How our minds shape our wallets - the neuroscience behind How To Money?
Money, money, money… How often do you find yourself thinking about how to make more of it, where to best invest it so there’s more to spend on holidays, dream possessions or happy retirement? Saving may not be easy as the temptations to buy something we don’t actually need pop at us from every corner and if we’re not disciplined or frankly made of steel we may cave and splurge on yet another something we may later regret. Let’s look into the science behind our financial decisions and what’s really behind those impulses.
In my quest to find out more on how our financial decisions are made I stumbled upon The Psychology of Money by Morgan Housel. It was well written (and short) so I read it in one day! This book is about understanding the deeper, hidden forces that shape how we think about money. And trust me, it’s quite a game-changer. And combined with some additional neuroscience magic I got somewhat closer to a full picture of “How to money”!
Wealth = Income - Ego
The new kind of science
We meet at the intersection of neuroscience, behavioural psychology and economics. Neuroeconomics is a new scientific field that explains how human economic behaviour can shape our understanding of the brain, and how neuroscientific discoveries can guide models of economics. On micro scale: it looks into our spending patterns and styles to learn about our brain and then utilises this information to help us improve our economic behaviour to secure a better financial future.
How our minds shape our wallets
Our spending types are influenced by the complex interplay between different brain systems that drive emotion, decision-making, reward and risk assessment. Money isn’t just about numbers. Neuroscience shows that there is a ton of emotions and psychology behind our financial behaviour and that’s why when it comes to spending we often act in ways that don’t make sense.
From a neuroscience perspective, the way we approach spending can be broken down into different types, each driven by a combination of neurological systems that influence decision-making, impulse control and the way we experience pleasure or stress. Check out which one sounds the most like you:
1. Impulsive spenders - driven by the brain's reward system, particularly the dopamine circuits. Dopamine is the feel-good neurotransmitter that plays a key role in the brain's pleasure and reward pathways. When we see something we want, the anticipation of buying it releases dopamine, which makes us feel excited and motivated to act quickly. This quick hit of pleasure can override logical thinking, leading us to make spontaneous purchases we later regret.
2. Frugal Spenders - tend to avoid unnecessary purchases and are motivated by a desire for stability and avoiding financial risk. This behaviour is often tied to the brain's prefrontal cortex, which is responsible for decision-making, impulse control and long-term planning. Frugal spenders may feel anxiety or stress when it comes to spending money, as their brain is highly sensitive to potential financial loss or risk.
3. Status Seekers - we are social creatures, our desire to fit in or signal social status is deeply embedded in our brain. This kind of spending is influenced by the medial prefrontal cortex, which processes social information and how others perceive us. Those who spend to signal status or gain approval may experience a boost in self-esteem or social standing when they purchase high-end or visible items (like designer clothes or luxury cars).
4. Avoidant Spenders - avoid spending altogether due to a deep-seated fear of loss or financial insecurity. The amygdala, which processes emotions related to fear and anxiety, is often heightened in these individuals, making them more sensitive to potential negative outcomes of spending. They may feel stressed or anxious about parting with their money, even for necessary expenses, and may go out of their way to avoid spending as much as possible.
5. Bargain Seekers - motivated by a mix of dopamine rewards and the brain’s tendency to compare prices and value. When they get a great deal, it activates the same neural pathways that reward us for winning a game or finding treasure. It’s not just about saving money - it's about getting a "win" by feeling smart or lucky. The act of finding a good deal gives them a rush of pleasure, reinforcing this behaviour.
6. Generous Spenders - generosity is linked to emotional responses tied to oxytocin, a hormone associated with bonding, trust, and positive social interactions. People who spend on others or donate to charity often experience a deep sense of satisfaction and emotional reward, which activates the brain’s reward system in a way similar to receiving a gift or showing kindness. Their spending feels good because it connects them to others and provides an emotional payoff.
It’s not about how much you make but how much you keep
“Think about this the next time you face a choice. Do I need this? Or is it really about the ego? Are you ready to make the right decision? Or do the prizes still glitter off in the distance?”
Most of us are obsessed with earning more: whether it’s chasing that next promotion, side gigs or a bigger pay-check. And the more we make… the more we tend to reward ourselves for the efforts by splashing on flashy items, gadgets, holidays. But the people who are truly wealthy are often the ones who don’t flaunt their wealth. Wealth builds quietly and it often takes years (even decades) to accumulate. So next time you feel the urge to compare your bank account to someone else’s, remember that true wealth isn’t something you can always see or measure by outward signs.
“When you define savings as the gap between your ego and your income you realise why many people with decent incomes save so little. ”
Behaviour over knowledge
So many people think that understanding every little detail about stocks, bonds or real estate is the secret to financial success. Housel says that while knowledge is useful, it’s not what you know, it’s how you behave.
The best investors aren’t necessarily the ones with the most technical knowledge—they’re the ones who make smart, consistent choices and avoid the big mistakes. Being emotionally stable, resisting the temptation to follow the crowd and thinking long-term are far more important than constantly chasing the latest trend. In other words, keep your cool and stick to your plan.
“Exercise is like being rich. You think: I did the work and I now deserve to treat myself to a big meal. Wealth is turning down that treat meal and actually burning net calories. It’s hard and requires self-control. But it creates a gap between what you could do and what you choose to do that accrues to you over time.”
The Art of Enough
The pursuit of money can be a double-edged sword. It’s easy to get caught up in the desire for more: bigger houses, better cars, more expensive vacations. There’s a point where more money doesn’t necessarily lead to more happiness and that is called: The art of enough. Because being rich is not about how much you have, but how much you want. Once you’ve reached a certain level of comfort, the pursuit of excess can lead to stress, risk and a never-ending chase. Learning to be content with "enough" is a key to financial and emotional peace.
“Every bit of savings is like taking a point in the future that would have been owned by someone else and giving it back to yourself. ”
Hope you enjoyed the read and found the topic interesting.
Do know that you are not alone in the journey of exploring what your brain is capable of and how great your life could be. I am here and I would love to help! Click here to schedule a quick chat. Speak to you soon!
