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Where Brain Meets Wallet: The Psychology of Spending


We all know that to be financially secure, it’s best to spend less and save more. But that’s definitely easier said than done. Too many times we find ourselves making regrettable purchases, and while one or two splurges may not break the bank, a pattern of overspending can leave you strapped for cash for both your needs and wants or stuck deep in credit card debt.

What exactly goes on in your brain when you make an impulse buy? What’s the psychology of spending, and what are the psychological reasons for overspending? Understanding the science behind the impulse to buy can help you recognize these processes at work—and start getting control of your own spending.

1. Delayed Rewards

Your brain likes to be rewarded instantaneously—given the choice, many people prefer to cash in on an immediate reward versus waiting longer for it, even if the delayed reward would be bigger in the future.

For example, you might want to snack at the work party in front of you, rather than staying hungry in anticipation of a big meal at home. In terms of the psychology of spending behavior, you might prefer to purchase new clothes regularly now instead of putting that money into savings for a car or down payment on a house.

Tip: Wait Before You Buy

Delaying gratification is hard, especially when your financial goals feel distant or overwhelming. If you struggle with impulse buys and want to make some changes, start small: When you see something you want to buy, wait 24 hours or longer. Spend that time reviewing your financial goals.

2. The Lure of Credit Cards

Credit cards are powerful financial tools—they can help you build a good credit score and afford things you don’t have the cash for immediately. But credit cards can also trick your brain by disconnecting you from the reality of payment. Sliding your card, knowing you’ll pay sometime in the future, for some reason makes it easy to ignore price tags and forget long-term financial goals.

Paying with credit cards can magnify the effect of delayed rewards. Just having a credit card can increase how much you spend, and without careful tracking of your purchases, opening up your bill will be unpleasant. And you may find yourself spiraling into consumer debt if you can’t make your payments.

Tip: Pay Off Your Balance Each Month

If you struggle with credit cards, track what you buy and commit to paying off the balance each month, or put them away for now and pay with cash for a physical, tangible reminder of how much money you are handing over during a purchase. When it comes to cash vs. credit card spending, using cash can help you avoid overspending.

3. Sales and “Limited-Time Offers”

The field of economics teaches about something called the scarcity principle as part of supply and demand: Basically, the less available something is, the more you want it.

If you’re at the store or checking your email and see that something is on sale “for a limited time” or that there is “limited stock,” you might feel pressure to buy it right away. Shopping sales is an important practice when you want to save money overall, but you should never buy something simply because it is on sale.

Tip: Identify the Psychology

When you find yourself tempted by a too-good-to-pass-up sale, try to recognize the psychology of spending behavior at play. Are you being caught up by a store’s gimmick, or have you found an amazing deal you’ve been waiting for?

4. Special Occasions

Another topic to consider in the psychology behind spending big is shopping for special occasions, such as birthdays or holidays. You love the children and other people in your life and want to treat them to a big birthday present or a fun Christmas.

Or you may want to treat yourself after a promotion or for your own birthday. There’s nothing wrong with celebrating or gift-giving. But something about special occasions blinds us to price tags and inspires overspending.

Tip: Budget for Special Purchases

Make sure to budget more money for holidays and birthdays and stay within that budget. Consider other ways to show your love, such as a home-cooked meal or quality time together. There’s no need to break the bank to show your love—those closest to you will understand and support your financial goals.

5. Learned Spending Patterns

The family you grew up in (or married into) has its own culture of spending. If you grew up with parents who saved frugally, this psychology of saving probably rubbed off on you. But if your family is notorious for overspending on gifts, eating out, and making large purchases, you probably inherited those patterns too. Other people can influence our spending habits too, such as our partners or friends—we tend to spend like those around us.

Tip: Establish the Spending Pattern You Want

Even if your spending habits are ingrained, you can recognize where these habits came from and push back, starting a new pattern for your children to follow.

6. Retail Therapy

Spending money feels good—it can give the brain a shot of dopamine, the feel-good chemical. Some people have grown accustomed to shopping to soothe stress or other emotional pain. It doesn’t feel like much to brighten your day with a new pair of shoes or scarf now and again, but this kind of shopping can add up.

Tip: Build Healthy Emotional Habits

To push against retail therapy, start by learning healthy ways to handle your emotions, such as meditation and exercise. Find a replacement for your shopping habit that you can turn to instead of shopping.

Learn to Control Your Spending

There’s no need for overspending to control your life. Understanding the psychology of spending will help you know why it’s hard to save money—and give you the tools to be aware of your habits and make changes. As you’re out shopping in person and online, and making your budget, keep these principles of the psychology behind spending big in mind.