The Psychology of Money


When you think of your personal finances, how often do you factor in your psychology?

For many of us, we view our psychology and finances as two totally separate entities with pretty much nothing in common.

Money is a social construct after all. Yet what we do with our money says a lot about how we feel and think.

Personal finance is just that-personal.

Adam Smith, the father of classic economics, loved to use the rational self-interest model. But what I am talking about is the irrational model of human behavior.

The reality is people off act irrationally, selfishly, and not in their best interest–this holds true for how they manage their finances as well at their life in general.

Have you ever wondered why you feel the way you do about money?

Maybe you are someone whose number 1 goal in life is to obtain as much money as possible.

Maybe you are someone who sees money as a necessary evil–you need it to pay bills but may hold the belief that money is the root of all evil.

Or maybe you fall somewhere in between on the spectrum.

Money is not about finances, it is about emotions.

The inner game of money is about psychology. Money problems are psychological problems.

Cash will not fix your money problems if you do not fix your psychological problems.

Look at the stock market—a prime example of where psychology and money interact.  The market acts AND reacts to news immediately.
When things are stable–the market looks good. When things appear less predictable, the market can react negatively.

The psychology of money explains why so many top earners are in debt.

Why so many Americans do not save ANYTHING for retirement.

Why studies show more money equates with less empathy.

Why studies show poverty leads to depression.

Why people can become addicted to spending (shopaholic).

As you can imagine, money is a hot button emotional issue.

As a clinician, I see how a depressed client would be less apt to stock money away for the future. When you are depressed it is hard to get through the day let alone plan ahead.

If you are anxious, you may struggle with making the right financial choice to the point of where you are paralyzed and do nothing.

Even to a less degree, those of us who are more or less mentally well, all have a story to tell about doing dumb things with money.

Whether an impulse buy or a bad investment, none of us are immune to poor financial choices.

Money. So much of our lives is spent needing it, earning it, wanting it, spending it and then regretting what we did with it.

Being smart about money is more about our mind than it is about the figures.

IF you are someone who is driven to amass as much of a fortune as possible–what you are truly driven by is the feelings you think that money will bring. Freedom. Security. Other people’s envy. Feeling accomplished and worthwhile. Status. Power.

IF you are someone who is not that interested in money, it is because you do not view money as something that will in and of itself bring you happiness.

Most of what drives us as people is what we think will bring us happiness.


Often I ask a client what their goal is in treatment and they say, “To be happier.”

Money certainly impacts our happiness—most people will tell you without a certain amount it would be impossible to be happy. If you have little to no money you will certainly experience more anxiety, depression, and negative mental health symptoms.

Fear, anger, shame are common emotions surrounding money.

Just imagine….

How would you feel if you were down to your last penny?

How would you feel if you inherited a windfall?

Our financial situation impacts our overall psychology.

Many financial planners try to work with clients to take the emotion out of investing because emotions tend to determine how we save and spend.

Are you a saver? Happy to grow those bank balances, irked when you need to spend some of that money?

Are you a spender? Does you money go out as fast as it comes in?

Are you in debt? Do you live beyond your means?

Many of us have a complicated relationship with money.

Money is something we all NEED to survive. But do you understand how money works? Are you cognizant of the impact it has on your life?

Money is something that ends relationships—money is the number 1 reason for divorce and fights over inheritances/settling of wills often lead to family estrangement.

Money is a top stressor for people–across age, gender, race, socioeconomic background.

Sadly, money is the number 1 priority in many people’s lives–to the detriment of their health, families, quality of life, and relationships. Materialism and consumerism are very much at the center of our culture–it is what drives many who walk among us.

The backlash to this has been a trend in minimalism.

Yet many people go into debt trying to keep up with the Jones—and what drives this behavior? Emotions.


People want to impress people with how money they have and the material goods they acquire.


For me, the size of someone’s house, the brand of watch on their wrist, or the type of car they drive never impressed me. I always cared more about how someone treats others, the content of their character, and how funny they are (I like to laugh).

These are the type of people I surround myself with.

But often I feel my values are becoming the anomaly in our culture.

Money for many validates them and makes them feel important.  Some look down on others who have less money and revere people who have a ton of money. How we treat people should not be determined by the amount of money a person possesses, yet this has become all too common of a practice in our materialistic society.

We can see our values about money being reflected in who we as society elect to run our country—our beliefs about money, how best to spend it and save it, being central in what political party we tend to be drawn to.

Too often money is the center focus of our life without us consciously recognizing this being the case.

If you look at money to validate you–you are headed down a slippery slope.

Think about the people you love and care for most in your life. I can guarantee you love them for many reasons—none of which being how much money they have.

If money is the sole driver for you–you will in all likelihood drive others away.

I have encountered people whose focal point is money for their validation in life that they would ask outright how much money other people make. They just needed to know to see how they compare that they couldn’t even help themselves but to ask. This is a sign of someone so dependent on money for validation that they need to know where they stand in comparison to others to feel important.

This is not a healthy way to be.

We can see our President espousing his views on money on the daily–stating he loves rich or people but going as far as to say he wouldn’t want a “poor person” in his Cabinet.

People’s views about money are constantly being revealed to us if we pay attention.

Moreover, what is about money that leads to so many problems–psychological and otherwise?

The answer may be found in how we were raised.

Our first messages about money come from our families growing up–often our parents. Whether we grow up in poverty or wealth or in between, we often internalize the messages set forth by our families about money.

Yet there are people who inherit great wealth and blow the family fortune and people who grow up in poverty who amass great wealth.

Some of us follow in the footsteps of our parents’ financial values. Others live in the polar opposite reaction to their parents’ financial values. For instance, if your parents spent too much and lived beyond their means, you may be stingy. You may swing the pendulum in the opposite direction. The reverse can also hold true.


In our country, our economic status is not set at birth (although this is controversial to say–I am sure some people would say otherwise).

Generational wealth and generational poverty does exist.

But what makes someone a saver or a spender?

Two primary motivators seems to drive us–pain and pleasure.

Anything we prescribe pain to we are going to avoid. Anything we derive pleasure from we will move towards it.

Spenders seem to struggle with delaying gratification. They look at spending as a way to derive pleasure. Spenders look at what works for them in the shot-term.

Savers are the ones who sacrifice to save. They look at saving money as a way to avoid pain. Savers have a long-term strategy.

The reality is money influences our relationships. It influences how people treat you. If you are dressed in designer labels, driving around in a Mercedes, you will have a different experience than rolling up in a beater wearing jeans and a tee-shirt.

We all hold views about money and the people who have it. Or don’t have it.

We all have our own money scripts—our core beliefs about money.

I know for me it is important to be financial independent–I would not feel comfortable depending on a spouse, my parents, or ANYONE else for my financial well-being. I would be okay if it was situational (going back to school, after having a baby, etc.) but would not feel comfortable being financially dependent on someone else throughout my life.

This is just my own philosophy. It is okay if you believe differently.  We all have different perspectives on finances and independence. This is why this post is about the PSYCHOLOGY of money—all of our psychologies are different. Personally I think financial independence goes hand in hand with overall independence. Doesn’t make it true for everyone, but holds true for me.

I am aware and respect that not everyone feels that way. We all have our different approaches to life and our finances.

At the end of the day, a change in our financial situation starts with a change in how we think about money.

If you feel you struggle with your finances or it damages the relationships in your life, it may be helpful to seek out a counselor who can help you understand your core values and beliefs about money. You may have subconsciously internalized values that you do not even truly believe from your family of origin.

By seeking counseling and understand how you personally identify with money, you can develop financially healthy habits. If we get a better handle on our money, we can lead happier and healthier lives.





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