Spenders vs. Savers: Are Your Money Habits Rooted in Psychology?

Spenders and savers may share more psychological headspace than their apparent opposite behaviors indicate. Many spenders can’t seem to hold onto their money, and many savers often have a difficult time letting go of their money. But the common ground behind the psychology of spending or saving that both groups typically share is that their financial decision-making process is, in part, rooted in brain chemistry as well as driven by learned responses from childhood.

Even though your spending and saving decisions are influenced by physiology as well as psychology, the good news is that you can modify unhealthy money habits and improve your financial health. It may, however, require a lot of work and discipline over time to accomplish this. We reinforce unhealthy financial habits over time, which Warren Buffett acknowledged when he said, “The chains of habit are too light to be felt until they are too heavy to be broken.”

Buffett made this often-repeated quote more than 20 years ago, when he addressed students at the University of Florida School of Business. He underscored the increasing difficulty students would have if they let self-destructive patterns of behavior go unchecked for many years, noting that they had a greater facility for changing these patterns when they were young. But Buffett also noted that unhealthy habits can be replaced with healthy financial habits at any age.

Financial habits begin forming in childhood. Lessons may come firsthand through childhood jobs and/or allowances, and they may also come from daily observations of the way parents (or other adults or caregivers) handle money. Whether children earn their money or simply receive it as an allowance, the way children are taught to manage their money follows them into their adult life.

Read More: Tips for Teens on How to Save Money

Even though conditioned spending habits begin in childhood, these habits do not explain, for example, how some children from the same family are spenders while others are savers. Some children grow up in poverty and still amass great fortunes, while other children grow up in affluent families (or inherit wealth) and lose it all. A peek into the physiology of the brain may explain this disconnect.

In their study published in the Journal of Consumer Research, Rick, Cyder and Loewenstein identified an area of the brain, called the insula, which showed activity when the study participants simulated buying experiments. The researchers described the “pain of paying” as a motivator for “spendthrifts” (spenders) and “tightwads” (savers). The study described a “spendthrift-tightwad scale,” on which spenders and savers exhibited different levels of the “pain of paying.”

The Rick et al. study results revealed that savers experienced anticipatory pain of buying something, which prompted them to spend less than what they’d actually like to spend. In other words, their anticipatory pain of paying was greater than their pleasure from purchasing. On the flip side, spenders spent more than they’d actually wanted to spend because they didn’t experience enough pain of paying to curb their spending behavior, which engaged them in reckless spending behaviors.

The study participants who had greater insula activity in their brains exhibited less spending behavior, and participants who had lesser insula activity exhibited greater spending behavior.

Read More: How to Set up a Living Budget

The Journal of Financial Planning discusses “money scripts” as a term coined by Brad Klontz and Ted Klontz, financial psychologists. This term describes the core beliefs we have about money that drive our financial behaviors, which we develop in childhood from scripts that are passed down from former generations. Among the types of money scripts, the money script of avoidance applies to spenders and the money script of vigilance applies to savers.

• Money Script of Avoidance. Those who are money avoidant don’t want to think about money, leading them to careless or reckless spending. This group of people spends now and deals with the consequences later. And often, the consequences are bank account overdrafts and credit cards that are used to their limit. Budgeting and saving money are secondary priorities, but shopping on a budget can actually help rein in compulsive spending.
• Money Script of Vigilance. Those who are money vigilant may have a lot of savings, but they may also go the opposite route of money-avoidant types by underspending. Forbes gives an example of someone who keeps an old pair of running shoes for many years without forking over the $65 that it may cost to replace them with new shoes. By running on old, worn-out shoes, the runner may actually suffer an injury that could cost thousands of dollars.

Adults who are spenders exhibit similar behaviors as preschool children who don’t have impulse control. Walter Mischel did research at the Bing Nursery School at Stanford University in the 1960s, which was dubbed the “marshmallow test.” Children were presented with a tray of sweet treats, including marshmallows, and they were told to select one treat. The children could eat the marshmallow immediately, but the ones who waited for a few minutes would get another one.

This same group of children was observed and evaluated until they became adults. The children who needed instant gratification by eating the marshmallow immediately did not realize as much success later in life as the children whose impulse control led to delayed gratification and receiving more treats. Exhibiting a similar behavior as children, adult spenders have not learned impulse control and the bigger reward that often accompanies delayed gratification.

Emotional relationships with money include the emotions of guilt, shame and fear. Both guilt and shame bring bad feelings, but guilt is a result of negatively impacting someone else while shame is a result of letting yourself down. Someone may feel shame because of not having enough money or spending too much. Fear covers a lot of territory, including fear of being exposed, fear of being embarrassed or looking stupid and the fear of provoking envy.

With an understanding of your personal psychology of spending, you can begin to give yourself a reality check when faced with a financial decision, whether large or small. Learning how to budget and save money can be liberating instead of confining. Start by asking yourself whether your considered purchase is simply to meet your need for immediate gratification … or if it truly is a sound decision based on your budget.