The Psychology of Money

If It’s All About the Money, What’s the Money About?

By Dr. Kayleigh-Ann Clegg, Clinical Psychologist and Clinical Content Specialist

“People have become so indoctrinated with the idea that having money is important, that they no longer question why. They are unaware that perhaps what they are truly seeking is an increase in self-respect, or security, or freedom, or love, or power.” – Goldberg & Lewis

Even if you’re well-settled into the rhythm of this new year and the financial hangover of the holidays has eased, it’s likely that money is still something that’s on your mind. These (seemingly unrelentingly) challenging economic times have many of us reviewing our finances and trying to get our budgets in order. Doing so requires more than understanding how best to crunch the numbers – it requires understanding and navigating your relationship with those numbers.

Let’s talk about the psychology of money and how you can build a healthier relationship with your wallet.

Money Matters: The Impact of Finances on Well-Being

There’s no shortage of evidence that money matters for well-being. Finances continue to be the number one stressor for the majority of Canadians and Americans. Financial strain or conflict is one of the top reasons couples cite for separation and divorce. The effects of poverty on individuals’ physical and mental health, communities, and society as a whole are amongst the farthest-ranging and most destructive researchers have documented.

But while financial satisfaction is a major determinant of life satisfaction and quality of life, contemporary research suggests that the relationship isn’t as simple as more money equals more joy, nor is there a magic number that guarantees a good life. An oft-cited study once suggested $70K was the sweet spot, but more recent research paints a picture that’s even more complicated than just adjusting that number for inflation. By ensuring we have what’s needed for our basic survival, the relationship between money and well-being is complex. That’s where our psychology comes in.

The Meaning of Money Matters

Money is not just a means for exchanging goods and services, the way we manage it is not purely mathematical and objective, and the satisfaction and happiness we derive from it is not a numbers game. There’s a subjective, psychological currency to money. When we sit down and look at our finances, the lenses we’re looking through aren’t necessarily clear and unclouded. Our financial decisions aren’t always logical, rational, or fiscally sound; they’re coloured by things like our past and current experiences, cultures, personalities, emotions, biases, and, perhaps most importantly, our beliefs and the psychological meaning we put on money.

We all have beliefs about money: whether it’s available to us, whether and how we should spend or save it, and what it means to and about us. These often-unconscious money scripts tend to develop in childhood; they’re shaped by things like experiences and messages we absorb about money from our caregivers, peers, and social groups. These scripts tend to stick around, guiding our financial behaviour in adulthood.

Research suggests that there are four especially common money scripts that tend to be more detrimental to us and can contribute to things like overspending, underspending, and financial anxiety:

• Money avoidance, the belief that money is inherently bad, immoral, or undeserved, may lead us to neglect building awareness of our financial situations, meeting our present financial needs, or saving for our futures.
• Money status, the belief that your net worth defines your self-worth, may lead us to accumulate debt, compare ourselves to others, and dismiss other important things in our lives to prove our “worth”.
• Money worship, the belief that money is the key to freedom and happiness and can solve all problems, may lead us to overestimate the importance of money and the sense of satisfaction it’ll bring us, putting us on a treadmill of impulse purchases and overwork that may only lead us to a vague and gnawing sense of discontent.
• Money vigilance, the belief that money needs to be carefully, vigilantly, and privately managed, may lead us to the healthiest portfolios of the four scripts but can cost us through missed experiences and frequent anxiety.

Our money scripts reflect and impact both the significance we give money in our lives, and why we give it that significance. For example, we may view money as a symbol and source of security, safety, independence, freedom, power, influence, or status. When we understand what our scripts are and the place we’re giving money in our lives, as well as how those things are informing our decisions, it empowers us to make more intentional, thoughtful choices about how we spend our time, energy, and money. It enables us to spend our limited time, energy, and money on things that bring us a greater sense of meaning, purpose, and joy.

