Living with credit

Think twice before you spend that bottom dollar

Kelly Dilworth

If you’re down to your last dollar, you may want to save your money rather than spend it. According to a new study forthcoming in the Journal of Consumer Research, the less cash you have on hand, the more likely you are to regret your purchase, regardless of what you bought.

“Satisfaction is influenced by more than the experience of a product and its cost,” said study co-author Robin Soster in a press release. How much money you have left to spend may also play a significant role in how you feel about the purchase.

Bottom dollar effect

Robin Soster, assistant professor of marketing in the Sam M. Walton College of Business, University of Arkansas, was the study’s co-author.

For example, people who are close to maxing out their budgets tend to get less satisfaction out of the products they buy, the study found. That’s especially true if additional money is hard to get, or if their next paycheck is a long way off. People with plenty of cash, by contrast, tend to be more satisfied with their purchases than their poorer counterparts.

That could be due to the fact that people with limited funds are more invested in their purchases — particularly since they can only afford to buy so much. People living on the financial edge may also be more attached to the cash they have on hand, researchers say. So the dollars they spend matter more to them than to people with plenty of resources to fall back on.

“We predicted that as budget balances dwindled, the remaining dollars would be more painful to part with,” said Soster in the release. “This in turn would make products feel more costly, so people were less satisfied with what they bought.”

Not surprisingly, the study also found that when people have less money to spend, they’re more likely to try to hold on to the small amount they have.

Inside the study
The researchers came to their conclusions after studying participants’ reactions to spending money on various small-dollar purchases.

For example, in one of the study’s experiments, participants were allotted a small budget of credits that they could use to download movies from the Internet. Some participants were given just enough credits to buy three movies online. Others were given substantially more so that they had plenty left over after purchasing the same number of films.

As the participants with the smallest amount of resources watched their credit reserves diminish, their satisfaction with their purchases waned. For example, when they were asked to evaluate the final film they purchased and consider whether or not it was worth the credits they spent, they tended to be much less satisfied with the film than the participants who had more than enough credits to download more movies.

However, when another group of participants were later given additional credits for free, they were generally happier with their purchases than participants who weren’t given extra help.

In addition, the study found that when participants expected to get more credits soon, they tended to be more contented with what they bought.

Your bottom-line
Think twice before you buy.

If you’re nearing the bottom of your bank account, indulging in a little retail therapy now and then may be counterproductive — especially if you’re going to have to wait a while before you get another infusion of cash.

Instead, you’re better off holding off on a purchase you want until you’ve saved up a bigger reserve. “While some people may be able to mitigate the effects of this phenomenon by ignoring their budgets, a more fiscally responsible approach would be to make important purchases only when budgets are flush,” said Soster in the release.

That way, your opinion of the purchase after you check out is less likely to be swayed by the amount of money you have left in your account.

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  • Jay H Stewart

    I pay on average 27% interest & max out my credit cards, $75k plus! I can’t get my credit score much above 600 even though I make the payments. I own a ocean front home that I could sell & clear about enough to payoff credit card debt. Would you recommend doing that or? My credit score is already pretty low?
    Thanks Jay