The psychology of spending

Have you ever bought something on a whim, only to later wonder what you were thinking? Or perhaps you've found yourself overspending in certain situations, like when you're out with friends or feeling down about a bad day at work. If these scenarios sound familiar, you're not alone. Our spending habits are often driven by powerful emotional factors that operate beneath the surface of our rational minds.

As a certified financial planner, I've spent years studying the complex ways our thoughts, feelings, and life experiences shape our financial behaviors. One of the most fascinating and important dynamics to understand is the psychology of spending.

By gaining insight into the emotional triggers that drive us to spend, we can develop greater self-awareness and make better choices with our money.   

The role of dopamine in spending 

To understand the pull of emotional spending, it helps to know a bit about how our brains work. When we experience something pleasurable — whether it's eating a delicious meal, receiving a compliment, or buying a new gadget — our brains release a neurotransmitter called dopamine. 

Dopamine is associated with reward-seeking behavior and motivation. It feels good, so we're driven to repeat the behavior that triggered that dopamine hit.

Over time, we tend to need more of a stimulus to get the same pleasurable dopamine response. So those spending habits that initially feel satisfying ultimately take more and more to maintain that emotional high — whether it's buying increasingly expensive items or simply needing to purchase things more frequently. 

This creates a spending feedback loop that can be hard to break. Being aware of how dopamine drives you to chase that "shopper's high" is the first step to making more conscious choices.

Spending can be a form of emotional regulation

At its core, much of our spending is an attempt to regulate our emotional states. When we feel anxious, sad, bored, or even happy, turning to purchases can provide a quick hit of pleasure, excitement, or comfort. Psychologists call this "retail therapy"— using consumption as a way to manage mood.

The problem, of course, is that the emotional boost from spending tends to be short-lived. That initial rush of acquiring something new quickly fades, often leaving us feeling just as dissatisfied as before, if not more so. And if the spending puts us in financial jeopardy, it can ultimately intensify the negative emotions we were trying to escape in the first place! It's a vicious cycle.

The key is to become aware of when we're spending primarily to soothe or avoid uncomfortable emotions. Next time you feel the urge to impulse buy, pause and check in with yourself: 

• What am I feeling right now? 

• Is there something I'm trying to distract myself from or cope with through this purchase?

• Are there other ways I could address that underlying need or feeling?

Simply bringing mindful awareness to these emotional spending triggers can loosen their grip and open up space for wiser choices.  

How your family & culture can affect your money story 

Another major factor in our spending psychology is the way we've been socialized to think and feel about money based on our family backgrounds and cultural contexts. 

We all carry subconscious "money stories" or scripts that were passed down to us, for better or worse. Unexamined, these old stories can drive our financial behaviors on autopilot.

For example, if you grew up in a family that treated money as a scarce resource and a source of stress, you may have internalized the belief that spending on yourself is frivolous or irresponsible. 

This could lead to a pattern of self-deprivation, where you subconsciously restrict your own enjoyment and comfort even when your actual financial circumstances could support greater flexibility.  

Conversely, if you were raised to view money as a status symbol and a means of winning approval or belonging, you may be prone to overspending as a way to keep up with the Joneses or project an image of success. The motive is less about the actual goods and more about what they symbolize.

Cultural differences in how we spend 

While the fundamental emotional drivers of spending may be universal, the way they manifest can vary significantly across cultures. Our financial habits are deeply shaped by the cultural contexts and values we're immersed in.

For example, in collectivist cultures that prioritize group harmony over individual desires, people may be more likely to spend money on gifts and shared experiences that nurture social bonds. In cultures with a strong emphasis on status hierarchies, consumption may be used as a way to display rank and prestige.

Even within the same culture, different subgroups may have distinct spending psychologies. Research has shown that in the US, high-income households tend to prioritize spending on experiences over material goods compared to low-income households. Other studies have highlighted gender differences in spending preferences, with women often placing a higher value on purchases related to self-care and personal appearance.

This isn't about judging one approach as better or worse, but about bringing a more conscious lens to how you engage with the financial messages around you.

The psychology of saving vs. spending

Just as spending is often emotionally driven, our saving habits (or lack thereof) have psychological roots as well. In one sense, saving is the opposite of spending — instead of seeking immediate gratification, we're delaying pleasure for a future benefit. This requires a degree of emotional regulation and impulse control.

