Psychology of Spending

The psychology of spending

By Tamrynne Peyper

How we engage with our money is largely driven by our psychology and actually parting with our hard-earned dosh is the final action in a long thought process which is largely unconscious. Our attitude towards money is informed by a vast number of variables; including our current state of mind, personal value system, experiences growing up, cultural norms and even hormone levels. The combination of these and other variables ultimately inform our emotional state at any given time. This means that our approach to money fluctuates as our mood does and can lead to potentially problematic situations. I think everyone, at some point, has splurged on something they did not necessarily need but actually wanted because they felt stressed, bored, sad, depressed or happy (think of what you bought when you got your bonus) – this is emotional spending which is driven by the need to address our emotional state.

It is completely normal to want to make ourselves feel better or to reward ourselves for achieving but if spending becomes our primary way of satisfying these various emotional states, there is likelihood we will find ourselves struggling to fulfil our financial obligations. Did you know that studies in the United Kingdom have used portable monitors to determine brain activity when you shop and have found a marked increase in brain activity when shopping as opposed to browsing? Sound neuroscientific evidence exists that when you shop emotionally, your brain releases endorphins and dopamine; these are 'feel good' hormones which result in a natural high. But the feelings these hormones create can become addictive and shopping is the drug required to reach and sustain that high. When this happens you may suffer from 'oniomania' or 'buying mania' which can be defined as an 'uncontrollable desire to buy things.' This term is not new and was defined in the 1924 Textbook of Psychiatry and has been a subject of study since (although this really gained traction in the 1990s).

If you or someone you know may suffer from oniomania, it is best to seek the advice of a qualified medical professional. But you do not have to suffer from monomania to know that awful feeling that is called 'buyer's remorse.' This typically happens when the natural high wears off as hormone levels stabilise and you realise that you regret the purchase you have made; this is typically in response to an expensive purchase.

Understanding the emotions behind spending is key to changing spending behaviour. When we know why we are spending, we can start to address these needs and make smarter spending choices. If you are in a heightened emotional state and you are aware of it, there are things you can do to prevent emotional spending and buyer's remorse. A review of the advice often provided to consumers has highlighted the following:

 

 

 

How we spend our money and what we assign value to are key drivers for personal financial stability. Understanding what drives our money habits is vital to breaking bad money habits and creating new, better ones. Once we understand our own personal psychology when spending, we free ourselves up to make medium and long terms financial goals as our need for immediate gratification is understood. Understanding our emotions and why we spend the way we do is key to breaking the cycle of poor financial choices.