Wednesday, April 15, 2009

In defense of the splurge...

What to do on tax day? You can contemplate how you might spend a refund. You can protest how the government is spending the rest. You should not, however, skip filing your return - even if you can't make a payment.

We have another suggestion: How about a splurge?

Not a big one. Not anything irresponsible or reckless. Perhaps a nice restaurant dinner with some of that refund, or a subscription to that Major League Baseball package on cable, or some soil and seeds for a garden or flower bed that can give back this spring and summer.

Or, if your budget won't allow for that level of extravagance, maybe a smaller piece of happy - a cup of fine coffee, a chocolate-covered strawberry.

We'll supply the rationalization: Splurges offer a temporary relief from pressure, a small repayment for the unpleasantries of everyday life.

"There's an old piece of folk wisdom that if you're feeling down you should go out and buy yourself a new hat," says author and consumer behavior scholar Michael Solomon. "This is called "self-gifting" and a small splurge can be used to thank oneself for a job well done - or just for still having a job."

It's why splurge items have shown resiliency in recent economic downturns. The previous such dip, early this decade, saw companies such as Starbucks and Godiva thrive selling moderately expensive goods - what analysts call "new luxury items."

Those higher-end, better-quality products have become more affordable in the past two decades, narrowing the gap between how the affluent and others live. There's even an economy built around this consuming demographic, which economists label the "mass class."

Just walk through your local Target and you'll find designer items that decades ago would have been out of reach for many. In bad times, they become even more emotionally important to some.

"When the news is bleak," Solomon says, "people need small indulgences more than ever."

In this recession, however, most of those new luxury sectors are struggling - including Starbucks, which reported a 21 percent drop in sales in the fourth quarter, with more bad news expected soon.

(An exception: Good beer.)

"The core new luxury consumer has a household income of $50,000 to $150,000," says
Michael J. Silverstein, a senior partner at The Boston Consulting Group and the author of Treasure Hunt: Inside the Mind of the New Consumer. "They are not seeing rapid increases in unemployment, but they are scared.

"While they are sipping their $8-a-bottle wine, they are boasting to each other about how good they have become at saving. They are more than balancing their budget. They have rocketed their savings rates by 10 to 12 percent."

People are still splurging, Silverstein says, just in smaller doses. "They are finding solace in one or two categories," he says. "They had traded up in 10 or 15."

Not that there's anything wrong with self-moderation, especially now. And for most of us, one or two splurges is about right in these times.

So go ahead, on this milestone day in this difficult year.

Treat yourself.

It's good for all of us.


Tell us what your indulgence is - big or small.