Surprising Ways Emotions Hurt and Help Financial Decision Making

Surprising Ways Emotions Hurt and Help Financial Decision Making

Everyone deals with negative emotions in different ways. Some people binge on food, or alcohol, or even television. Some people – a lot of people – buy something.

A recent Finder.com survey revealed that 88.6% of Americans have succumbed to online impulse shopping at one point or another. Those purchases averaged out to $81.75 for each shopping spree.

But the connection between emotion and economy isn’t all negative. Sometimes, an emotional state can lead you to make a more responsible decision, like saving more money or holding off on an unnecessary purchase.

To avoid being controlled by your emotions, you need to understand how they guide and distort your decisions. Here’s how emotions can hurt and help your finances.

When Emotions Make You Want to Save

In 2017, researchers from Creighton University wanted to see if blending sentiment with personal finance could encourage people to save more than a traditional investing lesson.

They split the participants into two groups: The control group received a basic retirement savings lecture with an emphasis on compound interest, focusing on how saving more now would benefit them in the long run.

The second group was told to bring in an item that held a lot of personal meaning. They engaged in several exercises designed to elicit emotions such as nostalgia and then discussed how those feelings could also be achieved by planning and saving for the future.

The results were astounding. People in the control group increased their savings by 22%, but those in the second grew their savings by 67%. Thinking about their core values while learning about saving made them realize a simple truth –  responsible financial planning could help them reach long-term goals, like paying for a child’s wedding or donating money to their favorite charity.

Think of it this way. If a friend lectures you for not taking advantage of your company’s 401k matching program, you might listen to their advice. But if they share how they’re saving more for retirement so they can leave behind a legacy for their grandkids, you’ll instantly see the connection between saving and fulfilling your dreams.

Humans connect more to emotion than logic, even when the data is undisputedly rational.

Emily Guy Birken, author of “End Financial Stress Now,” said she saves for her sons’ college education every month because she wants them to avoid the stress of student loans. Her love for her children motivates her to set money aside.

She’s not the only one influenced by her offspring. When landlord Elizabeth Colegrove first decided to get pregnant, she kicked her real estate empire into high gear. She bought and fixed up three homes before giving birth to her first child.

“Some people nest,” she said. “I bought and worked on rehabs for future rentals.”

When Emotions Make You Want to Spend

When Gwen Merz of Fiery Millennials was relocated to a new city by her new employer, she didn’t have a lot of friends. She felt lonely, isolated and depressed. To connect with people and explore a new hobby at the same time, she started playing Super Smash Brothers online with her Nintendo Wii.

She began collecting rare characters, even going so far as to spend $150 on a single purchase. But the acquisition didn’t make her feel more connected.

“If anything, it probably made me feel more lonely. I didn’t have anyone to share my purchases with, other than people online or friends back home,” she said.

I can completely relate to Merz’s story. When I got my first job out of college, I was living in a small town where I didn’t know anyone except my co-workers. Most of them were married or had kids, so I had trouble making friends. In my downtime, I’d watch Netflix by myself.

When I got really lonely, I’d go to the mall or walk around the downtown shops, spending money on things I didn’t really want.

Every time I bought nail polish or a new book, it made me feel better for a brief time – until the feeling would fade away, replaced with buyer’s remorse. At the end of the day, I knew I was shopping to distract myself.

Loneliness isn’t the only reason people spend more money. Guy Birken said she tends to splurge during moments of stress, like moving to a new city or dealing with a loved one’s illness.

“The summer that I moved, I bought a new blazer, new shoes, a couple of dresses, a bunch of new makeup and a FitBit,” she said. “All of it was basically impulse purchases.”

How to Control Emotional Spending

Emotions can make us do crazy things. They can make us move across the country to be with a partner we barely know, quit our jobs to start a small business and generally act against all logic. Overspending might seem like a harmless emotional byproduct, but it can easily morph into shopping addiction and credit card debt.

Before you buy a new pair of shoes or video game, stop to read your mood. Do you feel anxious, sad or angry? What thoughts are going through your mind? Are you trying to distract yourself from any uncomfortable emotions?

That’s what people tend to use money for. They don’t want to deal with whatever they’re thinking about, so they use spending as a diversion. The next time you feel like you want to go shopping or find yourself aimlessly browsing Amazon, take a deep breath and think about what’s bothering you. Consider putting the item on hold for later.

Sometimes, a 24-hour delay is enough to realize you didn’t really want the item – and that you were only trying to avoid your emotions.

Take the time to journal, meditate, exercise or call a friend. Deal with your emotions head on, and you’ll see that they always seem less scary in the light of day. Facing how you feel might be hard work, but it’s better than dealing with the credit card bill at the end of the month.