Psychology of Money: Effect of Emotions on Our Financial Decisions

Money is a powerful tool. It can help us achieve our goals and gain respect, but it can also cause stress, anxiety and even depression. The psychology of money is complex—and sometimes confusing—but understanding how our emotions affect our financial decisions is key to personal finance success. Here are some common ways that emotions influence financial behavior:

Money is a powerful tool.

Money can be used to buy things you need, or things that are just nice to have. It’s also powerful enough to allow us to get experiences and time–two of life’s greatest gifts.

Money is an incredibly useful tool because it allows people the freedom of choice in how they spend their money, which means that there are no limits on what someone can do with it. While this may sound like a good thing at first glance, these unlimited options make us feel overwhelmed when making decisions about how much money we should spend on something or whether we should save instead of spend (or vice versa).

Money is a symbol of power and status.

Money is a symbol of power and status. The more money you have, the better you feel about yourself. People with less money tend to feel inferior, which can lead them to make poor financial decisions that will keep them in their current state of poverty.

Money can be used as a tool for buying things we value–a house or car come to mind–and expressing love and care for others (think birthday cards). Some people enjoy spending money on themselves; others prefer saving it for future use or sharing with others who may need help in some way (like donating to charity).

Money can be used to express love and care.

Money is a symbol of love. As a society, we use money to show care and concern for others. Money can be used to express love and affection for family members, friends and significant others. For example:

We give birthday gifts in order to show that we care about the recipient’s well-being and happiness on his or her special day. We might also give an anniversary gift or Christmas present as an expression of our appreciation for the person who has been important in our lives.

We often give monetary gifts as expressions of gratitude when someone helps us out with something (e.g., babysitting). Or perhaps you would like to reward someone who helped you out with some advice or information by buying them lunch or dinner?

Some people enjoy spending money, while others prefer saving it.

We all have a natural tendency to spend money–even if it’s just a small amount. In fact, some people enjoy spending money so much that they choose careers where the majority of their job is to buy things and then sell them again for a profit. But not everyone enjoys spending money in this way; some people prefer saving it instead.

If you are one of those people who likes saving money and feels safe doing so, your brain has been wired in such a way that allows you to feel secure when holding onto cash or other assets like stocks or bonds (which represent future income). On the other hand, if you’re someone who prefers spending over saving up for future needs or wants–and especially if this preference has been ingrained since childhood–then chances are good that there might be some reasons why:

People use money to measure their self-worth.

Money is a powerful tool. It can be used to measure our self-worth and determine how we feel about ourselves.

We often feel good about ourselves when we make money, but bad when we lose it. When people spend money on things that make them feel good (like a vacation), they feel better about themselves than if they had spent money on something that makes them feel bad (such as alcohol).

It’s difficult to ignore our emotions when it comes to money.

It’s difficult to ignore our emotions when it comes to money. Emotions are a powerful force that can affect our financial decisions and cause us to make poor choices. But, how do we manage these emotions?

It’s important to remember that money is an emotional issue for many people; in fact, some studies suggest that money has more of an impact on our lives than love or relationships! Money can be used as a reward, punishment or tool for manipulation by others. This can lead to feelings of guilt if you feel like you don’t have enough (or too much). It may also cause feelings of resentment towards others who have more than you do and even envy if someone else has something nicer than what you own yourself.

When making financial decisions based purely on logic rather than emotionality then I would argue that there are two main factors which should always come into play:

Our relationships with money are often shaped by our parents’ financial habits and attitudes.

It’s no secret that our relationships with money are often shaped by our parents’ financial habits and attitudes.

The reason for this is simple: children learn how to handle money from their parents, and these lessons can be passed on over time. For example, if your parents were generous with their spending or had strict rules about saving, you may have developed a similar approach toward spending and saving as an adult (or vice versa). This can happen even if you’re not aware of it–your subconscious mind will often mirror the behavior patterns you learned in childhood without any conscious effort on your part.

Our emotions are often tied to our finances.

In order to make good financial decisions, it is important to understand how your emotions can influence your financial choices. You need to be aware of how you feel about money and the things that go along with it–your spending habits, savings goals and investments.

Your feelings about money are often tied up in many other aspects of life: relationships with family members; career ambitions; personal values and beliefs; even self-image. For example:

  • If you grew up poor or underprivileged, then having more money might make up for those years where there wasn’t enough food on the table or clothes on their backs (and this may explain why some people who were raised poor later become spendthrifts).
  • If someone has been financially successful all their lives but doesn’t have much else going for them personally (a great job but no friends), then losing all their assets could cause them more distress than being broke ever did before because now they’ll have nothing left at all!


As we’ve seen, there are many factors that affect our relationship with money. Some of these are related to our upbringing, while others are more personal. Regardless of their origins, it’s important to recognize how your emotions can influence your financial decisions and make sure they don’t get in the way of achieving your goals.

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