The Psychology of Spending: Why Do We See Money the Way We Do?

Ever wondered why some people can't resist spending their money while others save every penny? Our relationship with money is super interesting and connected to our feelings, beliefs, and past experiences. Let's dive in and learn about our mind and money!

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Nature vs. Nurture: Where Do Our Money Habits Come From?

There's a big debate in psychology about whether our behaviour comes from our genes (nature) or from our upbringing and environment (nurture). When it comes to money habits, it seems like it’s a bit of both. 

• Our genes can affect traits like being impulsive or taking risks, which can influence how we spend money…
• …But the way we were raised and our experiences also play a big part in shaping our money mindset.

For example, if you grew up without much money, you might be more careful with spending as an adult. If you had plenty of money growing up, you might be more comfortable taking risks or making big purchases.

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Emotions and Money: How Our Feelings Affect Our Spending

Our emotions can really impact how we spend money. Have you ever gone shopping to feel better after a bad day or spent a lot on a fancy vacation to celebrate a big win? These are examples of how our emotions can drive our spending decisions.

Sometimes, our emotions can make us buy things impulsively that we later regret. This is called "emotional spending." Learning to understand and control our emotions around money is important for making more informed financial choices.

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The Power of Social Influence: Trying to Fit In

Another thing that affects our spending is wanting to fit in with our friends or keep up with a certain image. This idea, called "keeping up with the Joneses," can make us buy things we don't need or can't afford.

Social media can make this worse, as we constantly see pictures of people showing off their fancy things and experiences. Knowing how social influence affects our spending can help us make choices that are true to ourselves and our financial goals.

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Cognitive Biases: Mental Shortcuts That Shape Our Money Decisions

Our brains like to take shortcuts, called cognitive biases, to process information faster. These shortcuts can be helpful sometimes, but they can also make us make bad decisions about money.

For example, the "anchoring bias" is when we rely too much on the first piece of information we get. This can make us spend more on something just because it's "on sale," even if it's still too expensive.

Being aware of these shortcuts can help us make smarter money choices.

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Changing Our Money Mindset: Having a Better Relationship with Money

Understanding why we spend money the way we do is the first step towards having a healthier relationship with money. Here are some tips to help you break free from bad money habits:

1. Practice mindfulness: Pay attention to your emotions, thoughts, and beliefs about money to spot patterns and make better choices.
2. Set clear financial goals: Knowing what you want to achieve with your money can help you make choices that match your values and priorities.
3. Seek support: Talk to friends, family, or a financial advisor to get advice and encouragement.
4. Challenge social pressures: Remember that it's okay to not keep up with everyone else. Focus on what's important to you and your financial health.
5. Educate yourself: Learn more about personal finance and money management to make better decisions and have a healthier financial future.

The psychology of spending is super interesting and can teach us a lot about why we see money the way we do. By understanding what influences our money habits, like our upbringing, emotions, social influences, and cognitive biases, we can work on having a better and more mindful relationship with money. Money is mahi - don’t let something like a mental shortcut spoil your hard work!

This was originally posted as an education article on the Money Sweetspot customer portal. If you read this as one of our customers, you would've earned some money off your loan! Do the mahi, get the treats. Find out more.

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