The holiday season is quickly approaching and you will be persuaded, cajoled, guilt induced, and otherwise encouraged to part with your money. Are you more or less susceptible to such influences by both your psychological history and the state of your brain? As a psychologist, I certainly acknowledge the influence of both our experiences and our brains on our current behaviors. This is the old nature/nurture debate which has been around seemingly forever. I wrote a post on May 3, 2016 titled "Is mothering instinctive or learned?" in which I discussed nature/nurture relative to mothering. So you might want to think about the influences of nature and nurture on your spending before the coming onslaught of marketing.
Now I go to a variety of seminars. I went to one called the Millionaire Mind Intensive. It is based to a large extent on the best selling book by T. Harv Eker titled "Secrets of the Millionaire Mind". In both the book and at the seminar, a major premise is that we have come to our beliefs about money (so-called "money blueprint") secondary to our life experiences, e.g. from parents, authorities, etc. During the seminar we were encouraged to consider whether we were predominantly savers or spenders. However, while many people believe that money handling habits solely come from parents or caregivers, some current research is showing that our habits aren’t just based on conditioning and money management lessons we learned as kids. There are spenders and savers in the same families, kids who grew up in poverty and still develop great wealth, and heirs who blow the family fortune.
So what brain forces shape the way you view money? In his book "Coined:The rich life of money and how its history has shaped us", author Kabir Sehgal noted three ways in which the state of your brain influences your financial behaviors:
1. Money heightens neural activity
When you are negotiating about money, your nucleus accumbens is stimulated. This is a part of the brain tied to reward circuits. In one study, researchers scanned the brains of 12 people as they played games for money. Mr. Sehgal wrote that everyone in the group experienced heightened neural activity, especially in the nucleus accumbens. When the researchers compared their brain scans with those of addicts who were high on cocaine, they found they were almost identical. Thus, money stimulates reward centers in the brain.
2. Brain scans reflect risk-taking behavior
Mr. Sehgal noted another study examining why investors make irrational financial decisions. The researchers found they could predict whether a participant would choose to buy a riskier security, like a stock, or a less risky one, like a bond, just by scanning their brains. The subjects who had naturally elevated stimulation of their nucleus accumbens would most likely buy the stock.
3. Ties to the emotional areas of your brain
In an article by Suzanne Kearns in Money Crashers titled "Psychology of money-How saving and spending habits are programmed in your brain", she discussed a study in which participants’ brains were scanned as they pretended to make buying decisions. Researchers observed activity in an area of the brain called the insular cortex, which is stimulated when you experience something unpleasant. The more stimulation in the insular cortex, the less likely you are to keep doing what you’re doing. When it comes to money, insular cortex stimulation can reduce your spending. Researchers concluded that people who have more insular cortex activity in their brains are more likely to be savers, and those with less tend to be spenders. Spenders can end up in financial trouble later in life, and savers can end up with regrets because they did not spend. Recognizing which one you are can help you reach a healthier balance, just as I learned in my seminar.
Spenders have a difficult time delaying gratification. What can you do to cut back on spending? Kearns offers the following suggestions in her article:
1. Never use credit cards or other lines of credit. By using cash, you force yourself to consider just how much you’re spending.
2. Withdraw cash from your bank account yourself, so that you can see the dwindling balance.
Pay as you go. Pay for everything as it comes, and you’ll better understand how all that money goes away.
3. Be vocal about your savings goals. If you tell close friends and family how much you intend to save and by what date, they’ll hold you accountable. This is one of the several things I ever learned in social psychology classes. Making a "public" pronouncement makes you more likely to carry out the promised activity.
4. Reward yourself when you meet your savings goals, but only by spending a responsible percentage of what you saved.
5. Stop and ask yourself before each and every purchase whether or not you truly need the item. Know the difference between needs and wants.
6. Look at the future, no matter how uncomfortable it is. Ask yourself questions like how much money you’ll need to retire, or how you’ll pay for your child’s college education.
Savers don't get away either. Savers sometimes miss out on life's joys based on feeling uncomfortable when spending, even when some of the joys may be inexpensive. So it may be time for savers to loosen their grip on the money and enjoy spending a little more. Kearns has some tips here as well:
1. When it’s time for something pleasurable, like a vacation, distance yourself by paying with a credit card. You’ve already set your budget and you have the cash to cover it, so now you can take your mind off of the expense and relax.
2. Be vocal about your spending goals. When you’re planning to make an exciting purchase, even if it sounds like a boring necessity, tell everyone you know and set a date to close the deal. Remember, it's the social psychology power of a public pronouncement.
3. Treat your purchases as a reward for something that you’ve done well, so they’ll take on more value in your mind.
4. Ask yourself about your future: Do you really want to have regrets over the things you didn’t do because you wouldn’t spend some money on enjoyment?
One other good idea for both savers and spenders comes from Dr. Thomas Gilovich, a psychology professor at Cornell University. He noted that often we assume that there is more value when we buy a material object rather than an experience like a concert or vacation. This is because we think we will be happier for a longer time because the object lasts longer. However, recent research does not support that assumption. Adaptation leads us to be happy with material objects initially but that happiness does not last. So Dr. Gilovich suggests that rather than buying the latest gadget, invest money on experiences like traveling, learning new skills, going to exhibits or other events. He noted that "Our experiences are a bigger part of ourselves than our material goods; You can really like your material stuff. You can even think that part of your identity is connected to those things, but nonetheless they remain separate from you. In contrast, your experiences really are part of you. We are the sum total of our experiences."
So invest (spend) in your experiences. You will remember and value them as well as be happier about them over the long run. Examine the psychological influences on your mental "money blueprint". As always, your mindset (core set of beliefs) has great power over your financial spending habits. However, be mindful that your brain is susceptible to some extent in driving you toward being a saver or a spender. Best wishes for successfully navigating the spending challenges of the upcoming season.
Good luck on your journey.
Dr. Paul Longobardi
For information on these and related topics, please see my website at www.successandmindset.com