Why It Feels Good to Buy Things
Have you ever made a spontaneous, unnecessary purchase on Amazon that brought a feeling of satisfaction? Or have you ever felt the need to buy something (anything) after a stressful day of work?
On the flip side, maybe you get that feeling of reward when you make a deposit into your retirement account. Do you get satisfaction out of NOT buying things?
While these money habits result in opposite outcomes, the internal biological mechanism that causes you to lean one way or the other in your spending and savings habits (or somewhere in between) is the same for everyone.
What happens in your brain when you buy stuff?
When we are faced with a monetary decision, like whether or not we want to buy new exercise equipment (I'll use this as an example since this is often a personal temptation of mine), our brain enters a conflict. The prefrontal cortex, the rational decision-making part of our brain, sends a signal telling us that the purchase is unnecessary and it's not the best use of our money. After all, I don’t NEED a new barbell to stay in shape. I already have one that works just fine. On the contrary, the emotional part of our brain, the amygdala, tells us that it would feel good to have the latest and greatest [insert your personal shopping temptation]. For me, that would be a new barbell from Rogue Fitness.
These two centers of the brain are clearly in conflict. This was actually shown in an MRI scan during a study on short-term vs long-term monetary rewards at Princeton University in 2004. Interestingly, and unsurprisingly, study participants who chose short-term rewards over long-term rewards had stronger activation of the amygdala over the prefrontal cortex, resulting in the emotional center of the brain winning out over the rational center of the brain.
Part of the reason for this can be explained by the release of dopamine one may receive after an impulsive purchase. This is the same hormone that is released after a pleasurable activity such as eating, consuming drugs or alcohol, and of course the obvious one, engaging in sex. This is a powerful hormone that keeps us chasing for more--for impulsive spenders, that means spending more.
What about penny-pinchers?
But the same thing may happen to savers. Savers also have a conflict between the emotional and rational centers of the brain; the only difference is, the rational center of the brain experiences stronger activation than the emotional center. Or it could be that their emotions are actually tied to saving, not spending.
When savers spend, they tend to experience more activation from the insular cortex, a part of the brain that is responsible for the judged sensation of pain. For instance, when you watch a fail compilation on YouTube and see somebody wipe out on their skateboard, that wincing reaction is partially due to the insular cortex perceiving the pain of that event. For savers, that part of the brain also gets activated with spending. And contrary to spenders, they may receive a dopamine hit when they save money, as opposed to spend money.
As you can see, there is a system of biological processes that have a heavy influence on our spending and saving habits. And my goal with this is not to praise one and condemn the other, but simply to make you aware of what's happening in your brain so you can better manage how you respond to those tendencies. And more likely than not, you exist somewhere on the spectrum between the spender and saver mentioned above.
Know Thyself
The first step in making meaningful, healthy changes to your money decisions is first understanding yourself. Here are some questions to help you identify where you may fall on that spectrum:
When I treat myself to an unnecessary purchase (i.e. new jacket, new iPhone, etc.), I feel…
Comforted 1 2 3 4 5 6 7 8 9 10 Guilty
When I see money leave my checking account to be deposited into my retirement account, I feel…
Annoyed 1 2 3 4 5 6 7 8 9 10 Fulfilled
If I received $1,000 as a gift, unexpectedly, I would most likely use that money to…
Treat Yo Self 1 2 3 4 5 6 7 8 9 10 Save/Payoff Debt
When I make an impulsive purchase, it’s typically…
Expensive ($1,000) 1 2 3 4 5 6 7 8 9 10 Cheap ($5)
If you fall below 20 on the sum of the answers to these questions, you likely have the tendencies of a spender, where if you were above 20, you probably have the tendencies of a saver.
Now, contrary to what you might think, one is not better than the other. Obsessive savings can be just as detrimental as compulsive spending. If you are consumed with saving to the point where you refuse to go out with friends, give gifts to family, or make necessary home repairs, that's a problem.
My point of this is to simply help you determine where you fall (if you don't already know). Once you understand that, you can begin to develop strategies to manage those tendencies. Your proneness to one side or the other is part of how you're wired, either due to your DNA or how you were raised regarding money, but probably a mix of both.
So I'm not asking you to re-wire your brain, but I am asking you to consider the following strategies to help you improve your relationship with money. (Entire books have been written on this topic, this is just my two cents for the time being).
Managing Your Spending Tendencies
Note: This next section is geared more towards "Spenders" since that seems to be the dominant trait for most people, but it could apply to compulsive cheapskates (i.e. "Savers") as well.
There may be certain events or circumstances that "trigger" you to indulge in your tendencies. For instance, being bored may be a trigger that causes you to shop more. Or maybe that trigger is a stressful day at work, or (in my situation) listening to ads on a fitness podcast. While there is a place for indulging, understanding the circumstances leading up to the event can help you manage the frequency of those (perhaps unhealthy) indulgences.
Once you know what those situations are, you can develop a strategy for managing those triggering events. For instance, if you're bored, and boredom leadings to excessive shopping, perhaps you need to find another hobby that absolves that boredom (read a book, binge Netflix, exercise, go out with friends, etc.) Find something that gets your mind off the temptation to spend. If you've had a stressful day at work, maybe give yourself 30 minutes of a stress-relieving activity before making the decision to buy something. For instance, you could meditate, walk outside, play with your pet or your kids, watch some funny YouTube videos, call a friend, etc. Find a new coping mechanism for stress-relief that is not spending. In my situation, I skip the ads on the health podcasts I listen to, to limit the temptation to buy the latest exercise equipment or supplements.
Like I said, it's all about knowing yourself. Excess spending as a form of therapy (i.e. "retail therapy") is very normal, and not something to be ashamed of. It's literally your own biology. And that, we cannot change.
What we can change is our recognition of our tendencies, as well as the actions we take in response to those desires. So take some time think through your habits and try to develop some new habits that improve your relationship with money.