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Do Your Emotions Regulate Your Money?

What makes a shopper decide to buy one shirt over the other or a box of chocolates in addition to the fresh produce they planned to buy? Cravings and desires all stem from one thing: emotions. Emotions are defined as a 'natural instinctive state of mind deriving from one's circumstances, mood or relationships with other people.' Common emotions include fear, anger, sadness, joy, trust, surprise and anticipation. Each of these can affect the way you manage your money.

The Impact of Values and Personality on Financial Decisions

An individual's standards of behavior and what they think is important in their life impacts the way they spend their money. If someone values their time, they might decide to leave a job that is sucking up their time even if it means taking a pay cut. They value their time over money. Another person might have the opposite value. They work 60 to 70 hours a week until they reach exhaustion just to make as much money as they can. Which one has more joy?
The same goes for spending money. Values and personality affect spending decisions every time a person enters a store. An individual who believes their worth is defined by the price of their clothes can spend thousands of dollars a month on clothes, shoes and accessories. Someone whose personality is eclectic and nonconforming might rather go to a thrift store to shop.
Values and personality both flow into emotions. Some people are easily angered while others feel joy out of the simple values in their life such as achieving financial goals by being thrifty. A person's values and character traits are usually developed during their childhood, but they continue to evolve throughout the rest of their life. Someone who is a shopaholic can change, but it takes work and a strong emotional toll.

State of Mind

Spending money is a cause and effect action. When a person is feeling sad, they will buy something that makes them feel good, usually something that is arousing such as a cup of coffee or a ticket to an exciting Broadway show. If someone is overstimulated by anger, they may try unconsciously to correct it by spending their money on something less arousing like a bottle of wine to help them unwind in the evening. They are using their money to change their emotions.

Spending Too Much or Too Little

Emotions don't just cause consumers to overspend. Sadness can cause someone to spend too much money trying to feel happy, and anger can motivate someone to spend more than they should when they see something they like that seems to calm down their rage. However, sometimes emotions can have the opposite effect. Extremely frugal individuals can spend almost nothing on things like food and clothes. What emotion is causing them to do this, especially when they have a well-paying job? Looking into their past might show that they are afraid. Maybe they grew up in poverty and they don't want to experience it again. It shows that emotions can have varying effects on spending habits.

Advertisers Use Consumers' Emotions

Advertisers know better than anyone how strongly emotions affect buyers. Television and radio commercials, internet ads, billboards and product labels are designed to elicit emotional responses. These ads become part of our culture. Consumers have jingles and images stuck in their heads sometimes without even realizing it.
Marketers try to understand consumers by testing different advertisements and campaigns. They can see how people respond emotionally. If they could know the consumer's emotional state before, during and after the consumer experiences the advertisement or product, they would have valuable information about potential customers.

Brand Attachment

Extreme couponers teach people not to be brand specific. Items go on sale in cycles meaning the same brand of an item might only go on sale one to three times a year. In order to get the best deals, they have to be willing to branch out and try new products. This is difficult for people not necessarily because the product they like is really better than another but because they are emotionally attached to the brand.
Some consumers are attached to brands simply because they are more familiar with it. They recognize the logo, remember the commercial jingle and see the product at the end of the aisle at the supermarket. It costs more than other brands, but is it really better? If they were to buy a different brand, would they feel worried about trying something that might not work as well or taste as good?
When it comes to more expensive items like clothes or vehicles, brand attachment is even more evident. People associate wealth with high-end brands such as Gucci, Prada, BMW and Lexus. They feel the emotion of pride when they spend their money on something expensive. The need to spend money on expensive things can stem from many different emotions including fear, sadness and desperation.

Research and Preparation Mutes Our Emotions

Consumers who are least likely to overspend are those who research and prepare beforehand. People who enter the grocery store with a list tend to spend less money overall. Those who research an item online at different stores or look for various brands before committing tend to get a better deal. Research and preparation may push aside emotions temporarily. It's an excellent way to control spending for those who struggle with frivolity.

People Who Manage Their Money are Happier

It is often said that money can't buy happiness, but good money management can improve the overall emotions of a person. Someone who is able to eliminate debt and live within their means doesn't have the same stresses as someone who is constantly building up their credit card debt and living paycheck to paycheck. 
Emotions absolutely regulate money habits. Sometimes it works in a consumer's favor, and sometimes it can be catastrophic when joy or anger takes over someone's wallet. While nobody can completely control their emotions 100 percent of the time, understanding how those emotions can cause financial problems can help motivate better money management.
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Yael Kent's picture

Yael Kent is a personal finance enthusiast with experience writing about credit cards, credit repair, debt, and more. In addition to being an editor at Creditnet, she has been featured on Yahoo Finance, Reuters, and other financial sites.

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