Understanding the Psychology of Money

There is a concept behind money that affects how we spend. Understanding the psychology of money will help you save more and stress less.
psychology of money

We use money for transactions. We need groceries, so we go to the store, stock our carts, and check out (or, these days, order online for delivery). When saving for retirement, some of us just have money taken out of our paycheck, so we don’t even have to think about it.

However, spending and managing money are more than transactional experiences. It’s more complicated than just handing over cash and inputting credit card information.  There’s an entire psychology of money and money management, and our emotions, experiences, and values each play a role in how we approach finances. For example, someone who grew up with a father who gambled recklessly may be extremely cautious with money. 

Let’s dive deeper into the psychology of money management and how aging affects it.

The Psychology of Money Management

You might assume that well-educated people are pros at managing money. But financial guru Dave Ramsey likes to say that money management is 80 percent behavior and only 20 percent head knowledge. If you want to figure out the real reasons behind your spending and saving habits, you need to understand the psychology behind your views on money.


Your lifetime of experiences with money shapes your financial approach. Perhaps you grew up with frugal parents. Maybe, one day, you went shopping and asked to buy a toy only to be told by your parents that they needed that money for something else. You may have grown up and mimicked these habits based on your experience. On the other hand, you may have rebelled against this by becoming a free-spender as an adult. 

Our attitude and behavior towards money can change as adults. Perhaps you were more of a free-spender but were laid off. As a result of this setback, you may have become less inclined to spend money even once you found another job. You may also place a heavier focus on saving for retirement after seeing a loved one leave the workforce and live comfortably while aging. 


Money is emotional. Fear, shame and guilt are linked to money, Forbes contributing writer Prudy Gourguechon believes. Here’s how you may experience one or more of these emotions when spending or saving.

  • Fear. There are various reasons to be afraid of money. You could be fearful of spending too much, losing money or buying something someone else sees as “foolish” (such as a brand-new car).

  • Guilt. Guilt causes us to feel regret. When it comes to money, you may feel guilty for not helping your adult child get out of debt.

  • Shame. Shame is a painful feeling of humiliation or distress caused by the consciousness of wrong or foolish behavior. If you fell victim to a romance scam, you may feel so embarrassed you avoid coming forward. 

Personality and Values

Our psychological approach to money management is deeply rooted in our values and preferences. For example, some people may be extremely organized. These people may be more prone to have a spreadsheet to budget and track expenses and note every penny spent or saved towards retirement. Others may be more free-spirited. They may get a raise and treat themselves immediately.

People who desire security are more prone to saving than people who value having nice things. Both of these approaches can go too far. If you are constantly nervous about money, it can cause you to become so anxious you avoid things that may be fun, such as dinner out. On the other hand, impulsive spenders risk going into debt. As you can see, the psychology of money can affect us on both sides of the coin.

How Age Impacts Money Management

Our experiences and emotions change as we age, which may, in turn, cause us to shift our psychological approach to money management. Beyond this, money management changes as people begin to experience cognitive decline.

Adults experiencing cognitive decline may struggle to remember to pay bills, make irrational purchases and be at a higher risk for scams

having a conversation with your family will help you understand the psychology of money and how you can protect yourself

How aging adults — and the family members who love them — approach conversations around money management and cognitive decline is also a matter of psychology. Nearly 70 percent of U.S. adults say there are major communication barriers when speaking with family members about possible cognitive decline issues related to finances, according to a NEFE/Harris Interactive poll. These issues may be emotional. The person experiencing cognitive decline may be afraid to relinquish financial control. They may feel ashamed that they can no longer manage their money or guilty for putting the responsibility on an adult child. 

Family members may feel guilty for bringing up the topic with an aging loved one if they become upset. They may also be afraid to bring up the subject in the first place and avoid it altogether.

Tips for Aging Individuals and Family Members

  • Be kind to yourself. If you are the person experiencing cognitive decline, understand that this is normal and not your fault. Family members should also know that they can only do so much to help someone but that there is nothing wrong with trying.

  • Be kind to the person. Understand that someone bringing up cognitive decline and money management is doing so because they love and want to protect you. If you’re the family member starting the conversation, do so with empathy and compassion. Start by telling them you love them and want to help.

  • Divide and conquer. Splitting responsibilities between family members can help prevent one person from feeling too overwhelmed and the aging person from feeling guilty for burdening one individual. Perhaps one person manages bills and another takes the aging individual to the grocery store once per week. Only one person should be power of attorney. This person is the individual who acts on someone’s behalf in the event they become incapacitated. Have a frank conversation with other family members on who is best suited for this role. 


The psychology of money is complex. There is a lot more to it than just dollars and cents. We all spend and save for different reasons and as we age, our experiences, emotions, and cognitive ability can change. It is important to understand why we are spending and be open with our families in order to stay ahead of the curve.

How are you planning for your financial future today based on the psychology of money?

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