Financial Psychology: How Emotions and Beliefs Shape Your Money Habits
by Jervis Hough, Chief Operations Officer/Chief Compliance Officer, Blaylock Van LLC
Money may be tangible; but our relationship with money is anything but simple. Behind every budgeting decision or impulse purchase lies a complex web of emotions, beliefs, habits, and subconscious influences. Financial psychology – the study of the mental and emotional factors that shape money decisions – is crucial for understanding why we manage money the way we do. By recognizing how our attitudes toward money are formed and how they influence behavior, we can start to reshape our habits and improve our financial well-being.
Money and Emotions
People often assume that managing money is purely logical – involving numbers, budgets, and balance sheets. But in reality our financial choices are deeply intertwined with our emotions. Fear, guilt, shame, anxiety, pride, and even love can play powerful roles in how we spend, save, and invest.
For instance, someone who grew up in a financially unstable environment might experience anxiety about spending, even when they have plenty. On the flip side, people who tie their self-worth to material possessions may overspend to create an image of success. These emotional patterns can lead to behaviors like hoarding money, avoiding financial planning, or impulsively spending beyond one’s means.
Emotional spending – buying items to alleviate negative feelings or boost one’s mood – is a common example of how emotions override logic in the money sphere. Such actions may offer short-term satisfaction, but can cause long-term financial damage. Recognizing emotional triggers is the first step in the shift toward healthier financial behavior.
Influences that Shape Our Money Habits
Financial habits don’t form in a vacuum. They are shaped by a range of factors including family dynamics, cultural norms, socioeconomic background, and early experiences with money.
Family influences: We observe our parents or caregivers handling money, which profoundly affects our own attitudes. If your parents argued about finances or were overly frugal, you might have an aversion to discussing finances or feel guilty spending. On the other hand, if they modeled responsible budgeting and saving, you’re more likely to adopt similar practices.
Cultural background: Culture plays a significant role in our money attitudes. Some cultures emphasize saving and debt avoidance, while others prioritize generosity or status-driven consumption. Cultural norms influence how we view money’s role in life – from security and independence to family obligations and prestige.
Life experience: Personal milestones – like receiving a first paycheck, going into debt, or experiencing financial hardship – also influence money behaviors. Trauma related to financial loss, in particular, can lead to lasting fear or avoidance.
Attitudes, Beliefs, and Behavior
Everyone has what’s called a “money script” – a set of unconscious beliefs about money formed early in life. These scripts drive our financial behaviors. Money scripts generally fall into four categories:
These beliefs affect everything – from how you approach debt to how you discuss money with partners. For instance, a person with a “money status” mindset might focus on outward displays of wealth, even at the expense of savings or debt accumulation. Alternatively, someone with “money avoidance” tendences might neglect to pay bills or avoid checking their bank account.
Changing these deeply ingrained beliefs requires awareness and effort. Financial therapy and self-reflection can help uncover hidden money scripts and replace them with more constructive attitudes.
The Power of Goal-setting
One of the most effective ways to reshape money habits and counter negative financial behaviors is through clear, realistic goal-setting. Financial goals provide direction and motivation, helping people focus on long-term outcomes rather than short-term gratification.
One way to set good goals is to use the SMART method:
Setting and working toward financial goals can change your mindset from reactive to proactive. Instead of just trying to avoid financial problems, you start actively building toward a better future. This shift in perspective also can increase your confidence and reduce anxiety.
Creating Positive Financial Habits
Once you have clear goals, the next step is building consistent habits that support them. The process involves tracking spending, creating and sticking to a budget, automating savings, regularly reviewing your progress, and celebrating milestones. Small changes – like using cash for discretionary spending or setting up automatic transfers to a savings account – can gradually lead to big results.
An equally important step is developing a growth mindset about money. You will make mistakes. But viewing them as learning opportunities rather than failures helps you maintain motivation and progress.
Conclusion
Money is never just about money – that’s what financial psychology teaches us. Our relationship with finances is shaped by emotions, influences, experiences, and beliefs that often operate below the surface. By bringing these factors into the open, we can start to understand our financial behavior better and make intentional, value-driven changes. Through emotional awareness, self-reflection, and goal-setting, anyone can build healthier habits and a more empowered financial future.
