The psychology of money: how saving and spending habits are programmed
Have you ever wondered why you handle money the way you do? Maybe you’re a saver and feel satisfied every time you see your account balances growing and disgusted when you need to buy something. Or maybe you are a compulsive shopaholic, looking at life as something to enjoy, so you buy on impulse and pay little attention to how you will survive in the future.
While many people believe that money management habits come from parents or caregivers, current research is showing that our habits are not just based on the conditioning and money management lessons we learned as children. There are spenders and savers in the same families, children who grew up poor and still develop great wealth, and heirs who ruin the family fortune.
If it’s not about how you were raised, what shape does money shape? Experts are revealing that brain chemistry plays a huge role in your financial habits. brain activity
In a study by Rick, Cyder, and Loewenstein published in the Journal of Consumer Research, participants’ brains were scanned while they pretended to make purchase decisions. The researchers observed activity in an area of the brain called the insula, which is stimulated when you experience something unpleasant. The more stimulation you have in the insula, the less likely you are to keep doing what you’re doing. When it comes to money, insula stimulation can stop your spending.
On the other hand, the act of saving, whether by psychology of money holding cash in a bank or experiencing significant savings on a product or service, gives savers intense pleasure. The victory of a good deal makes everyone feel good, but savers feel the rush even more, since it is a relief from the discomfort of having to spend.
Meir Statman, a behavioral economist at Santa Clara University, uses this analogy: If you go out to eat at a restaurant that normally charges $70 for a plate and you get your food for only $7, you’ll like it better. But if you ate at the same restaurant without knowing the cost, you wouldn’t enjoy your food as much. Knowing the total amount saved gives savers immense pleasure.
The researchers concluded that people who have more insula activity in their brains are more likely to save, and those with less are more likely to spend. And since we tend to skew to the extreme, spenders can end up in financial trouble later in life, and savers can end up with major regrets. Acknowledging who you are can help you achieve a healthier balance.
In an early experiment on children, commonly called the 1960s marshmallow experiment, Stanford researchers presented kindergarten children with a tray of treats containing marshmallows, pretzels, and cookies. The researchers asked the children to select a treat, and if they ate it right away, they would not get any more, but if they waited just a few minutes, they would get another one. If they could delay their gratification for a few moments, they would double their candy. They watched children well into adulthood and learned that those who could delay their gratification achieved much more success in life than those who wanted instant gratification.
If you are a spendthrift, you cannot delay gratification. With cash in front of you, just like the marshmallow, you can’t resist having it right now, even if you would later. That’s why he doesn’t have much savings in the bank, but it doesn’t bother him. You have been happy shopping and enjoying it at the time. It worked well enough for long enough that you stick with the habit. But if you’ve noticed that you’re tending to extreme spending, then you’re probably looking to kick or rein in your habit.
These seven ways to calm your urges will help you cut back on spending:
- Never use credit cards or other lines of credit. By using cash, you force yourself to consider how much you’re spending.
- Withdraw cash from your bank account yourself, so you can see the balance shrinking.
- Pay what you consume. Don’t run a tab at a bar, and don’t pay everything up front for a romantic weekend getaway. Pay for everything that comes your way, and you’ll better understand how all that money just “slips away.”
- Be vocal about your savings goals. If you tell your close friends and family how much you want to save and by what date, they will hold you accountable. You can even use personal goal-setting tools like stickK to put money on the line and achieve your long-term financial goals.
- Reward yourself when you meet your savings goals, but only by spending a responsible percentage of what you saved. This can help prevent frugal fatigue.
- Stop and ask yourself before each purchase if you really need the item or not. Know the difference between needs and wants.
- Look into the future, no matter how uncomfortable it is. Ask yourself questions like how much money you’ll need to retire or how you’ll pay for your child’s college education.
In another famous experiment, adults were given the choice of receiving $50 immediately or waiting a year and receiving $100. Most of the participants surprised the researchers by taking the $50. The instant gratification seemed more valuable than doubling earnings later. of a delay. Savers are the only ones who sacrifice a lot of bonuses to ensure they get the full $100 when it becomes available.
Sometimes you’ll walk away without things you really need, like good medical care through a health insurance policy or a coat, because money in the bank is more satisfying than anything you can buy. You rarely have a credit card balance, and even with an average salary, you surprise others with the huge nest of savings you have accumulated over the years, while they took only one marshmallow and instantly $ 50 .
While many people enjoy buying things, savers don’t feel the same way. Instead, you feel uncomfortable about shopping and feel real emotional pain when you pay. But what makes you tick and brings you pleasure as a saver? Are you missing out on some of the simple, inexpensive joys in life? Are you sacrificing too much and endangering your health?
The researchers explain that two main motivators drive savers: pain and pleasure. And if you’re not experiencing enough pleasure, you deserve to loosen your bags and indulge just a little.
- When it’s time for something pleasurable, like a vacation, walk away by paying by credit card. You’ve already set your budget and have the cash to cover it, so now you can forget about expenses and relax.
- Be vocal about your spending goals. When you’re planning to make an exciting purchase, even if it seems like a boring necessity, tell everyone you know and set a closing date.
- Treat your purchases as a reward for something you’ve done well, so they hold more value in your mind.
- Think about your future – do you really want to regret the things you didn’t do because you wouldn’t spend a little money on fun?
Ultimately, we are the ones in charge of our financial present and future. It seems strange to me that we are driven by an aspect of our brain that we don’t even fully understand. But luckily, this knowledge may be what it takes to overcome our bad habits, whether that means overspending or frugality, and live our lives to the fullest, responsibly.What’s the matter with you? Are you a spender or a saver? If you were given something you love, and told that if she stayed with it for an hour, she would get twice as much, could you do it? I’d love to start a discussion here and get to the bottom of this!