It’s not just the check—restaurant meals put us in a ‘consumer mindset’
One of the most common pieces of advice you’ll get from personal finance experts is to eat out less. By cooking at home, you almost always manage to spend less money on food (not to mention eat healthier).
But a new study not only confirms that eating out is bad for your finances, but suggests that eating out is among the worst things you can do for your personal financial health.
“What we saw consistently throughout the study was that when people reported their dining-out budget for the second time during the experiment, it was significantly higher than what they stated the first time,” Penn State professor Amit Sharma, one of the study’s co-authors, tells Futurity. “What this tells us is that obviously they thought they would spend less in a week, but as the week progressed, they realized they were spending a lot more and they rationalized that increase.”
Specifically, people increased their personal dining out budgets from less than $18 in the first week of the study to $55 in week two, when they realized the first figure was unrealistic.
I’m not sure where these study respondents live that any of them think $18 would last them a week’s worth of dining out. They certainly don’t live in L.A., where $18 gets you a tablespoon of quinoa with a side of two fig leaves, or New York, where $18 is the admission price for the privilege of waiting to maybe buy a cronut.
What’s most interesting, though, is the rationalization part. Rather than curb their dining out in the face of that information, people just readjust their budgets to meet their actual spending habits.
People’s tendency to overspend is partially due to valuing immediate gratification over the long-term benefits of saving. In Sharma’s study, people’s weekly budget goals were no match for their pressing desire to go out and eat some delicious food. “We tend to discount the future more than we should and, therefore, place higher value on current consumption,” says Sharma.
Worse, the study suggests that eating out changes people’s mindset from saving to consumption.
Serious savers know that a commitment to saving is about more than abstaining from the occasional splurge — it’s a mindset that informs every aspect of their lives. They understand that while spending $5 at Starbucks may seem like a minor purchase, it’s actually very important. That daily $5 purchase each morning equates to more than $1,200 over the course of a year, so serious savers opt for the shitty office brew. Conduct that calculus on all the small, seemingly inconsequential purchases in one’s life, and you have significant savings.
The people MEL profiled in our Into the Black series, for instance, didn’t pay off their debts because they refrained from buying expensive cars. They did so by identifying and cutting out any and all unnecessary purchases, no matter the size, and letting the savings accumulate over time. They bought cheap beer, hosted game nights and potlucks and took up free hobbies such as rock climbing instead of meeting their friends out at fancy cocktail bars.
But going out to eat seems to take a person out of that vigilant savings mindset: What’s a $5 coffee when I already spent $12 on lunch?
Way more than they could have imagined. In fact, foregoing that morning coffee could turn them into a millionaire, according to personal finance guru David Bach. If you’re younger than 30, and put the money you usually spend on a morning latte into a retirement account, it’ll grow to $1 million by the time you’re retirement age.
And that’s money you can dine out on.