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Why we spend: Understanding the psychology of financial choices

September 17, 2026
Sara Maginn Pacella

We are often taught to believe that our lifestyles are directly correlated to the money we make and our earning potential. That’s not necessarily true. While financial success is impacted by how much you earn, our thoughts, behaviours and decisions about money impact our financial health more than we know. What many don’t realize is that gaining a better understanding of financial psychology will have a greater impact on their overall finances than getting that big promotion.

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Understanding the basics of financial psychology,

Financial psychology is about how values, emotions, cognitive factors and social influences impact spending and saving habits. It examines why people spend their money the way they do. This can include traits picked up from your upbringing, like a parent’s impulse spending or a tendency to save as much money as you can because you grew up knowing what it was like to do without. A common barrier to taking charge of spending habits is overcoming the battle between instant and delayed gratification and avoiding impulse spending.

The importance of spending behaviour analysis

Wendy De La Rosa, PhD, assistant professor of marketing at the Wharton School of the University of Pennsylvania and co-founder and co-host of the TED series Your Money and Your Mind, told the Monitor  that your perception of the value of the money you make matters more than the actual dollar amount. This perception can relate to financial anxiety, as a lack of financial success is often connected with feelings of shame, despite the fact that financial literacy and financial wellness are challenging to master. 

De La Rosa says, “There’s an assumption that as a person moves up the income spectrum, they tend to have fewer worries about finances. What we are recognizing is that a person’s perceptions about their wealth, which we call subjective wealth perception, is positively correlated with their objective wealth, but the correlation isn’t always one-to-one.” She adds, “You can have someone who is objectively earning a lot of money but feels as though they are in a world of scarcity and vice versa.”

According to Medium, the psychology of spending “is why two people earning the same amount of money can live completely different financial lives. One may save consistently and invest wisely, while the other struggles financially despite earning enough.”

Now that we understand this phenomenon, how do we apply it to our everyday lives?

When money does buy happiness

Part of better understanding financial psychology and your own needs is figuring out what types of purchases will genuinely bring you greater happiness and life satisfaction and including them in your overall budget.

Numerous studies confirm that people derive greater long-term happiness from purchasing experiences (vacations, concert tickets, celebratory meals) rather than material goods like clothing, expensive cars or furniture. People have also been found to gain greater happiness when buying a present for a friend or family member or making a charitable donation than when purchasing something for themselves. Another study found that people experience more happiness when they use their money to “buy time” rather than to buy material goods. Examples include hiring a cleaner, paying to have your groceries delivered or securing a tutor for your children.

Jim Dahle, founder of The White Coat Investor has connected with many doctors about how they outsource to maintain balance in their lives. He refers to a recurring example that helps prevent or reverse burnout: “One of the first things many doctors hire out is housekeeping. If you’d rather pursue a hobby than clean toilets, here’s your chance. You don’t have to do your own laundry either. Someone else will pick it up, wash it, fold it and deliver it back to you. You can hire a nanny or tutor to help the kids if you want. There is no rule that you can only use child care when you go to work.” 

Financial habits that will set you up for success

Canadians who watched reality TV in the early 2000s are familiar with financial transformations charted by tell-it-like-it-is host Gail Vaz-Oxlade on her popular shows Til Debt Do Us Part, Princess and Money Morons. While this made for entertaining television, and there are solid ideas in each episode, like physically taking out cash each month and putting it in a jar or envelope to keep better track of it, financial success is more about consistent effort and practice making progress.

Some steps that can improve your financial wellness include:

    • Write down and review your financial goals regularly 
    • Delay purchases for 24 hours to work on improving overall conscious spending, and before you buy ask yourself:
      • Do I really need this?
      • Is this an emotional or impulsive purchase?
      • Am I trying to impress others by buying this?
      • How will I feel about this item/purchase in a week, month or year?
    • Create “set and forget” automation in your bank account for bill payments and longer-term savings
  • Contact your credit card company, insurance company, mortgage, utility providers and other subscription providers to align your payment due dates with when you get paid to decrease anxiety about payments coming out of your account 
  • Disable auto-renewals for non-essential services to ensure you’re only paying for what you are using
  • Set up and keep regular appointments to monitor and adjust your financial strategies
  • Find a budget system that works for you. Some popular budget systems include:
    • Zero-based budgeting
    • The 50-30-20 rule
    • Envelope or jar budgeting (just like on reality TV!)
    • Reverse budget (pay yourself first)
  • Know when to hire an expert to help you. This can include a mortgage broker to help you secure a better rate, an insolvency counsellor to help you manage your debt or a financial advisor to help you save for major life events like the purchase of a home, post-secondary education, a bucket-list trip or retirement
  • Start an emergency fund, no matter how small, and make regular contributions
  • Increase your savings contribution as your pay increases to continue building your wealth without “feeling it” as much in your budget

Improving financial health through behaviour change

Every day, on social media, television and billboards, we are bombarded with messaging that consumerist spending habits will give us self-actualized lives. It’s no wonder that surveys like the recent one from Lending Tree confirm that 63 per cent of respondents say they’ve been emotionally influenced while shopping, with 74 per cent of emotional shoppers admitting this has led them to overspending.

The truth is, it’s really hard to avoid spending money, and our culture has made it this way. Instead of feeling shame and embarrassment, we can work to improve our money mindset and use financial psychology to better understand and make informed decisions that support our financial health.

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