Psychology of Spending Money
The holidays are behind us and so is overspending – right? Data says probably not. The average American spends $1,497 a month on nonessential items, according to research commissioned by Ladder and conducted by OnePoll. That’s nearly $18,000 a year spent on things we may not need. That can place an unnecessary strain on many homes and families that live paycheck to paycheck with little to no emergency savings.
In the new year, let’s help our students make a resolution to develop healthy spending habits and break the cycle of overspending. Understanding why we behave the way we do can help students (and adults alike) when it comes to making wise, informed money decisions.
Here are some interesting findings we can share with our students to help them understand spending habits and lesson ideas to help them build healthy ones.
Money can be addictive.
Studies have shown that the way we react to money is similar to the way our brain responds to drugs. Therefore, those feelings of euphoria, stress, joy, or fear that individuals report experiencing while on drugs are similar to the emotions felt when given money.
In one experiment conducted by Stanford, researchers found that the brain responds almost identically to making money compared to being under the influence. Ask your students to reflect on why making money can produce such strong, positive feelings in the brain. Encourage them to discuss the pros and cons of our brains reacting in such a way.
Extend the learning by having students log into EVERFI and explore lesson 2, Income and Employment, in the *NEW* Financial Literacy resource. They will analyze the relationship between education, training, and earnings to better determine decisions for their own future.
Money can actually relieve pain.
Ever heard of the phrase, “money can’t buy happiness”? Maybe that’s true at its core, but it can certainly help bring security. In one University of Michigan study, people over the age of 69 whose net worth was at least $70,000 were found to be less likely to feel pain. Encouraging students to think about their investments long term may help set them on a path to financial health and wellness.
Ask students what they know about investments and how they can take part. Many of our students may be starting with limited understanding and knowledge about investing. We can help lay that foundation with lessons like EVERFI’s Marketplaces, all about the basics of investments. Students can start going through the first digital lesson, and this lesson plan can help us guide a productive conversation afterward.
Money can be misunderstood.
People tend to focus more on the nominal value of money versus what it actually can get you. In one study, researchers found that most people behave irrationally when it comes to money and purchasing power. Individuals with higher salaries demonstrated more positive brain waves than those with lower salaries, even though they were given the exact same spending power. Our brains are playing tricks on us.
So if we know that our brain can cause us to act illogically when it comes to money, how can we overcome these feelings? Self-awareness is a great place to start. Encouraging our students to self-reflect on why they truly want to make a purchase may help them build that habit over time. One exercise to help is asking students to think about a big or exciting purchase they have made. Ask them to reflect on how they felt leading up to the purchase and how they felt after.
Another way is by teaching financial literacy to our youth. EVERFI seeks to empower students to become more financially responsible by providing the knowledge and skills needed to make better informed decisions relating to money, spending habits and budgeting. With resources like Financial Literacy and MarketPlaces, as well as Venture: an Entrepreneurial Expedition, EVERFI’s got digital simulations to help equip students with the real world skills they need. We know that a strong financial foundation can ultimately lead to a healthier relationship with money.