What Is Financial Psychology? – Morningstar


When it comes to money, we’ve all got issues.
“Until you make the unconscious conscious, it will direct your life and you will call it fate.”—Carl Jung
Many of the choices people make regarding their finances are the result of unexamined attitudes and beliefs they hold about money, its role in their lives, and how to best employ it in pursuit of one’s life goals.
Financial psychology is the study of why we do what we do with our money. It is a broad field that encompasses the cognitive, social, emotional, and cultural factors that come into play when people make financial decisions. Put simply: Financial psychology is about the human (as opposed to the numeric) side of financial trade-offs.
For example, when someone inherits wealth after a loved one dies, they can sometimes have a hard time spending or enjoying that money because it feels like a betrayal of their loved one to benefit in any way from the death. That has nothing to do with the money itself and everything to do with the process of grieving, but it affects financial behavior.
What makes one person a big spender and another a diligent saver? It’s likely not their age, income, education, or gender but the way they each think and feel about spending and saving. It is our thinking that drives our behavior. If you want to make a lasting change to your financial behavior, start by knowing your own mind.
Some financial decisions can be explained by cognitive psychology, which is focused on how the brain organizes, processes, and retrieves information. Take, for example, loss aversion: The human brain feels the pain of a loss as greater than the pleasure of an equal gain. That’s cognitive. We can’t change loss aversion; it’s just how our brains work. When it comes to cognitive psychology, much of the time the best thing we can do is to get educated about the ways we might unconsciously misjudge trade-offs and then consciously compensate for that misjudgment.
Other financial decisions are influenced by social psychology, which focuses on how we relate to ourselves and others. For example, someone may associate wealth with greed or exploitation because they grew up around people who vilified the rich. Another person may believe that financial success will win them friends, and thus enjoy buying rounds of drinks for others when they socialize. These beliefs are the result of social psychology. In these examples, an attitude or belief that may start out as unconscious could be made conscious or changed if the person wants to do the work to change it.
The beliefs and attitudes we hold regarding money have a profound, but often unexamined, effect on our financial behaviors. Some people associate money with opportunity and freedom, and so they use it to open doors, fund adventures, and make memories. Others associate money with security and safety and hold on to as much as possible to preserve their peace of mind. If these two are spouses, there is great potential for conflict over financial priorities. Arguing over which behavior is “right” will likely be unfruitful, but understanding the deep psychological need that each behavior serves can lead to shared understanding and creative problem solving.
You don’t need to be a financial mess or have major financial hang-ups to benefit from financial psychology. Understanding your own financial attitudes and beliefs can help you make better decisions, improve understanding and communication with loved ones, and ultimately help you bring your finances into better alignment with your priorities and goals.
A healthier financial mindset can also improve quality of life even if your finances don’t change at all. There are some attitudes and beliefs that are strongly associated with financial well-being and others that are linked to financial stress and discontent. Learning the basics of a healthy financial mindset is a simple way to improve your financial quality of life and decision-making.
If you want to make changes to how you handle your money, a good place to start is to take stock of the attitudes and beliefs that you currently hold about money and ask, “Is this healthy? Is this serving me well? Is this even true?” If the answers are no, then you can start to challenge and reshape those beliefs.
Here are a few questions to get you started. There are no right or wrong answers. The purpose of these questions is to illuminate how you currently think and feel about money.
When you make the unconscious conscious, you are no longer led by habit and reflex. Applying a conscious lens to the attitudes and beliefs that drive our behavior allows us the opportunity to make changes where they can have the greatest impact: in our thoughts.
When thinking changes, behavior naturally follows suit. Stay tuned for more on how to challenge and change problematic financial attitudes and beliefs.
Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.
We’d like to share more about how we work and what drives our day-to-day business.
We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.

How we use your information depends on the product and service that you use and your relationship with us. We may use it to:
To learn more about how we handle and protect your data, visit our privacy center.
Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.
To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.
Read our editorial policy to learn more about our process.
© Copyright 2022 Morningstar, Inc. All rights reserved. Dow Jones Industrial Average, S&P 500, Nasdaq, and Morningstar Index (Market Barometer) quotes are real-time.
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.


🤞 Don’t miss these tips!

We don’t spam! Read more in our [link]privacy policy[/link]


Don’t miss these tips!

We don’t spam! Read our [link]privacy policy[/link] for more info.

    Leave a comment
    Your email address will not be published. Required fields are marked *

    This site uses Akismet to reduce spam. Learn how your comment data is processed.

    Siddhi Rajput
    How to Activate Net Banking in Axis Bank
    January 7, 2022
    How to Activate Net Banking in Axis Bank
    Hemant Malhotra
    how to terminate or stop ECS NACH mandate?
    December 22, 2020
    how to terminate or stop ECS NACH mandate?
    Hemant Malhotra
    How Does No cost EMI Works - This and More on No Cost EMI
    December 23, 2020
    How Does No cost EMI Works - This and More on No Cost EMI
    Sponsored Pix
    Subscribe to Our Newsletter

    Don’t miss these tips!

    We don’t spam! Read our [link]privacy policy[/link] for more info.