The psychology of money

The psychology of money
Photo by Alicia Christin Gerald / Unsplash

What is the first emotion that you feel when I say the word “money”? Why some of your friends are savers and some are spenders?

Money has powerful emotional associations. Ask people what emotions are most frequently associated with money and research provides the following rank-ordered list: anxiety, depression, anger, helplessness, happiness, excitement, envy, resentment.

Psychologist Adrian Furnham has wrote books and articles proving that there is a strong relationship between money and the human brain. Remember how you felt last time you got a bonus or pay raise?

Money can stand for many things:

  • Security: Emotional security is represented by financial security and the relationship is believed to be linear - more money, more security. Money is an emotional life jacket, a security blanket, a method to stave off anxiety. Money bolsters feelings of safety and self esteem and so is hoarded.
  • Power: Because money can buy goods, services and loyalty, it can be used to acquire importance, domination and control.
  • Love: For some money is given as a substitute for emotion and affection. Those who visit prostitutes, ostentatiously give to charity; spoil their children are buying love. Others sell it: they promise affection, devotion, endearment and loyalty in exchange for financial security.
  • Freedom: This is the more acceptable and more frequently admitted attribute attached to money. It buys time to pursue one's whims and interests, and frees one from the daily routine and restrictions of a paid job. Money buys escape from orders, commands; everything that restricts autonomy and limited independence.

Money and Rationality

Bankers, Economists and Financiers assume that people, like themselves, are rational with respect to their own money. But they could not be more wrong. Most people are ignorant and irrational with nearly everything about their money. The belief about what money is good for; how best to acquire, multiply and store it; and about the happiness it brings are demonstrably false.

Money matters are frequently discussed - the rate of tax, cost of living, property prices - but personal finance still remains a taboo topic. Celebrities and ordinary mortals seem happier to talk about the intimate ramifications of their sex lives and mental health than about their monetary status, salary or financial transactions. Also, many people with a lot of money are very bad at managing them; it’s not rare to see movie stars or athletes once rich are now struggling at arriving to the end of the month

In our culture, money issues are often denied, overlooked, or ignored in courtship, argued about constantly in marriage; in fact money is the 1st reason for divorce for early couples. Contested wills between different claimants can turn any reasonable human being into a wolf or break apart families.

Studies show that parents rarely talk about money to their children but that children acquire many of their money habits from their parents. Surveys show that over 90% of adults would like their children to know more about the financial reality of life than they currently do, but that they are not really confident enough to ensure their children are financially literature, sensible and mature.

The new discipline of behavioral economics is based on thinking fast and not slow: that is using rules-of-thumb which lead to erroneous conclusions. There is now a huge interest on nudging people along by cleverly presenting information in a particular way which often hood-winks them.

Money as a motivator

One of the most debated issues is the motivational power of money at work. We are all different and have different priorities, does money push you to work harder? Some people see it as demotivator and prefer other things such as public recognition or more time off. In fact, based on some data on this topic the correlation between job and salary satisfaction is very low. The research shows that employees in the top half of the salary range have very much the same level and degree of satisfaction than those at the bottom level.

A recent analysis by Doug Short, vice president of research at investment group Advisor Perspectives, shows that money can only buy happiness up to a point. But just how much you need to get to that threshold really depends on where you live:

As you can see from the infographic, in the majority of the US, most of the families are happy with a $65k-75k annual income. The higher income required in the other States is most likely connected to the higher life cost.

Money as a Demotivator

Can money be more a cause of negative than positive effects? Some psychologists think so:

  • Salary increases are temporary: the effects of a pay rise wear off as people adapt to their new conditions - and life standard. Normally it can take even just two to three months to get used to the higher salary.
  • Because of our natural competitive nature, what leads to pay satisfaction is how much we make compared to the others. So if my salary goes up dramatically, but so does that of my friends/colleagues, there is no change in my behavior. No matter what people are paid, if they believe, with or without evidence, that they are not equitably and fairly paid, they become demotivated.
  • Money is not everything: would you chose money over health or time with family? The great resignation triggered by the COVID-19 pandemic, showed us that many people started to put flexibility over money, even if that means a pay cut.
  • Higher salaries also mean higher taxes, hence the increase might not be as much as it seemed and not worth the effort.

Ok but what can I do if I really want to spend money? Well, at least do it for something that can increase your happiness scientifically. Check out my other article on 5 Ways Money Can Buy Happiness, Backed by Science.


Money remains a taboo topic, more so than sex and death, and yet it can arose enormous passions in the workplace and the home. It is precisely because it is often not openly discussed that it can cause so much argument and stress.