Psychology of Why We Tend to Favor Spending vs Saving to Invest

Spending money can be either a rewarding or daunting experience, depending on many factors.

I really love Ramit Sethi who is the author of I Will Teach You to Be Rich. He helps people understand that not everyone's concept of a "rich life" is the same. Not everyone has the same goals as to what will make them feel accomplished as a "rich" person at the end of their lives.

For example, both myself and Ramit share the same feeling that we're not trying to drive around a car that screams that we are well-off. We are not trying to show off our money and we are not trying to become a target for other people to potentially rob. On the flip side, I totally understand how someone would want to drive around a car that is considered the best quality possible.

I totally understand when someone has a specific hobby or interest that has nothing to do with wanting to impress other people. They genuinely enjoy those things and want them in their lives in the most quality way possible. Those same people may think certain things I spend my money on are crazy. For example, travel is not cheap, but for someone who is totally content with exploring their own state vs exploring other states or countries, they're going to think that spending hundreds of dollars and 10+ hours on a plane for those experiences is crazy and unnecessary. They do not prioritize those experiences in the same way that I do. Neither of us are right or wrong, but it just shows that everyone values different things and for different reasons. Travel is a personal investment for me. Cars depreciate in value once you drive them off the lot. I don’t appreciate luxury cars as some others may appreciate them. I don't feel they are worth the cost.

When it comes to overspending that leads to financial trouble, it is very interesting to see the human psychological and/or neuropsychological reasons as to why people tend to overspend when they know it is not in their best interest long-term. These reasons typically break down into two categories: emotional and social.

EMOTIONAL SPENDING

When it comes to emotional reasons for spending money, we have been wired and brainwashed over the past few decades into thinking that whatever problem we may have can be solved with money. That might be true in some cases, like, just having enough money to cover basic needs definitely leaves you with a sense of contentment and less stress. However, spending money based on emotion is awesome short-term, but can be horrible long-term. Society has convinced us that a shopping spree is the best distraction from dealing with our emotions vs actually sitting with our feelings and dealing with them head on. It's no surprise that money has fluctuated between the #1 - #3 reasons couples divorce. It's also no surprise that we typically do not teach money management in our US schools, but marriage still has about a 50/50 success rate in the US.

YOU’RE BORED

Even boredom or happiness can lead to impulse spending. Shopping online is seemingly one of the best ways to spend time when you're bored. We always tell ourselves we're only browsing and saving a cart, but really underestimate our will power in not just clicking SUBMIT ORDER. Celebrating an occasion with a purchase is a good way to save one's time vs creating a homemade type of gift that may actually show more emotion and thoughtfulness.

YOU THINK YOU NEED INSTANT GRATIFICATION

Another emotion that has increased significantly over the decades (mostly due to technology) is instant gratification. That has been ingrained so deeply into younger generations that generations before them seem insanely slow and out of touch with society overall. Impulse purchases release dopamine or the pleasure hormone in the brain. What an awesome and convenient way in modern times to be instantly gratified! Literally, just click on your mouse and happiness will be delivered, sometimes, within hours. That was a completely inconceivable concept for geriatric Millennials, Gen X and Boomers. Younger generations are the information generation and that information needs to come up within seconds on our screen or we, practically, throw a fit. Again, previous generations who did not have technology available were completely content with not knowing everything and at the speed of light.

The streamlining, efficiency and overall communication the internet has offered did not even exist for the three generations before Millennials. The first web page went live in 1991 when Millennials were babies, kids and preteens.

YOU ONLY LIVE ONCE/LIFE IS SHORT

Present bias is also a concept that keeps people from saving vs spending. The concept of being present on an emotional and spiritual level is so important for people for many reasons, but spending money isn't the best and only way to be the most present.

NO SELF-CONTROL

Lack of self-control could definitely be a reason someone cannot save money. The prefrontal cortex which is responsible for self-control and rational decision-making, can sometimes be overridden by the impulsive limbic system.

FEAR OF MISSING OUT OR LIFESTYLE COMPARISON

When it comes to societal reasons, the pressure of keeping up with what you see in society is nothing new for any generation. Social media has magnified this concept times a million, it seems. It's much easier now to observe 100 people in one day versus just your neighborhood. I hope it is becoming clear to every generation how easy it is to appear that you have money on social media when you don't. One of my favorite memes is one of Mark Zuckerberg and Bill Gates where the headline states "138 billion and not a Gucci belt in sight". It's strange to me how these two men have so much money, everyone knows it, yet so many people still try to LOOK like they have money! As if there is a "look". In my personal experience, if someone is always talking about and/or flashing their money, they are trying to convince you that they have it. "Quiet wealth" is a concept that I hope starts becoming the latest TikTok trend.

REALISTIC LIFE VISION AND GOALS

Lack of vision could also be the culprit as to why someone can't save. When you are constantly observing a fake reality on social media and someone else's supposed vision, how can you properly come up with your own that is truly realistic?

Your BigSis