Why do we spend more than we earn?

Grandfathers and grandmothers are often remembered by proverbs such as “Justice takes time, but it does not fail”, “a stick that is born crooked, dies crooked”, “beauty is not set at the table” – sentences with a moral basis, given as a guide to the new generations . Paula Caldeira, 46, however, remembers receiving unusual advice from her grandmother, Adelina: “Buy now, we’ll see how you pay later.”

Today Paula is going through financial constraints. A micro-entrepreneur, she had a buffet that broke during the pandemic. With debts, she was forced to look for a steady job and today works as an advisor at an educational institution.

You have not renegotiated all debts, 20% of your salary goes directly to part of the overdue debts, your name is still on the SPC (Credit Protection Service) and, due to your low score (score that indicates the payment of the payer) on the market, he only had a single credit card, with a low limit.

Paula doesn’t blame her grandmother, but she knows that she never learned to deal with money. “I don’t weigh the consequences of my expenses”, she says, who is still trying, with a partner, to resume catering services.

She has already considered suffering from “financial phobia”: a term created by British psychologist Brendan Burchell, a professor at the University of Cambridge, in the United Kingdom, to indicate who is repulsed by any contact with their own finances and suffers physical discomfort when forced to. To this.

“Just thinking about my debts makes me have heart palpitations and a cold sweat,” says Paula.

Regardless of having the phobia or not, Paula joins the team of Brazilian debtors, which has been growing month by month. According to the most recent survey by the CNC (National Confederation of Commerce in Goods, Services and Tourism), anticipated for the Sheet, in August of this year, the level of indebted households hit a new record: 79%, against 78% in July. In August 2021, it was 72.9%.

Last month, 29.6% of Brazilian families were in default (compared to 25.6% a year ago), while a slice of 10.8% admit that they will not pay their debts (10.7% in August of 2021).

Society is still facing the effects of the pandemic that has paralyzed most economic activities. In the resumption, many businesses did not return to the same pace as in 2019, before Covid. But economists and experts in financial psychology believe that the current crisis is not the main reason for the population’s indebtedness.

After all, why do we spend more than we earn?

We weren’t trained to make choices

“Money is a painted paper to which we give life and is capable of buying much more than goods and services”, says Paula Sauer, economist and master in administration at PUC-SP, doctoral student in consumer behavior at ESPM.

“It tells others your social status and gives you freedom of choice: from what you eat for lunch to the decision to leave an abusive marriage or a job that makes you unhappy,” he says.

In this context, she says, it is natural for people to associate money with the achievement of happiness. “But our resources are finite, while our desires — or what advertising and social media sell as our own — are infinite.”

“At the same time, we are not trained to make choices. But we observe the relationship that people we admire have with money. We will imitate their behavior or, conversely, avoid it, if we see any distress involved.”

For Vera Rita de Mello Ferreira, PhD in social psychology from PUC-SP and specialist in economic psychology, the high level of indebtedness of the population shows how much we are not prepared to deal with money. “This creates a tension that often leads people to make the wrong choices. From falling into financial scams to impulse buying when they don’t have the money.”

According to the specialist, president of Iarep (International Association for Research in Economic Psychology), and who heads the consulting firm Vértice Psi, in São Paulo, money is always loaded with emotional representations.

“People spend more than they earn because of desire: you are dissatisfied, but you come across a product that enchanted you. At the time, you think: ‘This is what will bring me happiness, relief’. And buy”.

10 BRL 10 notes versus 1 BRL 100 note

The specialist in economic psychology also draws attention to the “mental accounting” that people adopt in order to fit a new account into the budget.

“What usually lasts longer in the wallet: 10 R$10 bills or 1 R$100 bill? Certainly, the R$100 bill”, he says. “We have great difficulty in linking current spending with its future consequence. You spend several R$10 bills, thinking it’s just a note. Hence the indebtedness with purchases in installments”, she says. “It’s like the smoker, who says he’s going to smoke ‘just one cigarette’, but ends up with the pack.”

Vera also draws attention to the abundance of credit available, which gives the feeling that a person can do anything. “Economic psychology says that the problem of credit and indebtedness are two sides of the same coin. A person will only go into debt if he has credit. If no one offers, he does not go into debt.”

It is not by chance that the CNC survey pointed to an increase in debt on cards and store booklets. The increase occurred mainly in the higher income group: 16.8% of families earning more than ten minimum wages have debts in this modality (against 13.8% a year ago). Among those earning up to ten salaries, 19.8% have debts in store booklets (compared to 19.1% in August 2021).

“With the rise in interest rates, families are looking for cheaper alternatives to the traditional credit card”, says Ízis Ferreira, economist at CNC. “People are getting into debt for a little shorter time, about 6.9 months now, up from 7.3 months a year ago,” she says. “On the other hand, long-term indebtedness, for goods such as cars and houses, has been falling”.

Why do we work?

In the opinion of administrator Diogo Angioleti, a specialist in finance and behavior at the Ailos credit union system, when buying superfluous items, people take shortcuts to deal with their own frustrations. “We think we know how to handle money, but we weren’t educated to do that, and we end up more and more indebted and frustrated.”

The way out is necessarily through financial education. “The BNCC [Base Nacional Comum Curricular] included, at the end of 2017, financial education among the transversal themes that should be included in curricula across the country. But more needs to be done, discipline is not on the mandatory axis”, he says.

For Angioleti, by bringing the topic into the pedagogical context, it is possible to help the next generations to break the taboo of talking about money, something that has strong historical and cultural roots.

The first thing to do is to demystify this idea at home, says Paula Sauer.

“When a child asks their mother or father why they have to go to work, the answer is not ‘to have money to buy food, toys, rides,'” he says. “If you answer that, the child will associate work with something painful. The correct thing is to say that he will work because he likes what he does, because he will help other people in some way, and that he will also get some money to do it together cool stuff.”

Mariana Rocha, chief marketing executive at fintech Mozper, agrees. “Children need to understand that work is fun, but it’s not going to give them all the money in the world,” she says.

The startup’s proposal is to help parents educate children and teenagers to make responsible financial decisions, starting with the adoption of a prepaid credit card, administered via the app by an adult.

“But there is no financial inclusion without education. It is not enough to give a card, it is necessary to teach how to deal with money”, says Mariana.