The psychology of spending, debt and budgeting, with Abigail Sussman, PhD

In this episode of Speaking of Psychology, host Kim Mills interviews Dr. Abigail Sussman, a marketing professor at the University of Chicago Booth School of Business, about the psychological underpinnings of spending, budgeting, and debt. The conversation centers on the growing popularity of 'buy now, pay later' (BNPL) services and how they manipulate consumer behavior by making large purchases feel more affordable through small, immediate payments. Dr. Sussman explains how this payment structure dissociates the present cost from future obligations, leading people to overspend without feeling the financial strain. She also explores broader behavioral patterns, such as poor forecasting of unexpected expenses, the tendency to co-hold savings and debt, and the influence of social comparison on financial decisions. The discussion reveals how psychological biases—like mental accounting, scarcity framing, and emotional spending—undermine financial well-being, especially during times of economic uncertainty. Practical strategies for better budgeting are offered, including setting realistic budgets with buffers, reducing payment friction, and making purchases in a 'cold state' when emotions are low. The episode underscores that financial decisions are deeply influenced by cognitive shortcuts and emotional triggers rather than rational calculation. Dr. Sussman’s research shows that people often maintain savings while carrying high-interest debt due to mental compartmentalization and a desire to feel financially responsible. Even when alerted to the financial cost of co-holding, most people continue the behavior, suggesting it’s not an accident but a deliberate choice tied to identity and control. The conversation concludes with a forward-looking discussion on how payment methods themselves can signal status, both externally and internally. Overall, the episode offers a compelling look at why we make poor financial choices—and how small psychological shifts can lead to lasting change.