The Psychology of Money

1. The Psychological Aspects of Money

In the last lesson, you learned all about the power of personal finance. Now, let’s look at it from a psychological lens.

Money is more than numbers in a bank account or the paper bills in your wallet. It’s emotional, psychological, and deeply tied to who you are and how you make decisions. It’s about your emotions, upbringing, beliefs, and fears. If you’ve ever wondered why you feel anxious about spending, why saving feels impossible, or why you can’t break free from financial mistakes, you’re not alone. Understanding the psychological aspects of money, your financial behaviors, and the factors that influence your financial decisions can be life changing.

Before we dive into behaviors and external influences, let’s start with what’s closest to home: your mindset and how it’s shaped. How you think and feel about money influences every decision you make, whether you realize it or not.

Your Money Story

Everyone has a money story—the narrative you’ve unconsciously built about what money means to you. These stories are shaped by your upbringing, cultural influences, personal experiences, and even societal expectations. Did you grow up hearing “Money doesn’t grow on trees”? Were you taught to save every penny, or were you encouraged to spend because “you can’t take it with you”? These messages become the foundation of how you think, feel, and act with money today.

Your money story isn’t just about numbers; it’s deeply emotional and personal. It influences the choices you make every day—whether you’re budgeting, saving, spending, or even talking about money with others. It’s not just about what you do with money but why you do it. Understanding your money story is the first step to taking control of your finances and shifting patterns that may be holding you back.

think about it

Imagine this: You’re standing in line at the store, about to buy something. You pause and wonder why this purchase feels like a small act of rebellion. Maybe it’s because you grew up in a household where every dollar was scrutinized, and now you’re subconsciously pushing back against that tight control. Or maybe it feels indulgent because you were always taught that spending on “wants” was wasteful. These small moments reveal how deeply your money story is embedded in your everyday life.

Let’s look at a few examples of money stories:

Scenario 1: Emily’s Story

Emily grew up in a household where her parents fought about money constantly. Discussions about bills and spending would escalate into heated arguments that filled her with anxiety. As an adult, Emily avoids checking her bank account altogether because money feels stressful and overwhelming. She often ignores financial issues until they become urgent, reinforcing her sense of dread.

Scenario 2: Marcus’s Story

Marcus was raised with a “work hard, spend hard” mentality. His parents believed that life is short, so you might as well enjoy it. Vacations, gadgets, and nights out were always prioritized over savings. Now, Marcus lives paycheck to paycheck, thinking, “What’s the point of saving if you can’t enjoy it?” He struggles to break free from this cycle, even though he dreams of owning a home and building wealth.

Scenario 3: Priya’s Story

Priya grew up in a family where saving was a badge of honor. Her parents clipped coupons, hunted for sales, and kept a spreadsheet of every expense. While this taught Priya the value of financial discipline, she now feels paralyzed when making decisions about spending. She agonizes over every purchase, afraid of “wasting money,” which keeps her from fully enjoying her hard-earned income.

think about it

These examples show how your money story can either empower you or limit you. By uncovering your money story, you can start to identify patterns and beliefs that no longer serve you. Once you see the roots of your behavior, you can rewrite your story to align with your goals and values.

Ask yourself these questions:

• What did I learn about money growing up?
• How do those lessons show up in my life today?
• What parts of my money story do I want to change?

Your money story doesn’t have to define your future. It’s a starting point—a way to uncover the emotional foundation of your financial life and begin building a healthier relationship with money.

Money Scripts

In addition to your money story, you likely have money scripts—those deeply ingrained beliefs about money that influence your behavior, often without you realizing it. These scripts are the “rules” you’ve internalized about money based on childhood experiences, societal influences, or even trauma. While some money scripts can be empowering, many are limiting and can hold you back from achieving your financial goals or living the life you want.

Money scripts are sneaky. They shape how you make decisions—what you spend on, what you save for, and even how you feel about financial success. The key is recognizing your dominant money scripts and evaluating whether they’re truly serving you or sabotaging your financial health.

The Four Major Money Scripts

There are four major money scripts to be aware of. You might relate to one script or another, and that might change throughout your lifetime.

