Overspending

Overspending is spending more money than one can afford. It is a common problem when easy credit is available. This can also be called 'investing' in the public sector when infrastructure payments exceed actual calculated cost.^[1]

Causes

Some overspending is a form of addictive behaviour due to psychological dependence.^[2] The sufferers spend in order to relieve other problems in their lives such anxiety or stress. Others may overspend to impress their associates, for example, by picking up the bill for a meal at a restaurant.^[3]

Credit

Sources of credit such as credit cards enable overspending by allowing consumers to spend beyond their income.Financial counselors advise indebted consumers to avoid buying goods on credit and even to cut up their credit cards.^[4]

Distribution

An analysis of consumer expenditure showed that 40% of US households overspent in 1990.^[5] Other things being equal, educated people were more likely to overspend than the less-educated.^[5]

In April 2008, consumer debt in the USA, excluding mortgages, reached the total of $2.56 trillion - over $8,000 per person.^[4]

Risk factors

The factors which result in overspending include:

• Low income.^[5]
• Low level of assets.^[5]
• A level of expenditure similar to that of non-overspenders while having a lower income.^[5]
• Higher medical and miscellaneous expenses.^[5]

Savings

Savings may prevent overspending because they provide a reserve for unexpected contingencies such as medical expenses and loss of income due to illness.^[5]

Outcome

Bankruptcy is a serious result of overspending. In 1991, 0.9% of US households were declared bankrupt.^[5]

In History

The Roman Emperors had little access to credit. The treasury was built up by prudent or miserly Emperors like Hadrian and Tiberius and then dissipated by the spendthrift emperors like Nero, Caligula and Commodus. When the treasury ran short, it was most often replenished by proscription and expropriation of the wealth of rich citizens. The overspending which depleted the treasury was largely due to attempts to buy popularity by means of handouts, gifts and lavish entertainments.^[6]

Government

Democratic governments commonly overspend due to political pressure and their high level of creditworthiness which enables them to borrow large sums. Such overspending is higher when legislative districts have varied levels of income and problems since all districts are taxed to provide benefits for some districts and this is politically successful. A powerful central executive such as a strong mayor with veto power can offset this tendency.^[7]

References

1. ^ Olivia Mellan (1997), Overcoming Overspending: A Winning Plan for Spenders and Their Partners, Walker & Co, ISBN 0802774954, http://books.google.com/?id=oDMLHAAACAAJ&dq=overspending 
2. ^ Max M. Glatt, Christoper Cook (November 1987), "Pathological Spending as a Form of Psychological Dependence", Addiction 82 (11): 1257–1258, doi:10.1111/j.1360-0443.1987.tb00424.x, http://www.blackwell-synergy.com/doi/abs/10.1111/j.1360-0443.1987.tb00424.x 
3. ^ Nina W. Brown (2006), Coping with infuriating, mean, critical people, Greenwood Publishing Group, p. 75, ISBN 9780275989842, http://books.google.com/?id=77ns6ogV8qoC 
4. ^ ^{a b} Ovetta Wiggins (July 20, 2008), Calling on Gospel to Call Off Debt, Washington Post, http://www.washingtonpost.com/wp-dyn/content/article/2008/07/19/AR2008071901733.html?hpid=topnews 
5. ^ ^{a b c d e f g h} MiKyeong Bae, Sherman Hanna, Suzanne Lindamood (1993), "Patterns of Overspending in U.S. Households" (PDF), Financial Counseling and Planning, http://hec.osu.edu/people/shanna/bae.pdf 
6. ^ Richard Duncan-Jones (1994), Money and Government in the Roman Empire, Cambridge University Press, ISBN 0521648297, http://books.google.com/?id=bI338ayHqXIC 
7. ^ Baqir, Reza (30 September 1999), Districts, spillovers, and government overspending, World Bank, http://ideas.repec.org/p/wbk/wbrwps/2192.html 

See also

• Debtors Anonymous