The Psychologist Guide to… Money

Here's how we can make sense of the often-complex relationship we have with our bank accounts…

1. Get curious about what money means to you

Cash or credit isn't just a tool that we use to pay for goods. Understanding the special meaning it has for you can help you to feel more in control of your finances.

'Money is, in practice, linked to our survival,' explains financial psychotherapist, Vicky Reynal, author of Money on Your Mind, 'and we all have a different and unique relationship with it. An over-spender may be trying to address yearnings or fears that might be completely unrelated to money: a fear of feeling left out, or an attempt to gain credibility'. Reynal explains that the most valuable thing she can do with her clients is help them to see what they are doing through money; for example someone who feels unlovable may only feel in control when spending. 'We might live with a temporary illusion that money can buy us love, or help us feel worth/important/powerful, but the feelings are short-lived,' says Reynal.

Something to try: Ask yourself, or work with a therapist, to see what having money means to you (other than being able to buy things). Being curious about whether spending really delivers what we think it will, may help with our 'emotional spending'.

2. See money as an artificial sweetener…

Economic psychologist Stephen Lea compares our beliefs about money to how we experience addictive drugs. He uses the example of saccharin, an artificial sweetener: 'sweetness tastes nice for a very good functional reason', says Lea, 'to give us calories. However, saccharin subverts that – it tastes nice without giving us the calories. It gets to our pleasure centres without giving any functional benefit.' Buying things can also make us feel pleasure without having any of the biological functions that pleasure would normally be linked to such as relationships and connections.

Something to try: Before a big purchase, sleep on it, and ask yourself how much pleasure you will really get from it. Does it fall in to the 'I need it' or 'I want it' category? If it's the latter, does that want diminish over time if you allow yourself some breathing space?

3. Re-frame your view of money; individually and collectively 

It may make for bleak reading, but, say psychologists Kim Stephenson and Pradnya Surana, 'During a recession or cost-of-living crisis, the number of poor people will increase dramatically, they will be under even greater pressure, and the incidence of mental health problems will increase. The majority of us will have less money, more stress, our decision making will worsen, and people will be more likely to slide down into genuine poverty, with fewer psychological resources to get out again.' Despite the grim reality, they argue, these situations are the time to reflect upon what really matters to us; 'Counting our blessings or being grateful for small luxuries can divert our attention away from the negatives of the situation. We are all social beings; we can survive and flourish with each other's support.' Of course, without support,  a lack of enough money has serious psychological implications for our mental health. 

Something to try: 'By focusing on values and our support networks, rather than material items, we can feel 'better off'. Pro-social spending, charitable acts and and random or intentional acts of kindness can instantaneously improve subjective wellbeing and community spirit,' say Surana and Stephenson.

4. Stay savvy about Buy Now Pay Later

'BNPL' use does give us the option to manage the purchase of big-ticket items: however, they do need to come with a health warning. These services are essentially unregulated short-term credit agreements offered by brands like Klarna, Clearpay, and PayPal which enable customers to buy products and defer payment. If customers meet their agreed repayment schedules, BNPL does not incur any fees or interest. 'Such features make BNPL options attractive', says Dr Ruffin Relja (pictured, below), who studies shopper's psychological processes when they select BNPL payment options. 'But, for many young consumers and potentially vulnerable individuals, these services often represent the only access to funds, either by choice (e.g. disinterest in traditional payment methods such as credit cards) or by 'choicelessness' (e.g. poor credit histories). So, BNPL has the potential to trigger or aggravate indebtedness.'

Something to try: Dr Relja advises that if you are going to use BNPL options, it is best to have only one agreement at a time, pay it off entirely, and only then use another one. 'One of the potential problems is that you can have multiple agreements running, and repayments can soon mount up and create financial stress. Managing many BNPL agreements is a significant cause of anxiety for quite a few consumers.' 

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5. Make saving simpler

Studies show that putting smaller, regular deposits rather than large, less regular deposits into a savings account encourages us to put money away. In 2020, a team led by Hal Hershfield at UCLA reported a study of thousands of new users of a financial technology app. They found that suggesting smaller, more regular deposits vs. larger, less regular ones encouraged less well-off people to save. In the US study, three times as many people in the highest, compared with the lowest, income bracket signed up to make a $150 deposit each month. When this was framed as $5 per day instead, the difference in in participation was eliminated (even though the total savings for each individual were, of course, the same).

Something to try: Don't beat yourself up if you find it hard to save, instead, says Dr Relja. 'Educate yourself on essential financial concepts such as budgeting, saving, investing, and debt management. By increasing your financial literacy, you'll be better equipped to make informed decisions that can lead to long-term financial stability.' Independent sites, such as Money Saving Expert offer great tips on how to start saving.

6. Visualise investing in your future self 

Even when we know we should be saving for that rental deposit or for our retirement, that ridiculously expensive dress, or shirt, or holiday is just so appealing. Most of us have experienced feelings like this. It is much harder to put money away for the future than it is to spend it now. Finding ways to close the gap that we feel between our present and future selves should help. A Portugese study by Sibila Marques and colleagues in the Journal of Applied Social Psychology found that when participants were asked to really consider their own future ageing, were they prompted to invest more in retirement funds.

Something to try: Get creative when thinking about 'future you' and it will help you to get behind saving for what you will need financially. Want to live by the sea and retire early? The clearer the picture, the more likely it is you will put money aside for the dream.

7. Reach out when you need help

The impact of living in poverty and debt are huge and cannot be underestimated. Relaxing financial strains can make a real difference and a study revealed that people on low incomes who were categorised as being 'chronically indebted' found that a one-off debt relief programme (funded by a charity) eased the participants' anxiety, and improved their cognitive functioning, allowing them to make better financial decisions three months later. 'Thinking and worrying about un-payable debts is so mentally demanding that it contributes to the poverty trap', commented psychologist, Ong Qiyan at the National University of Singapore. 'Our study shows that because debt impairs psychological functioning and decision-making, it would be extremely challenging for even the motivated and talented to escape poverty. Instead, the poor must either have exceptional qualities or be exceptionally lucky to get out of poverty. It is hard to be poor, harder than we thought.'

Something to try: 'If you're finding it challenging to manage your finances, don't hesitate to seek assistance' says Dr Relja. 'Contacting an independent financial or debt advice line, for instance National Debtline, Citizens Advice or StepChange, or, reaching out to your BNPL provider's customer service team for clarification can provide you with the information and confidence needed to make sound financial choices'.