The Power of Mindset in Financial Decisions
Your relationship with money is deeply influenced by your mindset, which can significantly impact how you manage spending, debt, investing, and budgeting. According to financial therapist Michele Paiva, developing a more positive approach to money isn’t easy because mindsets are deeply rooted.
“Mindset is both genetic and environmental, meaning you are born with certain characteristics that are flexible or that emerge; and those variables are mostly molded by your family, then your friends, teachers [and] then society,” Paiva explained. “We also develop our own internal experiences, which are the ongoing cultivation of mindset.”
Emotional Spending: A Coping Mechanism
For some individuals, buying things serves as a way to cope with stress and anxiety. This behavior, known as emotional spending or “retail therapy,” is often modeled in childhood or adolescence, according to Kiki Jacobson, a licensed mental health counselor and financial educator at Nour Counseling & Consulting.
“I often find that this behavior in clients was modeled and/or experienced in childhood or adolescence,” Jacobson said. “At some point growing up, it was learned that spending money or buying something changes how they feel.”
While this may offer temporary relief, it can have long-term consequences such as eroding savings and increasing debt. To curb emotional spending, Jacobson recommends:
- Identify the emotional triggers that cause spending. Ask yourself:
- How am I feeling right now?
- What has my day been like?
- Have I eaten lately?
Did I sleep okay last night?
Regulate non-essential spending by requiring a 24-hour pause before making the purchase. This allows time to reflect on whether the purchase aligns with your values, goals, or genuine needs.
Make it hard to make an emotional purchase. Delete shopping apps from devices, unsubscribe from marketing emails from favorite stores, and remove payment methods from shopping websites.
The Impact of Ignorance on Financial Decisions
Many consumers believe that acquiring financial expertise is out of reach for them, said Karen Holland, an economist and founder of financial education platform Gifting Sense. Retailers have made it easier than ever to make purchases, snaring consumers into buying first and thinking later.
“We aren’t encouraged to pause, gather information, and reflect before spending,” Holland said. “On the contrary, we’re living in a world that’s been engineered to eliminate exactly the kind of reflection consumers would benefit from; retail and payment platforms are designed to maximize engagement and accelerate commitment.”
Building financial expertise makes space to think critically about a purchase. But if a consumer doesn’t believe expertise is achievable, they miss out on important benefits.
“Not getting and using financial information to plan spending costs consumers plenty,” she said. “It exacerbates every cause of buyer’s remorse: overestimating use, underestimating cost, mistaking short-term excitement for long-term value, and a lack of friction.”
Expertise is accessible to most consumers by asking key questions about their upcoming purchase, Holland said.
“Consumers can practice mindful spending, the quick but powerful habit of pausing, gathering information, and reflecting before spending to escape this mindset,” she said. “Quickly, but not arbitrarily, assessing a purchase before committing to it is the easiest way to deflate the false narrative that financial know-how is for ‘someone else.’”
The “I’m Just Bad with Money” Mindset
Similar to the belief that financial smarts are out of reach is the “I’m just bad with money” mindset. Writing ourselves off as incapable is a way of deflecting the uncomfortable feelings of fear, confusion or challenge that money brings up, said Dr. Sarah Newcomb, senior behavioral scientist at accounting firm Edward Jones.
“Since we are often highly aware of our own mistakes, and others usually only talk about their financial successes, it’s easy to conclude that we are just not as good with money as they are,” Newcomb explained. “In reality, we’ve been comparing our ‘blooper reel’ with their ‘highlights reel’, which sets us up to feel inadequate.”
The mindset’s impact can be really detrimental and hinder financial progress. “This is a dangerous mindset because it leads many people to stop trying,” Newcomb said. “By interpreting confusion or difficulty in this way, you give yourself permission NOT to push through the discomfort and think more clearly about the decision you are trying to make.”
The impact of this mindset tends to grow as consumers get older. “We may be able to shrug this off when we are young, but it becomes increasingly impactful as we age,” Newcomb said. “When we don’t learn about personal money management – really learn about it – we overspend, take on too much debt, and find ourselves living on the edge of catastrophe all the time.”
What’s the remedy? It starts with self-talk – and thinking of yourself as someone who will eventually be good with money.
“Reframe it,” Newcomb said. “You can start with, ‘I’m not good with money YET,’ or even more helpful might be, ‘I’m uncomfortable with money because…,’ and then fill in that blank.”
If you feel the “I’m not good with money” mindset is too big to tackle on your own, hiring a financial professional to walk with you through your finances can help.
“Do not accept a narrative that you are just ‘bad with money,’” Newcomb said. “Small mistakes, if not learned from, compound and become massive problems over time.”
