected 0.7% in November -- it further endangers the finances of millions of Americans already reeling from inflation and mounting debt.
"We can see people going into greater and greater debt for seemingly nonessential goods, and we can see impulsive buying behavior going up year by year since Covid," says Monique Moore, a psychologist and founder of DC Psychological Wellness Group. "Social media makes people feel insecure and then sells them the 'solution.' "
Shopping addiction is defined as excessive and uncontrollable purchases despite severe psychological and financial consequences. It isn't in the Diagnostic and Statistical Manual of Mental Disorders, the American Psychiatric Association's professional guide to mental health -- at least not yet -- but psychiatrists have recognized it as a prevalent mental health disorder that shares many similarities with eating disorders and other addictions. Its lack of formal classification may be due to its overlap with other disorders and a dearth of research in the area; experts Barron's talked to all noted that it's understudied. A spokesperson for the National Retail Federation says it "is not a topic NRF is tracking closely."
The lack of attention to compulsive buying makes obtaining firm data on the people impacted impossible. Some 5% of the population is a safe estimate -- above the 1% who are addicted to gambling, but less than the 10% suffering from alcoholism -- as psychiatrist and researcher Donald Black wrote in his 2022 review of the topic. The number, though, could be higher due to outdated outreach methods that aren't as effective at polling young consumers and to the pandemic, when compulsive buying increased. Debtors Anonymous told Barron's that while it doesn't keep membership records by design, "there has been a general sense that our membership grew sharply during Covid" and remains elevated.
Yet even if it stands at just 5% of American adults, that is still nearly 13 million people grappling with shopping addiction. Additionally, Moore and other experts have said they have seen a significant increase in impulsive purchases in recent years, thanks to the effectiveness of algorithms. It's even more pronounced among Gen Z, with 39% saying they find affiliate marketing at least moderately influential on their purchases, according to eMarketer, compared with 35% of millennials, 25% of Gen X, and 16% of baby boomers.
Some may argue that compulsive buying amounts to a lack of financial literacy and poor choices. Yet the reality is that it's no longer a fair fight. Retailers are gaining more advantages at a faster clip than ever before. Not only can credit-card numbers be stored and deployed with a click, but more shopping is taking place on smartphones, where research has shown impulse control is weaker. The constantly improving algorithms on social media also make buying more challenging than ever to resist by design, as they have been proven to keep us scrolling longer and have themselves become addictive. In short, it has become a David versus Goliath situation, and the giants are getting stronger.
"These platforms are getting better at pushing people when they're feeling down and anxious; they're exploiting them when they're at their most vulnerable," says Moore. "We think we're in control, but we're not."
There's a broader economic toll to consider as well. Gen Z is already facing significant obstacles to retirement, and with Social Security projected to face shortfalls in the next decade, the rise of compulsive shopping could endanger millions of Americans' future financial security. More immediately, in the third quarter, the share of loans in some stage of delinquency climbed to 3.5% from 3.2% in the second quarter, while household debt rose 0.8%, or $147 billion, to $17.9 trillion, and credit-card balances jumped $24 billion to $1.17 trillion. Moore contends that compulsive shopping exacerbates these problems.
Thus far, little criticism has been directed at retail's use of these technological tools. What looks like risky behavior caused by the "gamification" of stock trading or gambling looks like convenience when it comes to buying the things people want and need. The Buy Now button has made purchases easier than ever. At the same time, the rise of "buy now, pay later" -- which Adobe Analytics expects to jump more than 11% to a record $18.5 billion in sales this holiday season alone -- means purchases can be made on credit without the limits of a credit card or the need for a credit check that could potentially restrain spending. Even being a member of Amazon Prime has been shown to increase impulse buying, according to some academic research.
"Our whole world is set up to create impulse shopping," says Megan McCoy, assistant professor of personal financial planning at Kansas State University.
Then there's affiliate marketing, in which third parties endorse products in return for a commission. It's a big business, with eMarketer estimating that such spending will hit nearly $11 billion this year and jump to $16 billion by 2028. It's also becoming a fast-growing source of revenue for media companies. On its third-quarter conference call, the New York Times Co. predicted that "other revenues" would increase by 11% to 13%, as Wirecutter affiliate revenue would "continue to be a strong driver of growth." BMO Capital Markets senior analyst Simeon Siegel says affiliate marketing is increasingly important for retailers as a tool of brand discovery, particularly when relying solely on direct-to-consumer marketing is too complex and costly. Given the ubiquity of social media, affiliate sales "can be another path to finding customers," he says.
Moore, the Washington, D.C., psychologist, also worries that these powerful tools are primarily used by companies whose main agenda is selling more. "They're amassing massive amounts of data that help them to understand the psychology of shopping, but the data isn't shared with healthcare professionals or the individuals using the websites," she says. "We don't know what they know about us. We don't know what these predictive algorithms are, what predictive behaviors they're identifying in us."
Apps and retailers don't put the brakes on compulsive shoppers either, because they are hard to identify and there's no legal requirement to do so. Walmart and Target told Barron's they don't. Buy now, pay later firm Affirm Holdings said it "assesses risk down to the individual transaction level," while peer Klarna said it has "measures in place to ensure responsible spending and lending practices." Amazon.com and Meta Platforms, the parent of Facebook and Instagram, didn't return requests for comment.
The Federal Trade Commission requires online publications to reveal when they use affiliate links but doesn't dictate the inclusion of addiction resources, akin to those on gambling websites. And even shoppers who do seek help are unlikely to get what they need, says Michelle Kruger, director of financial planning at Gratus Capital. "Someone dealing with compulsive shopping may think they need a financial planner, but the one they see is probably not equipped to handle that situation," she says. "But anytime they bring up money to a mental health professional, it comes out as something like, 'I have a large amount of debt,' which the therapist doesn't feel qualified to address."
Other research shows that it's a reasonably gender-neutral problem, can run in families, and can be linked to intergenerational trauma. "Compulsive buying happens when shopping becomes your only coping strategy when you're hurting; it becomes your drug of choice," Kansas State's McCoy says. "And compulsive shopping can happen when we see addiction switching. People start shopping after they stop drinking."
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December 19, 2024 01:00 ET (06:00 GMT)
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