Loyalty cards encourage customers to come back for their next coffee, pizza or supermarket shop. If you are trying to get rid of problem debt, then you need to beware of being enticed to overspend your budget, that’s obvious! But here I want to look at some of reasons why companies use reward programs, because exploring the psychology involved reveals three factors which could also really help you to get out of debt.
1) Simple short-term goals
How long will take you to get that free meal or money off your next bill? If its going to be days or weeks, you will probably be very interested and put the loyalty card straight into your wallet. A few months, well perhaps… But it’s hard to get enthusiastic if it’s going to be a long time, even if the prize is large. So loyalty scheme designers make sure there is a tempting, short-term ambition for you to focus on.
I’m old enough to remember Green Shield Stamps and the catalogue showing the rewards you could save up for. My sister and I campaigned for things like a new car or a motor boat, but my parents opted boringly for a set of mugs or ice-cream sundae dishes, something they could save up for in less than a year.
The equivalent for clearing your debts is to have a series of milestones coming up that you can look forward to and celebrate achieving. If you are starting off on snowballing, this is the reason why people suggest that you should clear your smallest debts first – it may not be quite as efficient in theory as paying off your highest-interest debts first, but the psychological boost from getting some quick wins can be enormous.
2) Visible progress
If you need ten stamps to get a free coffee, do you collect them all at the same rate? Is there a way the coffee shop can get you to do this faster that won’t cost them any more money? Rats in a maze tend to run faster the nearer they get to their goal of food, so psychologists have studied actual reward programs to see if the same applies. These studies did find that the last few stamps are acquired more quickly than the first few.
More surprisingly perhaps, the studies found that when some customers were given a ‘buy ten get one free’ card, while others got a ‘buy twelve get one free card’ with the first two entries already stamped, the second group collected their ten more stamps quicker than the first group. The two existing stamps created an illusion of progress, so the customers felt closer to their goal and were therefore encouraged to spend faster to reach it.
You can make this mind trick work for you in tackling debt by looking not just at your future goals, but also thinking about how far you have already come:
- “I’ve paid off £2,000 of debt this year so far!” or
- “My debts haven’t dropped much this month, but I paid for new tyres and son’s birthday presents in cash – last year they would just have gone on a credit card.”
3) Creating habits
The biggest long-term gains for a company in a reward program come when visiting that shop becomes a routine. You make the rational decision that it’s worth going back to the shop enough times to claim your free reward. But each time you go you are enjoying the coffee and cake and, just as importantly, not enjoying the coffee and cake from the coffee shop a bit further up the road. Psychologists call this “association bias”: by the time you get the free cappuccino you’ve developed a habit that may well carry on afterwards, even if the loyalty program stops.
If you can find ways of making money-saving and debt-reduction easy and routine, then you are well on your way to success:
- food is the classic example of this: meal plan in advance and cook twice as much and freeze half, so a bad day at work doesn’t mean you opt for a takeaway;
- the first few times you make yourself shop around for cheaper insurance renewal or utility suppliers may feel like a chore, but each time you save money it starts to feel easier and more normal to do this routinely.
Get your revenge on consumer society!
Companies pay a lot of money to get you to spend more with them, through advertising and reward programs – it’s time to get your own back and use the same tactics to get help you get to your goal of clearing your debt! The three psychological tricks discussed here – having some short-term goals, recognising how far you have come already and transforming good money habits into a routine – can be a big help.