The Psychology of Money: How Saving and Spending Habits Are Hardwired into Your Brain

Confident businesswoman with document looking at computer screen and making working notes in office

Have you ever wondered why you handle money the way you do? Perhaps you are a saver and feel satisfaction every time you see your account balances growing and disgust when you need to buy something. Or maybe you are a compulsive shopaholic, and you see life as something to enjoy, so you buy on impulse and pay little attention Psychology of Money  to how you will survive in the future.

While many people believe that money management habits come from parents or caregivers, current research shows that our habits are not based solely 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 how you were raised, what’s not how you view money? 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 purchasing decisions. The researchers looked at activity in an area of ​​the brain called the insula, which is stimulated when you experience something unpleasant. The more stimulation there is to the insula, the less likely it is to keep doing what it’s doing. When it comes to money, insula stimulation can stop your spending.

On the other hand, the act of saving, whether it’s having cash in a bank or experiencing significant savings on a product or service, gives savers intense pleasure. Winning a good deal makes everyone feel good, but savers feel the rush even more, as it relieves 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, it will taste better to you. But if you ate at that 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 lean toward extremes, spenders can end up in financial trouble later in life, and savers can end up with big regrets. Recognizing which one you are can help you achieve a healthier balance.

the spenders

In an early experiment with children, commonly called the 1960s marshmallow experiment, Stanford researchers presented kindergarten children with a tray of treats containing marshmallows, pretzels, and cookies. The researchers told the children to select a snack and if they ate it right away, they wouldn’t get any more, but if they waited just a few minutes, they’d get another one. If they could delay their gratification for a few moments, they would double their sweets. They watched children well into adulthood and learned that those who were able to delay their gratification were much more successful in life than those who wanted instant gratification.

If you spend money, you can’t delay gratification. With cash in front of you, just like the marshmallow, you can’t resist having it right now, even if you’ll have more later. That’s why you don’t have much savings in the bank, but it doesn’t bother you. He has been happy making purchases and enjoying them at the moment. It’s worked well enough for long enough, so just keep up the habit. But if you’ve noticed that you tend to spend a lot, you’re probably looking to kick or curb your habit.

These seven ways to calm your urges will help you cut your spending:

  1. Never use credit cards or other lines of credit. By using cash, you force yourself to consider how much you’re spending.
  2. Withdraw the cash from your bank account yourself, so you can see the declining balance.
  3. Pay as you go. Don’t run up a tab at a bar and pay everything up front for a romantic weekend getaway. Pay for everything as it comes, and you’ll better understand how all that money just “slips away.”
  4. State your savings goals. If you tell your close friends and family how much you plan 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.
  5. 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.
  6. Stop and ask yourself before each purchase if you really need the item. Know the difference between needs and wants.
  7. 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 had the option of receiving $50 immediately or waiting a year and receiving $100. Most of the participants surprised the researchers by taking the $50. Instant gratification seemed more valuable than doubling earnings after a delay. Savers are the few who sacrifice a lot of perks to ensure they get the full $100 when it becomes available.

Sometimes you will go without the 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 carry a credit card balance, and even at an average salary, you amaze others with the huge savings you’ve accumulated over the years, while they just had a marshmallow and the instant $50.

While many people enjoy buying things, savers don’t feel the same way. Instead, you are uncomfortable with shopping and feel real emotional pain when you pay. But what is it that excites you and gives you pleasure as a saver? Are you missing out on some of the simple, inexpensive joys in life? Are you sacrificing too much and putting your health at risk?

The researchers explain that two main motivators drive savers: pain and pleasure. And if you’re not experiencing enough pleasure, you deserve to drop your pockets and enjoy spending just a little bit.

  1. 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 stop thinking about expenses and relax.
  2. State your spending goals. When you’re planning to make an exciting purchase, even if it sounds like a boring necessity, tell everyone you know and set a date to close the deal.
  3. Think of your purchases as a reward for something you’ve done well, so that they take on more value in your mind.
  4. Think about your future : do you really want to regret the things you didn’t do because you wouldn’t spend some money enjoying yourself?

Last conclusions

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 could be what it takes to overcome our bad habits, whether that means overspending or frugality, and live our lives to the fullest and responsibly.

And you? Do you spend or save? If you were given something you love and told that if you hold on to it for an hour you will get twice as much, would you do it? I’d love to start a discussion here and get to the bottom of this!


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