Compensatory Consumption vs. Budgetary Bliss

Being self-employed doesn’t remove the stress in your life. It just changes it. The uncertainty goes up, but so does the feeling of control over your destiny. And, if you go about it right (meaning, you pursue self-employment in a field you’re passionate about) so does your overall sense of happiness and fulfillment. At least you get to love what you spend all those hours working at and worrying about.

And that, in turn, saves money.

I always suspected this was true, although my opinion was based on a survey sample of one. Back in my corporate days, when I made good money but got kicked around a lot by a culture I didn’t control and a job I didn’t love, I spent a lot of money on expensive restaurants and “stuff.” When I quit all that to become a self-employed writer, the money to do that was gone. But so, strangely enough, was the need to do it. Not that I don’t still love great restaurants and hotels. I do. But the craving for them went away. Now they’re a fun treat, not an external comfort drug being applied to either mask or fill an unhappy hole at the center. I love them when I can afford them. But I can also live quite well without them.

Not that I needed a formal research study to confirm my suspicions, but I recently discovered a formal name for my corporate-days behavior. It’s called “compensatory consumption,” according to two researchers at the Kellogg School of Management at Northwestern University.

In recent research experiments, Derek Rucker and Adam Galinsky, found that people who felt powerless were willing to pay more money for luxury or status items than people who’d been conditioned to feel more powerful and in control.

Which may account for the fact that the gourmet chocolate business is holding up better than some other luxury good industries, according to a recent article in the New York Times Magazine. We tend to crave luxury items when we feel stressed in a powerless way, and gourmet chocolate is a less expensive way to feed that craving than, say, a new BMW.

But the corollary to that theory, which the Times article didn’t get into, is that if you structure your life to give yourself more satisfaction, power and control, then­­—like the other test group in Rucker and Galinsky’s experiments—you’re less likely to feel the need for even that $8 chocolate bar. Let alone the BMW. Imagine the cost savings!

In other words, pursuing a passion or entrepreneurial venture, which often means accepting a more limited budget (at least for a while), may also make it easier for us to be happy with a more limited budget. How ironic. Or maybe even Darwinian. Could it be that passionate pursuits and self-employment are good for the survival of a vibrant species? It’s an interesting thought.

But even if it doesn’t help the species’ survival, reducing our cravings for “compensatory consumption” is certainly good for our own personal economic survival. So while some people might argue that a recession is a bad time to indulge in pursuing a passion, changing careers for a more fulfilling job, or launching a new entrepreneurial venture, the exact opposite may be true. A recession may be precisely when taking those risks, or making those leaps of faith, offers the greatest rewards.