A picture of an empty wallet
Regulating our financial behaviour and feelings about money is complicated.

Why is it so hard to make rational decisions about money?

Three Quick Ones. Psychology is an important dimension of financial literacy. Subconscious emotions such as shame, fear and pleasure always play into our relationship with money.

Heini Huhtinen Photo Shutterstock

30.09.2020

Joachim von Weissenberg is a Finnish psychologist, psychoanalyst and psychotherapist.

He is also someone interested in financial psychology and, for his doctoral thesis, von Weissenberg researched how different personality traits affect one’s investment decisions.

We talked to him about how psychology plays into our relationship and behaviour with money.

We might have all the information needed to make sensible financial decisions yet we still act otherwise. Why is this?

I believe a key aspect of this dilemma is the fact that money holds such a contradictory status in our psyche. On one hand, money is connected to pleasure. The inner child in us wants to get immediate satisfaction, and splurging money hits the spot.

On the other hand, money is, at least for most of us, a very restricted resource. In many ways it draws the lines or boundaries for what we can do and get in life. And if you step over these lines, that usually means problems.

For these reasons, regulating our financial behaviour and feelings about money is complicated and we generally like to ‘automate’ this troublesome process. This could mean copying our attitude towards using money from our parents, for example.

These automated attitudes we have acquired tend to clash in our romantic relationships – part of the reason that couples often fight about money is that our notions of it are subconscious.

What are the most important emotions in relation to money?

Money – or lack of it, to be specific – can evoke strong fear, anxiety and emotional insecurity.

At the other end of the spectrum is the boundless gratification many of us associate with money. It is the fantasy of all the things one could do and be if there was just more money to be spent.

Money is also strongly connected to shame. Many people who encounter financial problems might feel as if they have failed at being a responsible adult.

If someone is experiencing problems with money, shame can easily trigger a vicious cycle, making the situation even worse.

People who are already indebted might simply leave their accumulating bills and collections letters unopened because they cannot deal with the shame that the reality of the situation is causing them. The next step might be self-medicating with alcohol or other intoxicants to numb the negative feelings.

How could we learn to better understand the psychological aspect of financial literacy?

It is worth asking yourself questions like: what are the emotions I associate with money and what are they based on? Whom do I imitate in my attitude towards money? Is it a parent or a friend I look up to?

This way we can become more aware of what it is we actually want from money. For example, some people want money primarily to achieve a certain status, while others want money to achieve a greater sense of security.

Money can be linked to defensive functions – for example, sometimes we shop to comfort ourselves. It is good to become conscious about why we need comfort and think about whether something could be done about the primary reason behind this.

It is also good to be aware of the power dynamics encoded in financial questions. In many societies there has been, or still is, a strong tradition of men handling the money and making the important financial decisions in families.

Whenever someone has power over money in someone else’s life, this creates space for unhealthy controlling behaviour or even financial abuse.

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