Delving into the psychology behind our spending habits, from the emotional triggers that drive impulse buys to the cognitive biases and social influences shaping our financial decisions.
Delving into the psychology behind our spending habits, from the emotional triggers that drive impulse buys to the cognitive biases and social influences shaping our financial decisions.
Savvy Psychologist is hosted by Dr. Monica Johnson. A transcript is available at Simplecast.
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In our daily lives, spending money is a routine activity. From buying groceries to splurging on a new gadget, our financial decisions are influenced by a myriad of psychological factors. Understanding these factors can provide deeper insights into our spending habits, helping us make more informed choices and manage our finances better. In today's episode, we are going to jump into the psychology of spending and explore the key psychological factors that impact how we use our money.
Welcome back to Savvy Psychologist, I'm your host, Dr. Monica Johnson. Every week on this show, I'll help you face life's challenges with evidence-based approaches, a sympathetic ear, and zero judgment.
I was inspired to talk about this topic because so many patients, listeners, and people I run into speak to me about overconsumption, how tiktok made them buy it, and also how they are swimming in debt. So, it seemed like a good idea to explore some of the psychological reasons why we spend money. Spoiler alert, marketers/advertisers do use our psychology to influence us to spend.
1. Emotions and Mood: The Driving Forces Behind Impulse Buys
Emotions are powerful drivers of spending behavior. When we're happy, we might celebrate by treating ourselves to something nice. On the flip side, when we're feeling down, shopping can serve as a form of retail therapy to lift our spirits. This emotional spending can lead to impulse buys—unplanned purchases made in the heat of the moment. I’m not ashamed to admit that I’ve purchased a treadmill, exercise bike, and a myriad of other smaller items throughout my lifetime that ended up unused, put up in a buy nothing group, or in a donation bin.
Research shows that positive emotions, such as joy and excitement, can increase the likelihood of impulse buying as individuals seek to prolong their good mood. Conversely, negative emotions, such as stress, sadness, or boredom, can also trigger spending as a coping mechanism. This phenomenon highlights the need to be aware of our emotional states when making financial decisions, as they can significantly influence our spending habits. I got in the habit and often recommend that people delay purchases to make sure that they aren’t emotion minded. If it’s 2 am on Amazon, you probably don’t need it, let the sun rise and fall a few times and see how you feel about that purchase later.
2. Personality Traits: The Influence of Who We Are
Personality traits play a crucial role in determining our spending behavior. For instance, individuals who score high on extraversion are often more inclined to spend on social activities and luxury items that enhance their social status. In contrast, those high in conscientiousness tend to be more frugal and budget-conscious, carefully planning their purchases to avoid unnecessary expenses.
Impulsivity, a trait associated with lower self-control, can lead to spontaneous purchases and higher overall spending. People with high levels of self-discipline and organization, however, are more likely to plan their expenditures and stick to a budget. Understanding how our personality traits influence our spending can help us develop strategies to manage our finances more effectively.
I can’t stress enough to learn how to combine compassion with intention when approaching these situations. We all have tendencies toward or away from certain things and it’s not necessarily a bad thing. If you tend to be more impulsive, it’s not about belittling yourself, it’s about being aware that you have this tendency so that you can be intentional around it.
3. Cognitive Biases: The Mental Shortcuts That Skew Our Spending
Cognitive biases are systematic patterns of deviation from norm or rationality in judgment, which can lead to irrational spending decisions. Some common cognitive biases that impact spending include:
Anchoring: The tendency to rely heavily on the first piece of information encountered (the "anchor") when making decisions. For example, if a shopper sees a product initially priced at $100 but now marked down to $50, they might perceive it as a great deal and be more inclined to buy it. But you know what’s a better deal? Keeping, saving, or investing that $50 if this isn’t an item that you need. How many times have you been walking down an aisle and the ONLY reason you’re tempted to buy something is because it’s on sale. You might want to consider leaving it in the store.
Confirmation Bias: The tendency to search for, interpret, and remember information that confirms one’s preconceptions. This bias can lead consumers to favor products that align with their existing beliefs or preferences, even if better alternatives are available. I’ve seen people buy $150 canvas bags because they like an influencer—and you can get a similar canvas bag for $20. If you have the extra cash and you want to support or this is a splurge item you’ve intentionally saved up for, do you, otherwise—why are we overspending on an item?
Loss Aversion: The fear of losing out can drive spending behavior. Consumers often prefer avoiding losses to acquiring equivalent gains, which can lead to purchases motivated by limited-time offers or fear of missing out (FOMO). I never thought I’d see the day where people were fighting in the stores over a drink cup, but you live and learn.
By recognizing these biases, we can work towards making more rational and informed spending decisions and build upon your financial acumen.
4. Social Influence: The Power of Peer Pressure and Social Norms
Social factors, including peer pressure and social norms, significantly impact our spending behavior. People tend to conform to the spending habits of their social group to gain acceptance and approval. This is evident in trends and fads, where individuals purchase products that are popular within their social circles.
Additionally, social comparison—the act of comparing oneself to others—can lead to increased spending as individuals strive to match or exceed the perceived lifestyle of their peers. For instance, seeing friends or influencers with the latest gadgets or fashion items can create a desire to purchase similar products to fit in or feel successful.
I find this to be particularly problematic. Before social media, you basically just compared yourself to the kids in your neighborhood which is bad enough–but mostly manageable. Now you’re comparing yourself to people around the country/world, who have totally different circumstances as you and this has really elevated the “Keeping Up with the Jones’” game.
If I have to hear the word “aesthetic” one more time, I might vomit. Most of these trends/fads center around consumerism. For example, if someone said I’m a Punk—it’s not just about the clothes and hairstyles, it’s about the music, the mindset, and the community of people that you interact with who share your same passions and interests. When you look at a “Vanilla Girl aesthetic” all you get is a shopping list and no real connection to a sense of identity and community. Think about what you’re really looking for the next time a trend rolls around and if it’s really adding value to life.
5. Motivation and Needs: The Driving Forces Behind Our Purchases
Maslow’s Hierarchy of Needs provides a framework for understanding how different types of needs drive spending behavior. According to Maslow, human needs are arranged in a hierarchy, with physiological needs at the base, followed by safety, social, esteem, and self-actualization needs.
Spending behavior can be influenced by the desire to fulfill these needs. For example, purchases related to basic survival (food, shelter) are driven by physiological needs, while luxury items may be motivated by esteem needs, as they help individuals achieve status and recognition. Understanding our underlying motivations can help us make spending decisions that truly align with our values and goals
Understanding the psychology of spending is essential in my mind. Gaining insights into the psychological factors that influence spending can lead to more mindful and intentional financial decisions. It’s hard out here—everyday items are more expensive and we are constantly bombarded with ads, some of which are conspicuous and other times not that are encouraging us to overconsume. I hope this information helps you to be empowered and motivated to continue to learn about your psychology around money.
Have you had any recent impulse buys? Let me know! You can contact me via Instagram @kindmindpsych or via my email at psychologist@quickanddirtytips.com.