Have you ever wondered why people manage their money in such different ways? You may have a friend who always has the latest trendy things but lives paycheck to paycheck. Or a rich uncle who insists on wearing worn jeans and driving a car from the early 2000s because 鈥渋t still runs fine.鈥�
Why and how people spend money are deeply rooted in psychology 鈥� the psychology of spending. Our choices are influenced by how we grew up, social comparisons, our emotions and other factors.
In this article, we will discuss the psychology of spending, how spending has changed over the last few years, the impact of social media and how credit counseling can help.
What influences people鈥檚 spending habits?
Psychological, social and environmental factors heavily influence spending habits.1 The first place we learn about spending and money management is at home with our family of origin.
Learned spending habits
鈥漇pending behaviors can be viewed as a learned behavior often transmitted by parents and other influential individuals, and 鈥� passed from generation to generation,鈥� according to a study on the psychological side of spending behaviors.2
Children鈥檚 early exposure to spending money on needs and wants has an unconscious but significant impact on their future spending habits. A parent who splurges when a windfall comes, then struggles to afford daily necessities, provides a drastically different model for children than a parent who pays bills on time and uses extra funds to pay down debt or grow their savings account.
鈥淪pending behaviors are deeply tied to emotions, upbringing and societal pressures,鈥� says Melinda Opperman, Chief External Affairs Officer for , an 乌鸦传媒member. 鈥淪hame, guilt or anxiety around money can perpetuate unhealthy cycles.鈥�
Overspending behaviors like overuse of credit, compulsive gambling, an obsession with the stock market or a need to spend money to create a mood change can set children up to fall into the same bad habits.2
On the other hand, parents who are silent about money management are missing an opportunity to develop their children鈥檚 financial literacy. Ideally, practicing good financial habits for spending and saving will give your kids a positive model for building good credit and handling money.
Keeping up with the Joneses and social comparison theory
We all know people who have sacrificed financially to buy something, not because they needed it, but to feel like they fit in.
A comic strip in the early 1900s coined the phrase, 鈥淜eeping up with the Joneses.鈥� The strip featured a family that struggled to keep up socially and economically with their neighbors, the Joneses. It is an excellent example of social comparison theory: People evaluate their worth, abilities and attitudes by comparing themselves to others.
Peers鈥� choices about spending, food, and even voting strongly shape how people make decisions, according to social comparison theory. However, comparing yourself to a high-performing peer or a trendy influencer may leave you feeling lackluster. In response to emotional pressure, some people spend money to try to fit in.
Behind this is a strong desire to belong and to have . Fear of being different and peer pressure are the main drivers of spending habits.
Spending to fill a void
鈥淪pending decisions are rarely just about one thing,鈥� said Loretta Roney, President and CEO of InCharge Debt Solutions, an 乌鸦传媒member. 鈥淢any times they鈥檙e emotional. Stress, uncertainty and the need to solve an immediate problem all play a huge role.鈥�
Emotionally-based spending emphasizes meeting emotional needs with material goods. Psychologically, it is an unhealthy coping strategy, just like overeating when you feel sad. Studies have found a tie between this impulsive spending and buyer鈥檚 remorse.
鈥淲hen money is spent with the intent of overcoming feelings of insecurity, this leads to greater ill-being through need frustration,鈥� one study found.3
How has spending changed in recent years?
According to recent figures from , consumer debt is rising, but credit card utilization may be declining slightly. What are the drivers of this shift?
Spending in the U.S. has changed a lot recently because of economic pressure, inflation and uncertainty. The average American now has less extra income.
鈥淭here is a noticeable reduction in spending on non-essentials, with more [people] seeking help before reaching crisis points,鈥� Opperman explains.
Roney concurs. 鈥淚nflation has been the biggest driver,鈥� she says. 鈥淓ssentials like housing, medical costs, gas and food are taking up much more of people鈥檚 budgets. [Our credit counseling] clients are using credit more just to get through the month, while things like saving money or planning for emergencies often get pushed aside.鈥�
Yet, emotional spending and impulse purchases still occur 鈥� especially under stress 鈥� often followed by regret or anxiety.
How people respond when money gets tight
When finances tighten, spending habits must change as well. Luxury expenses must either be trimmed back or paid for with costly personal loans or high-interest credit cards.
Spending habits become ingrained over time, making change challenging.