However, saving isn't purely rational either. The feelings and beliefs we attach to saving can supercharge our motivation to put money aside or undermine it. If we've adopted a scarcity mindset from our family money scripts, we may be anxious savers, but we may also deprive ourselves of reasonable enjoyment. 

If we associate saving with a confident, empowered future self, we may feel more inspired to practice self-discipline in the moment.

Rather than viewing saving and spending as an either-or, black-and-white situation, I encourage a values-based balance. Yes, some degree of delayed gratification is important for financial health. 

But an overly restrictive, emotionally-starved approach to saving often backfires. The goal is to spend and save in a way that aligns with your priorities, both in the short-term and the bigger picture.

Social media and FOMO spending 

In today's hyperconnected world, it's impossible to talk about spending psychology without addressing the impact of social media. Platforms like Instagram, Facebook, and TikTok have fundamentally changed the way we engage with consumption. 

Constantly seeing curated images of other people's purchases, vacations, and lifestyles can generate intense fear of missing out (FOMO) — and trigger us to spend to keep up.

One study found that 40% of millennials have spent money they didn't have because of FOMO, often going into debt to avoid the anxiety of feeling left out or less than. Social media can make us feel pressured to present a certain image, leading us to make purchases not because we genuinely need or value the items, but because we crave the status and validation we think they'll bring.

If you find yourself feeling the pull to spend every time you scroll your feeds, remember that social media is a highlight reel — and is purposely designed to command our attention and cause us to spend money. 

How you pay can affect how much you spend

Another fascinating factor in spending psychology is the medium we use to pay. Researchers have consistently found that people tend to spend more when using credit cards than when paying with cash. 

There's something about the tangibility of handing over bills that makes the cost more salient in our minds compared to the abstract swipe of a card.

One study even showed that the further removed from cash a payment method is, the more people are likely to spend. So mobile wallet users tend to rack up higher totals than credit card users, who outspend those paying with cash. The convenience of digital payments makes it all too easy to disconnect from the real impact on our finances.

How decision fatigue impacts your spending 

Have you ever noticed how your willpower seems to dip as the day goes on? Maybe you dutifully pass up the office donuts in the morning, only to find yourself succumbing to a late afternoon vending machine raid. 

This phenomenon is called decision fatigue — the more choices we make throughout the day, the more our self-control muscle fatigues.

Researchers have found that decision fatigue doesn't just affect snack habits, it also impacts financial behaviors like spending and saving. One study showed that people were more likely to make impulse purchases and spend more money later in the day, when their mental energy was depleted from all the decisions they'd already made.

We can't avoid making decisions, but we can be strategic about when we put ourselves in spending situations. If you know you have a weakness for certain types of impulse buys, try to avoid those stores or websites when you're already mentally taxed. For example, I try to avoid grocery shopping when I’m hungry or tired. 

Save important financial choices for when you're feeling fresh and focused. Building habits around things like meal planning, budgeting, and automating savings can also reduce the daily load of money-related decisions.

Overcoming guilt and shame around your money 

We've all had those cringe-inducing moments looking at a credit card bill, wondering "What was I thinking?" It's easy to beat ourselves up and get stuck in a cycle of self-blame.

However, dwelling in guilt and shame rarely leads to positive changes. More often, it keeps us stuck replaying the past instead of taking action in the present. If you're grappling with painful spending regrets, remember to have compassion for yourself. You're human, and all humans make imperfect choices sometimes.

Focus instead on what you can learn from the experience. What emotional need were you trying to meet with that purchase? What could you do differently the next time that trigger arises? Reframe your slip-ups as opportunities for growth and self-discovery.

It may also help to zoom out and put your spending mistakes in the larger context of your financial journey. One or two impulsive purchases likely haven't completely derailed your goals. Don't let perfect be the enemy of good. Acknowledge your progress and keep taking small, consistent steps in the right direction.

Putting your financial feelings in perspective

At the end of the day, it's completely natural to have a range of emotions around spending. Money is a deeply personal and often emotionally charged topic. 

The goal isn't to become a robot, never swayed by a feeling to spend. Ironically, the more we try to suppress our financial feelings, the more likely they are to burst out in impulsive ways!

The compassionate approach is to simply turn toward the emotions underlying your spending with curiosity. Build a habit of noticing those feelings without judgment, and then decide how much you want them to steer your financial choices versus your longer-range intentions.

With practice, you can transform your emotional spending triggers into opportunities for greater self-insight and purposeful action. Remember, at its best, money is simply a tool meant to support what truly matters in our lives.