The Psychology Behind Spending and Saving

by Patrick Chism, August 7, 2017 in Saving Money

Have you ever wondered what makes us spend or save? Many of us know people who are frivolous spenders and others who are fervent savers. For me, spending money on a new outfit and shoes is way more exciting than putting it in my savings account. But what makes a person be more of a saver or a spender? And more importantly, can these behaviors be changed? Let’s take a look at the psychology of spending and saving so that you can understand your own tendencies and take steps to improve.

A Healthy Balance Between Saving and Spending

Finding a healthy balance between saving and spending is something that many people grapple with from day to day. A recent Capital One survey of 2,000 Americans found that 25% of respondents struggle to keep up with their monthly obligations.

I recently discussed the survey with Weslia Echols, who is an accredited financial counselor and the founder of Trinity Financial Coaching in Detroit. She discussed some key factors that impact saving and spending habits.

“What I see from working with many clients is that they actually think that they are making a good decision when they choose spending over saving,” she said. “Many rationalize their decisions by making a bad decision for a good cause.”

Echols said that in general, people lack financial education and a long-term view of their money across the board. And while money may seem daunting, simple steps like using a budgeting service or implementing various techniques to free up money can put a person on the path to success.

Experiences and Observations

Beyond financial education, Echols explains that spending and saving habits actually have more to do with their past experiences and observations.

“Sometimes we have to coach people through their ability to make behavioral changes to help them with their finances,” she said. “Some people have mental blocks that keep them from saving and handling money responsibly.”

Watch Out for the Joneses

Echols pointed to the notion of “keeping up with the Joneses” as it plays into the rationale for spending. This expression refers to the desire to match or exceed the lifestyle and material wealth of people around you.

“Some people don’t realize that it doesn’t make sense keep up with your friend’s spending habits,” she explained. “And many people think the phrase ‘living beneath your means’ is a negative concept even though it will probably help them live more economically.”

Time Is a Four-Letter Word

Time is also an important psychological factor when it comes to the decision to spend money over saving it.

“I think people believe they have plenty of time to save money when they really don’t,” Echols admitted. “This is a big hurdle we face when it comes to spending habits. Life flies by very quickly while many people choose other priorities over saving money.”

For instance, savings and investments will ideally make up a large part of a person’s retirement funds, and the longer you wait to start, the less money you’ll have during your golden years. If you’re still thinking about investing, take some time to look at the math. Even waiting a year or two can mean losing out on hundreds of thousands of dollars when you consider interest.

Tracking Finances

In order to save, people have to either look for ways to cut monthly expenses, increase their income or, in many instances, both, she said.

“Spending and saving both come down to making decisions that align with your goals,” Echols said. “What I’m finding is that people aren’t tracking their finances and haven’t sat down to assess their monthly cash flow. They may be spending more than they have but sometimes they aren’t aware of that.”

She used the analogy of a steak dinner: You can choose to spend $45 for a restaurant dinner or make the same meal yourself at home for less money. This is where people make a choice, and only one option can save them money.

“People have to choose to control their money. If they don’t, their money will control them!” Echols stressed. “We tell our clients that it comes down to exercising diligence and making the necessary behavior changes.”

A good place to start is through a free budgeting service like Mint.com. Here you can look at your bills, income and financial goals all in one place. It’s a great way to make yourself more aware of the changes you need to make.

Start Early

If you want to make a change in your financial life, it’s always best to start when you’re younger. While teaching an old dog new tricks is absolutely possible, it’s usually easier to learn something when you’re younger.

“This is why I love working with college students, so I can get to them early in life,” Echols said. “The biggest piece of advice I give is to start with a monthly budget and I tell them that they’re in the driver’s seat of their money.”

But even if you haven’t developed these skills in your more formative years, you can still make some simple (but effective) changes now. One way to do this is by automating your finances. Set up automatic deposits into your savings or investment accounts. This way, even when you’re not feeling especially disciplined, your bank account is doing the hard work for you.

Bad Habits Can Be Unlearned

Echols acknowledges that many of our bad habits with spending come from how we saw our parents or family live. But she says it’s just one aspect of a culmination of bad influences and financial decisions.

“It’s important to recognize when you are your own worst enemy and when your behavior is sabotaging your quest for financial success,” she said. “This understanding will help to avoid more behavioral mistakes in the long run.”


Echols has more than 20 years of experience in administration, accounting, financial planning and credit management. To find financial resources or a financial advisor in your area, visit the National Association of Personal Financial Advisors.