Don’t Need It, but Gotta Have It: Why Spending Feels GoodSubmitted by Bernhardt Wealth Management on September 28th, 2020
Most of us, at one time or another, have experienced the almost irresistible urge to spend money, sometimes on something we don’t strictly need but feel we “must have.” The wiser among us have learned how to control this urge, at least most of the time.
Neuroscientists and other researchers have learned that there are actual biological and psychological reasons for the “urge to splurge.” Understanding why spending feels so good—even when the timing for it may not be—may be especially important currently as money grows tight due to pandemic-related layoffs, the future of the economy remains uncertain, and as bored people find recreation in spending financial resources that they should probably be conserving.
In a recent article on the science site Gizmodo, Scott Rick, Associate Professor of Marketing at the University of Michigan, suggests that the ongoing emotional dialogue between acquisition utility—when something costs less than its value to us—and transaction utility—when it is priced lower than we expect—provides routine sources of pleasure. Transaction utility is especially familiar to bargain hunters, for whom the thrill of finding “a deal” on something they’ve been looking for is a powerful motivation to bring out the checkbook or credit card.
Uma Karmarkar, Assistant Professor of Management and Global Policy at the University of California-San Diego, notes that spending in order to achieve a long-sought goal is also a significant source of satisfaction and other positive emotions. Because the purchase is something that has been planned for and worked toward, the act of spending feels more like fulfillment than deprivation.
Catherine Franssen, Associate Professor of Psychology at Farmville, Virginia’s Longwood University, explains that the desire and pleasure centers of our brains are closely associated. Desire for something—the latest iPhone, for example—causes our nervous system to secrete a neurotransmitter called dopamine: a source of that “gotta have it” feeling. When we make the purchase, our nervous system secretes serotonin, which creates a sensation of reward: we scratched our purchasing itch, and our brain tells us that feels good. Because these functions are closely tied to our brains’ memory centers, the entire process is carefully recorded for future reference. The next time we start feeling the need to have something, our brain obligingly reminds us that when we bought the last thing we wanted, it made us feel good. This is a reinforcement loop that exerts powerful pulls on all of us, every day.
Implications of our neurochemistry can be particularly telling for some people in certain circumstances. For example, we’ve all heard of “retail therapy”: when someone who is feeling blue or depressed goes on a buying spree in order to feel better. The serotonin “hit” they get from making the purchases provides an immediate emotional boost. And, since we all tend toward “recency bias”—giving greater weight to information available now than that from either the past or the future—that “high” tends to outweigh thoughts about what happens when the credit card bill arrives.
As professional, fiduciary financial advisors, we help our clients maintain awareness of the emotional and psychological impulses that can undermine their long-range financial health. If we can provide advice or answer questions for you, please contact us. And to read our recent article on emotions and how they affect your financial life, “How to Be a Skeptic—The Right Way, Part II,” click here.