1. Money Avoidance
   1. Belief: “Money is bad” or “Rich people are greedy.”
   2. Behavior: This involves avoiding finances, undercharging for work, or feeling guilty about having money.
   3. Impact: This leads to financial instability and missed opportunities for growth.
2. Money Worship
   1. Belief: “More money will solve all my problems.”
   2. Behavior: This involves overworking, overspending, or prioritizing wealth above all else.
   3. Impact: This creates stress and dissatisfaction, as happiness doesn’t always follow wealth.
3. Money Status
   1. Belief: “My self-worth equals my net worth.”
   2. Behavior: This involves compulsive spending, keeping up appearances, or using money to impress others.
   3. Impact: This often leads to debt and financial insecurity despite appearances of success.
4. Money Vigilance
   1. Belief: “You must save and be cautious with money at all times.”
   2. Behavior: This involves extreme frugality, fear of spending, or mistrust of financial decisions.
   3. Impact: This can prevent the enjoyment of money and lead to missed opportunities for growth.

These scripts operate behind the scenes, guiding your financial choices. By recognizing your dominant money script, you can challenge unhealthy beliefs and build a healthier, more intentional relationship with money.

reflect

Imagine you’re about to pay for a fancy dinner with friends. As the server brings the check, you feel a pang of unease. Are you overspending to keep up with your friends because you believe spending equals connection? Or are you quietly resenting the cost because of a script that says, “I shouldn’t spend money on things that aren’t practical”? That internal tug-of-war is your money script in action.

hint

Identify your dominant money script by asking yourself these questions:

• “What do I believe about money that might not be true?”
• “Where did I learn this belief?”
• “How does this belief show up in my actions or decisions?”

Once you recognize a limiting money script, challenge it by looking for evidence to the contrary.

For example:

• If you believe, “I’ll never have enough money,” look at times when you’ve successfully paid off debt, saved for a vacation, or hit a financial goal.
• If you think, “Money is the root of all evil,” consider how money has helped you create good in your life, like donating to charity or taking care of loved ones.

Money scripts are often the silent drivers of financial behavior. By bringing them to the surface and questioning their validity, you can start making intentional choices that align with your goals instead of being controlled by old patterns.

brainstorm

Write down your dominant money script and challenge it by journaling evidence that disproves it. Then, rewrite the script into something more empowering. For example:

• From “I’ll never have enough money” → “I am capable of creating financial abundance and managing it wisely.”
• From “Money is the root of all evil” → “Money is a tool that allows me to create positive change in my life and the world.”

You can rewrite your financial story—and it starts by rewriting your scripts.

terms to know

Money Story

Your personal history and experiences with money that shape how you think, feel, and act financially.

Money Script

Deep-seated beliefs about money that influence your financial decisions and behaviors.

1a. The Emotional Side of Money

Money can trigger a whirlwind of emotions—shame, guilt, anxiety, fear, excitement, or even joy. These emotions aren’t inherently bad; they’re simply signals that something deeper is happening. However, when we let emotions dictate our financial decisions, we often act in ways that aren’t aligned with our goals or values.

As we’ve already discussed, money isn’t just numbers on a spreadsheet; it’s tied to our sense of security, self-worth, and even identity. This is why money decisions can feel so loaded. Recognizing the emotional triggers behind our financial choices is a key step toward creating a healthier relationship with money.

EXAMPLE

Let’s say it’s Friday evening. You’ve had a tough week at work, your inbox is still overflowing, and your boss has been particularly demanding. You’re scrolling through an online store, convincing yourself, “I deserve this.” You hit “Buy” on something expensive—maybe it’s a new gadget, outfit, or subscription you’ve been eyeing. At that moment, it feels good, even empowering. But the next day, regret kicks in. Why did I spend that much? I didn’t really need it. This is emotional spending in action—using money to soothe emotions rather than addressing the root cause.

This is just one example of how emotions can influence our behavior with money.

Here are more ways it might show up:

• Impulse Spending:

You feel stressed, bored, or even excited, and you make unplanned purchases to manage that emotion. The rush feels good temporarily, but it often leads to buyer’s remorse and financial strain.

• Fear of Investing:

You want to grow your wealth, but the fear of losing money holds you back. Instead of taking small, manageable steps, you avoid investing altogether. This fear could cost you long-term wealth and financial security.

• Oversaving:

If you grew up with a scarcity mindset, you might feel anxious about spending, even on things you truly need or enjoy. You hoard money to feel safe, but this prevents you from living fully in the present.

• Generosity Guilt:

You feel guilty when you spend money on yourself, so you overgive to others—whether that’s friends, family, or causes you care about. While generosity is a beautiful trait, overextending yourself can leave you feeling resentful or financially depleted.

• Excitement-Fueled Risks:

On the flip side, emotions like excitement can lead to overly risky financial decisions. Maybe you put money into a business idea or investment without fully researching it because it felt like the right move at the time.

reflect

The next time you’re about to make a financial decision, pause and ask yourself these questions:

• “Am I reacting to an emotion, or making a logical choice?”
• “What emotion am I feeling right now?”
• “Is this decision helping or hurting my long-term financial goals?”

