With headlines and news updates continually reminding us that we’re in an inflationary economy, it’s hard not to be at least a little bit concerned about what financial challenges might be ahead. You’ve probably already made new spending choices at the grocery store where rising prices on even basics like eggs are enough to take away your appetite. But if you’ve found yourself still splurging, maybe on a spring break trip or on the latest running shoes, for example, but then reaching for the cheap dried ramen packs at the grocery store or forgoing that afternoon latte because it seems too expensive, you may be suffering from revenge inflation spending.
Revenge inflation spending occurs when we become overwhelmed and exhausted with the stress of continually looking for ways to economize, and yet even so, make the decision to splurge on something. The choice to splurge, while not budget friendly, may be important in other ways, helping us, for example, to remember that despite the shrinking buying power of our disposable income, we still have some level of control. It also helps us to better understand an economy where the vast majority of people are worried about the effects of inflation on their finances, yet revenues at companies selling luxury goods are up sharply. So, if you find yourself shopping at the dollar store for sunscreen for your upcoming trip to the Caribbean, or running in your new $200 shoes, past your favorite coffee store without stopping because you don’t want to spend $3 on a latte, ask yourself how today’s economy is affecting how your brain is calculating reward values for your spending choices.
Discussion Questions:
1. Have you engaged in revenge inflation spending? Explain. How are you dealing with the conflict it creates? Where have you economized? How have you splurged?
2. Consider the implications of widespread inflation revenge spending on the broader economy. How could different economic sectors be affected? Which are likely to benefit, and which are not? How can companies capitalize on the phenomenon?
3. Reflect on the recent actions by the Federal Reserve to cool the U.S. economy. What do you expect the Federal Reserve to do next? Discuss how future policy decisions could affect current spending patterns.
Sources| WJS: https://www.wsj.com/articles/inflation-spending-luxury-travel-clothing-food-11674502204, https://www.wsj.com/video/series/daniela-hernandez/inflation-brain-why-you-seesaw-between-splurging-and-penny-pinching/38E64AFC-EB4E-43A1-89BB-5E524EEA5CDB, https://www.wsj.com/articles/consumer-spending-personal-income-inflation-january-2023-eeffc9ba?cx_testId=3&cx_testVariant=cx_164&cx_artPos=0&mod=WTRN#cxrecs_s; CNN: https://www.cnn.com/2022/04/22/economy/stocks-economy-revenge-spending/index.html; Unsplash: https://unsplash.com/photos/Q59HmzK38eQ