Everyone has money on the brain. Whether it’s saving for something, buying something, investing in something, earning money, providing for a loved one, paying your kid’s allowance, or donating to a charity, everyone thinks about money at least once every day.
But how do our brains actually process these money thoughts? What does money do to us psychologically? I asked Montreal-based Licensed Clinical Psychologist, Jeffrey Anyan, PhD to give me some insight on the wiring in our brains as it pertains to money. He explained there are both biological and psychological responses to money and how we spend it.
“Without conscious reflection, chasing these feel good hits can be addictive, hence shopping addictions.”
The first is biological. He explained that our brains are essentially hardwired to seek out things that make us feel good. When something feels good to us, it releases dopamine into our brain, which causes pleasure, meaning it’s naturally linked to things like reward and motivation.
“Anything that feels good will be associated with dopamine, like sex, many types of drugs, eating, and buying things,” Dr. Anyan said. “Whenever we get that hit of dopamine it’s like the brain saying ‘keep on doing what you’re doing because it’s good’. Without conscious reflection, chasing these feel good hits can be addictive, hence shopping addictions.”
The psychological response to buying things, especially impulse purchases or compulsive shopping, is as a way to fill a void in our lives and feel complete. “This is the level that advertising speaks to. If I drink this beer or drive that car then I too will be happy,” Dr. Anyan said.
The reason why we continue to come back to shopping, or chasing that material object, is because the feeling of being complete only lasts for a short time. The material object at the end of the day doesn’t fill the psychological hole that we want it to. Clinical psychologists call this seeking out for gratification the hedonic treadmill.
“Some people are confident in their abilities and feel that they can quickly and easily learn or master new things. These people are more likely to keep on going even after a setback. These people are committed.”
Spending money unnecessarily is one quick and surefire way to blow your budget and squash your financial goals. Even with the most determined and dedicated budgeters there can always be one month or one pay period when an unbudgeted purchase is made or a budgeted purchase is made, but the amount spent significantly exceeds what was budgeted for.
As a financial planner, I often find the dedicated budgeters overspend around the holidays. You see something you know your friend or your family member will enjoy and appreciate. Your generosity and love get the better of your determination to stay on budget.
The true telling signs of how successful you will be long-term with your budget and with your financial goals is how you deal with this setback going forward. Will you get back to your budgeting ways or will you give up on it because you overspent the budget in a given month?
This is a fairly common result, people giving up after one setback. But why? Dr. Anyan said it comes down to what your motivation was for budgeting and saving in the first place. At a high level, that motivation is either internal or external.
“Internal motivation is something that one decides is important for themselves,” he said. External motivation comes from your parents, your partner, or the Internet telling you that you need to stop spending so much money, that you should be saving 10% of your earnings, or investing for retirement. “Naturally if something is important to you, you are more likely to follow through than if someone is trying to convince you that something is important and you don’t buy into it,” Dr. Anyan said.
He said a person’s beliefs about themselves play a large role in their success. Individuals perceive their self-efficacy differently from each other. “Some people are confident in their abilities and feel that they can quickly and easily learn or master new things. These people are more likely to keep on going even after a setback. These people are committed,” he said. “There are others who have low self-efficacy and will set out with a mindset, perhaps unconsciously, that they ‘will give it a try’ and see how it goes. This type of person with lower self-efficacy is also likely to suffer from less motivation and commitment.”
If you’ve made it this far it’s likely that you’ve already decided that you’re more committed to achieving your financial goals than someone who casually jots down a few monthly expenses. We won’t be able to fill any emptiness or improve your self-efficacy in one article, but hopefully with some insight into the reasons why budgets often fail you will use the knowledge to overcome any future setbacks you may encounter.
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