鈥淧eople get used to a certain lifestyle and struggle to completely leave it, even when their income comes down,鈥� said Martin Lynch, 乌鸦传媒President.
Many people choose to tighten their financial belt and cut unnecessary expenses. But splurging now and then may still feel justified, especially under peer pressure or emotional stress. If income can鈥檛 cover all expenses, people must find alternative ways to pay.
鈥淲hen normal spending habits start to trend higher for basic needs, then things like clothing, small extras, entertainment or savings just don鈥檛 fit into the budget anymore. If they do, that is where some clients start utilizing credit in a negative way,鈥� Roney explained.
鈥淩ecently, we鈥檝e seen an increase in payday lending to cover short-term needs, or advances on payroll, which sometimes also come with increased costs and fees,鈥� added Roney.
Debt in the United States has increased by . The was $105,444, including mortgage debt or $21,603 excluding mortgage debt.
Social media, influencers and digital marketing affect spending
Social media and digital marketing often entice people to spend more. Many credit counselors see evidence of these digital influences leading to overspending and debt, rather than providing financial education.
鈥淪ocial media is a double-edged sword. On one hand, it promotes aspirational lifestyles, fueling FOMO and overspending. We still see clients spending a tremendous amount on Amazon, where buying is constant and almost automatic,鈥� said Opperman.
鈥淥n the other hand, trends like 鈥榣oud budgeting,鈥� 鈥榡oy-based budgeting,鈥� and thrifting are empowering clients to be more transparent and intentional about their finances. These movements reduce stigma and create communities around mindful spending,鈥� she added.
People who struggle with emotion-based spending are more likely to make purchases when regularly exposed to digital ads.1
鈥淪ocial media makes it easy to spend through buy-now-pay-later options. An evening scroll will present constant product recommendations, which can challenge the consumer to feel pressure to buy or spend even when budgets are tight,鈥� said Roney.
Social media showcases sponsored posts and ads paired with influencer posts about products you need to buy. The temptation to give in is common. Holding your ground and saying no is challenging.
鈥淲hen people are under pressure, using credit often feels like the quickest way to get relief. Many consumers feel they are going to be able to turn around and pay a charge back off, but then another thing, and another thing happens, and the next thing they know they are in over their heads,鈥� shared Roney.
鈥淭hat doesn鈥檛 come from being careless; it comes from being human. The most effective solutions recognize that there is a need to focus on mindset and behavior change just as much as the numbers.鈥�
How can credit counseling help you develop good spending habits?
Credit counseling helps people overcome debt and overspending by offering confidential, unbiased counseling based on each individual鈥檚 financial situation. Counselors help destigmatize financial struggles, equip clients with tools to regain control, and address the root causes of overspending.
鈥淐redit counseling can provide education, accountability and emotional support. By helping clients understand their spending triggers and develop healthier money habits, counselors address both the practical and psychological aspects of debt,鈥� said Opperman. 鈥淐ounseling offers a safe space for clients to discuss financial stress without judgment, fostering positive behavioral change.鈥�
Most people who call an 乌鸦传媒member agency feel relief and hope after their first call.
鈥淲hen clients finally talk through their situation and have a plan, we can instantly hear and see the relief,鈥� shared Roney. 鈥淐lients regularly use words in our counseling sessions such as guilt, shame and that they 鈥榮hould have known better.鈥� After joining a debt management plan, many clients say they鈥檙e sleeping better, and their overall mental health and family dynamics are improving.鈥�
Counseling helps people feel more in control and less overwhelmed, which makes healthier financial decisions much easier to stick with,鈥� she added.
To connect with an 乌鸦传媒member credit counselor about your spending, money management or debt, click to find a counselor or call 800-450-1794.
References:
1) Mbonigaba, C., & Vanitha, N. (2018). The psychology of spending: Why we buy things we don鈥檛 need. International Journal of Advanced Trends in Engineering and Technology, 3(1), 110-116.
2) Carrier, L., & Maurice, D. (1998). Beneath the surface: The psychological side of spending behaviors. Journal of Financial Planning, 11(1), 94.
3) Manganelli, L., & Forest, J. (2024). Spending motives matter: Using self-determination theory to explore the effects of motives for spending on psychological health. Trends in Psychology, 32(2), 541鈥�571. doi.org