Woman admiring a luxury car in a dealership
Woman admiring a luxury car in a dealership

decoding money behavior: why we spend the way we do

Exploring the psychology behind your spending practices

The next time you’re about to make a financial decision, ask yourself: How is this experience making me feel?

The thoughts and emotions you have when hearing the word “money” say a lot about the way you are wired. Whether you’re one of those people who searches for loose change in the couch cushions, or someone who insists on buying dinner for the whole table, your money behaviors are motivated by your psychology – your upbringing, past experiences, social influences, emotional triggers, insecurities.

Together, these factors shape what money means to you, and how you use it.

The thoughts and emotions you have when hearing the word “money” say a lot about the way you are wired.

The psychology of money management: 4 common behaviors explained

The following money behaviors can reveal much about how our brains work. Understanding the dynamics behind them can empower you to approach your money decisions more mindfully. Ready to get level-headed about finances?

Making sense of behavior 1: That’s how my parents did it.

Your parents likely formed your earliest perceptions about money. If they talked about finances and handled them well – by considering the effects of an expense on the household budget, for example – then you likely picked up on the value of responsible money management. If your parents argued about money or had trouble making ends meet, then handling finances can be stressful to you.

Also, the types of purchases your parents would or would not make can influence your spending biases. If they never splurged on vacations, you might see such excursions as unjustifiable luxuries. But if they dined out frequently, you could think such gratifications are earned.1, 2, 3

Making sense of behavior 2: I’m trying to “keep up.”

We have an inborn tendency to compare ourselves to our neighbors, co-workers, friends, and even our social media acquaintances. When applied to our wealth status, these comparisons can trigger a sense of competitiveness and pressure to conform, derived from feelings of insecurity, inadequacy, and/or the urge to feel superior.

However, the way we perceive our own wealth can differ from how we perceive others’. One study found that when people see a large house or expensive car, they think of the owners’ wealth, but perceive such possessions as debt for themselves. Yet the same study found that debt was less a factor when people thought of how others perceived their wealth. These comparisons can cause you to focus more on your social image than your self-image, and lead to unsound spending.4

Making sense of behavior 3: I am a sucker for the money “high.”

Most of us, at some point, have used money as an emotional rescue. If you’re feeling stressed or sad, an indulgence can be a Band-Aid. If you’re feeling overly optimistic, you might blur out the “cons” of a purchase – a sports car that is impractical, but fun to drive.

In short, your emotions can cloud your reasoning and lead to poor financial choices. Too much confidence, or hopefulness, can lead to risky investments. “Instant gratification” purchases can add up to a lot of credit card interest. Recognize how certain purchases make you feel, and explore why. Relaxation techniques, including meditation, can help you better manage your impulses.5

Making sense of behavior 4: I use money as a security blanket.

If you grew up in an environment that lacked financial stability, you’re likely to see money as a means of security, freedom, and even protection. This perception can encourage you to be a good saver, but it also can make you overly cautious.

You might avoid certain investments, such as the stock market, for fear of loss. This fear can paralyze your reasoning and cause you to put off potentially profitable opportunities. Instead, calculate how much risk you and your family can afford, to establish a cushion, and factor in non-financial benefits, such as personal growth.6, 7

6 common-sense practices for money management

When you think about finances, there’s a good chance your brain responds in alignment with one or more of these behaviors. Use your knowledge of them to manage your financial wiring while following these sensible money steps.

  • Outline your working household budget.
  • Establish realistic short-term and long-term financial goals that you can stick with. Revisit them twice a year.
  • Spend less than you make. Put some of that extra money into a savings account.
  • Pay your debts, again using the extra money saved from living beneath your means.
  • Don’t spend money you have not made, by assuming you’ll be earning more money next year or even in five years.
  • If you want to invest knowledgably, consult a professional for guidance and confidence.

Finally, if you are facing a big financial decision that you’re unsure of, you have access to support, regardless of the behaviors that influence your money decisions. Contact a financial expert or confidant you trust.

Do you have money questions? Visit our consumer-friendly financial education page. If you want to connect with or submit questions to a banker, you can get more information on our contact page.