Mindful Spending and Money Psychology

David Krueger, MD

You’re in a department store at the end of the month and see a sale of a pair of shoes you’ve been eyeing, yet you know that you need to pay essential bills in two days.  Without thinking about why you need the shoes or how you’re going to pay them off and pay your monthly expenses, you go for it. New shoes in hand, walking out of the department store you ask, Why did I just do that?

The money psychology of mindful spending usually comes later.  How to make better decisions?

Some things we know about the workings of the mind and brain applied to money behavior and mindful spending:

• Our relationship with money is complicated because some important aspects are emotional, unspoken, and unconscious.
• Our brains unconsciously make financial decisions several seconds before we’re consciously aware.
• Spending money alters a state of mind, so it can become addictive and go unnoticed, even to become a debt cycle.
• Money mistakes and financial fallacies are often the default mode; their remedies become crucial to decision-making.
• The vision of your future self can significantly affect the present bias of money decisions.

Three processes create self-deception in spending:

1. Segmenting purchases. This can be done by paying with a credit card and regarding it as a segmented purchase, a standalone decision. 
2. Price increments. Focus on the incremental amount of a money transaction can compromise decisions. For example, an item being $10 more can lose perspective of the total cost.
3. Internal bargaining.  Emphasis on what amount has been saved as a justification for a future purchase. For example, a $500 item is marked down to $300 so “I just saved $200 to spend for something else.”  Actually, if $300 is spent and, despite the justification, another $200 is spent.

Decision science can help us understand how to use the risk and reward systems in the brain for decision-making, and how to program new, adaptive behaviors.  A system of mind, brain, and behavior changes that last can offer preventable and long-term, successful strategies.