Tips for Building a Healthier Relationship with Money

Here are a few final tips if you’re looking to build a healthier relationship with money and increase your well-being:

• Reflect on past experiences around money. Think about the messaging you got and the lessons you may have learned about money growing up. Did your family talk openly about money or was it a taboo subject? Did you know too much about money as a child, to the point that you were hyper-aware of it? How did your parents handle money – were they careful, impulsive, generous, miserly? Was money scarce or abundant? What do you think your parents valued money for? What experiences did you have with money as an emerging adult?
• Reflect on your beliefs, feelings, and behaviour around money. Think about how those past experiences may have informed your beliefs about money today. Is money a source of fear, anxiety, shame, guilt, or pride? What meaning do you place on money – what ends is it the means for? How are those beliefs affecting your behaviour? Are you aware of where your finances are, or do you feel uncomfortable or overwhelmed even thinking about them? How do you handle spending and saving? When do you spend money and what do you spend it on? Is the way you currently handle money in line with what you want money to do for you? Is there something other than money that can give you what you’re really looking for?
• Make sure your financial behaviour and goals reflect your values. Think about what really matters to you in life and what your core values are. Are your finances in line with those values? If not, think about small adjustments you can make to pull them in line with what’s truly valuable and meaningful to you.
• Increase your financial knowledge. Especially if you feel overwhelmed, uncomfortable, confused, or lost when it comes to finances, seek out resources that help you increase your financial knowledge and awareness. There are great resources on managing finances through your EFAP, and (in Canada) there’s a wonderful non-profit that provides one-on-one support for building financial literacy and planning your financial future (Credit Counselling Society). Managing money – and especially the lack of it – can be stressful, and it can really help to have someone look at your finances with you.
• If you’re on a metaphoric treadmill, get off of it. Research suggests that when we aren’t aware and being mindful and intentional about our finances, we can wind up getting trapped in a cycle of always needing to earn more and spend more in pursuit of happiness. This is called the hedonic treadmill and hedonic adaptation: we experience an initial boost and buzz from a salary increase or a new purchase, and then we rapidly return to our baseline – the glow doesn’t last. It’s a treadmill to nowhere (except maybe debt and stress). To get off that treadmill, research suggests: (1) Focus more on acquiring experiences than possessions, remembering that the best experiences – hiking a new spot with your dog, volunteering for a cause you care about, learning a new hobby or home repair skill, hosting a potluck – can be low- or even no-cost; (2) Incorporate a variety of experiences that bring novelty, challenge, and most importantly social connection; (3) Pause to really savour and appreciate the boosts you get from positive or new experiences, rather than rushing to the next thing; and (4) Don’t dismiss happiness, but try to focus more on things that bring you a more sustainable and deeper sense of meaning and purpose.

As always, don’t hesitate to reach out for support – whether that’s financial support to help you balance your budget, save for your retirement, or curb your spending – or psychological support to help you figure out your beliefs and feelings about , navigate financial conflicts in your relationship, address unhelpful money scripts, or clarify your values so you can make your money really work for you.

Selected References

• Britt, S. L., & Mentzer, J. (2011). Money Beliefs and Financial Behaviors: Development of the Klontz Money Script Inventory. Journal Of Financial Therapy, 2(2).
• Ebert, T., Götz, F. M., Gladstone, J. J., Müller, S. R., & Matz, S. C. (2021). Spending reflects not only who we are but also who we are around: The joint effects of individual and geographic personality on consumption. Journal of Personality and Social Psychology, 121(2), 378.
• Goldberg, H., & Lewis, R. T. (1978). Money madness: The psychology of saving, spending, loving, and hating money. New York: William Morrow and Company, Inc.
• Killingsworth, M. A., Kahneman, D., & Mellers, B. (2023). Income and emotional well-being: A conflict resolved. Proceedings of the National Academy of Sciences, 120(10), e2208661120.
• Klontz, B. T., & Britt, S. L. (2012). How clients’ money scripts predict their financial behaviors. Journal of Financial Planning, 25(11), 33-43.
• She, L., Rasiah, R., Turner, J. J., Guptan, V., & Sharif Nia, H. (2022). Psychological beliefs and financial well-being among working adults: the mediating role of financial behaviour. International Journal of Social Economics, 49(2), 190-209.
• Yang, W., Zhang, Y., & Wang, Y. C. (2023). Would travel experiences or possessions make people happier?. Journal of Travel Research, 62(2), 412-431.
• https://www.cnbc.com/select/73-percent-of-americans-rank-finances-as-the-number-one-stress-in-life/
• https://www.fpcanada.ca/2024-financial-stress-index