This pause gives you a moment to separate your emotions from your actions.

Emotions aren’t the enemy—they’re a natural part of your financial journey. But left unchecked, they can lead to patterns that keep you stuck. By recognizing and managing the emotional side of money, you can make intentional choices that move you closer to the financial life you want.

try it

Keep a money journal for a week. Each time you spend money, write these down:

1. What you purchased
2. How you felt before, during, and after
3. Whether the purchase aligned with your financial goals
   

This practice can help you uncover emotional patterns and make more mindful financial decisions.

Now that we’ve explored the emotional side of money, let’s dive into how those emotions translate into financial behaviors—unpacking why we make the choices we do and how to shift those patterns to align with our goals.

term to know

Emotional Spending

Buying things to cope with feelings like stress, sadness, or boredom rather than out of need.

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2. Financial Behaviors

Having uncovered the emotional and psychological foundations of money, it’s time to focus on the actions those beliefs inspire. Your daily financial habits—whether intentional or not—are a direct reflection of these deeper patterns. When left unchecked, these behaviors can keep you stuck in cycles of stress, avoidance, or overspending. Let’s explore four common financial behaviors and how they show up, so you can start identifying and shifting them in your own life.

1. Spending Habits

Spending is often tied to how we feel in the moment. Think of the last time you treated yourself to something unexpected. Was it a reward for a tough day or a way to feel better in the moment?

• Example 1: Alicia buys a coffee every day because it’s her “me time.” It’s not just about the coffee; it’s about self-care. While it seems small, these daily purchases add up and reflect her need to carve out personal moments.
• Example 2: Jamal shops online late at night when he’s bored or lonely. His purchases rarely bring long-term satisfaction, but in the moment, they fill an emotional gap.

reflect

Have you ever opened your bank statement and been shocked at how much you’ve spent on small, insignificant things? Those purchases often come from an emotional place, not a practical one. Recognizing this connection is the first step to creating healthier spending habits.

2. Psychological Triggers

Let’s bring this concept closer to home with a relatable scenario: Sarah gets a bonus at work. She feels she’s been working so hard and deserves a splurge. She spends the entire bonus on a luxury handbag. A week later, she regrets the decision because she realizes it could have gone toward her debt. The handbag purchase wasn’t about need—it was about rewarding herself emotionally.

What Sarah didn’t realize is that her spending was tied to a mindset of lack. She thought, “If I don’t spend it now, I might not get another chance.” Understanding this trigger can help her make more thoughtful choices next time.

3. Saving Habits

Saving money can feel boring, but it’s the foundation of financial security. Why, then, is it so hard? For example, Nadia knows she should save but spends her entire paycheck each month. Why? Because saving feels like she’s depriving herself, and she grew up in a household where there was never enough.

EXAMPLE

You’re setting aside $20 a week for savings. At first, it feels pointless. But over time, you notice the balance growing. It starts to feel like a safety net—something you’re building for yourself. This keeps you motivated to keep saving money and make intentional choices with your spending.

For some, saving feels restrictive. You might think, “If I save, I can’t enjoy my life now.” The trick is to reframe saving as a form of self-care. By saving, you’re saying, “I care about my future self enough to provide security and freedom.”

hint

Reframe saving as something positive. Instead of thinking, “I’m giving up $50 this week,” say, “I’m paying future me $50.”

4. Debt Cycles

Debt often feels like a trap, but it’s rarely just about numbers. It’s about behaviors, too. Why do so many people fall back into debt after paying it off? For example, Carlos pays off his credit card but immediately charges it back up. Why? Because he hasn’t addressed the underlying behavior: using credit to feel “wealthy” when he’s actually overspending.

Debt can also feel overwhelming, which leads to avoidance. Many people don’t open their bills or look at their balances because it triggers anxiety. This avoidance makes the problem worse, creating a vicious cycle.

Breaking the Cycle

Imagine breaking free from these patterns. What would it feel like to:

• Buy something without guilt because you planned for it?
• Save consistently without feeling deprived?
• Pay off debt and stay debt-free because you’ve addressed the root cause?

Change becomes possible when you identify the psychological triggers driving your financial behaviors. Awareness is the first step; the next is building intentional habits that empower you to replace patterns that no longer serve you.

term to know

Financial Behaviors

The actions and decisions you make with your money, such as spending, saving, investing, and borrowing.