A Brief Look At the Psychology of Money

psychology of money

Our view of money may be influenced by a plethora of socioeconomic factors such as our family history, our current income, past spending habits, the friends we keep, and even the eccentric behavior of our favorite celebrities. Interestingly, some of us start learning about money from a very young age but still go on to make terrible financial decisions in the future. How can we develop a balanced view of money so that we can manage our finances better? Check the information presented below, which comes from the office of noted Philadelphia divorce lawyer Lee Schwartz. 

Emotion Often Guides Our Spending

It’s easy for us to believe that we are rational when it comes to our finances. However,  numerous psychological studies have shown that people often think and behave irrationally when dealing with money. Although we may try to view financial situations objectively, most people make financial decisions based primarily on how they feel. Some of the most common emotions involved in money management are fear, guilt, shame, and envy.

While it may seem strange to associate emotions such as fear, guilt, shame, and envy with money, we may get a clearer picture if we consider a few financial contexts. For example, some people may spend money out of fear of not appearing prosperous. Others may buy expensive items because they envy what their friends have. In certain social situations, we may spend more than we typically do because we want to avoid public embarrassment and shame. And even individuals with lots of money may feel guilty about not donating enough to charity or spending excessively when in the company of less affluent folk.

Early Childhood Experiences Matter

It is clear that human emotion can influence how we think and behave in financial situations. Studies also show that our economic background and the principles with which we were raised during childhood can have a powerful impact on our present-day attitudes about money. Consider a person who was raised in a household where one individual controlled the family’s money. Later in life, this individual may become dependent on another person to manage his or her finances and he or she may have strong beliefs about what gender that trusted person should be.

How Money Issues May Impact Our Present Day Thinking and Behavior

It is natural for us to avoid things that make us uncomfortable and money issues can certainly make us uneasy. We may pay bills late, wait until the last minute to prepare our tax return, or put off significant but necessary expenditures like home or car repairs. While it is tempting to think that most financial problems are due to a lack of money, things may not always be so simple. For example, some wealthy people are beset with anxiety issues because they are convinced that someone is planning to take away their money.

Some people who are ashamed of their financial background or current circumstances may even try to avoid financial matters completely. They may have thoughts such as:

  • I feel like I never have enough money.
  • It’s best to avoid thinking about my financial situation.
  • I haven’t budgeted.
  • I haven’t planned for retirement.
  • I haven’t created emergency savings.
  • I feel ignorant about finances.
  • I probably spend too much.
  • I buy things when I’m feeling unhappy.

How to Improve Your Money Management Skills

Many people who want to become better at money management may immediately think of hiring a mentor or taking some sort of financial education course. While those approaches definitely have their benefits, there are much easier (and less expensive) actions we can take to improve our skills in the short and long-term.

When faced with financial decisions, one of the first things we need to do is take the time to think things through. Although we may feel the urge to make a decision as soon as possible, it’s often best to consider the potential consequences of each choice that is on the table. It is also important to remember that the financial decisions we make today may affect us decades into the future. We owe it to ourselves to take the necessary time to read the fine print and think five or six steps ahead before signing any financial document.

Another helpful piece of advice is to keep things under your control. Many businesses may offer deals that seem appealing at first, but are far riskier than you may initially realize. When we take charge of our finances and leave less to chance, we are more likely to meet our financial goals and feel less anxious about our financial future. Always remember that if something seems too good to be true, it probably isn’t.

Perhaps the most important tip though, is to try to develop more self awareness. When we become more aware of our tendencies with money, we are better able to make objective decisions rather than react subconsciously. In other words, if we know what we are doing and why we are doing it, we can always step back and consider whether a different financial choice would serve us better. If you need assistance with developing your self-awareness, talking with a trained therapist may help.

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About the Author

Veronica Baxter is a writer, blogger, and legal assistant working and living in the great city of Philadelphia. She frequently works with and writes on behalf of Lee A. Schwartz, a busy Philadelphia divorce lawyer.

 

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