Money, Minds, and Mirrors: Understanding the Intricate Relationship Between Finances and Human Behavior

The Relationship Between Neuroscience And Finances.

Money, Minds, and Mirrors: Understanding the Intricate Relationship Between Finances and Human Behavior

It is well-known that finances and mental health are intricately linked, with this dynamic relationship influencing various aspects of our lives, including our actions, emotions, and perceptions. Money, as a transactional tool that has been used for millennia, holds significant influence over our survival, comfort, and overall well-being. Scientific research has revealed its profound effects on our physiology and biology, shedding light on the intricate connection between money and mental health.

The History Of Money

Throughout history, money has played a pivotal role in shaping human behavior and societal structures. Understanding the historical influence of money provides valuable insights into our present-day relationship with finances. As the renowned psychologist Abraham Maslow once noted, “The story of human life is the story of money.” Economic systems have driven economic disparities, power dynamics, and even revolutions. By examining historical events such as the economic crises, like the 2008 real estate bubble, we can witness the cascading effects on mental health, with rising divorce rates, foreclosures, and bankruptcies plaguing individuals and families worldwide. These events underscore the profound influence money exerts on our personal lives, often amplifying socio-economic pressures and materialistic tendencies.

Money carries a deep hierarchical nature, while human connections often manifest in transactional exchanges. It not only determines our access to assets, experiences, and lifestyle choices but also influences our social status. As psychologist Philip Zimbardo observed, “Money determines our social status, and social status determines our behavior”. While certain aspects, such as health and family love, may seem beyond the reach of money’s influence, even these can be impacted by financial circumstances. Economic downturns, for example, can strain healthcare systems and disrupt familial dynamics, illustrating the extensive reach of financial implications.

As an investor, you get something out of all the deadly sins except for envy. Being envious of someone else is pretty stupid. Wishing them badly, or wishing you did as well as they did, all it does is ruin your day. Doesn’t hurt them at all, and there’s zero upside to it. If you’re going to pick a sin, go with something like lust or gluttony. That way at least you’ll have something to remember the weekend for. 

-Warren Buffet

Consumer Behaviour And Materialism

In our consumption-driven and materialistic world, societal pressures to keep up with evolving norms and socio-economic dynamics can be overwhelming. Individuals often find themselves striving to match their peers in terms of possessions, appearance, and social media portrayals. As psychologist Jean Twenge stated, “Materialistic values are linked to lower happiness and higher depression and anxiety.” The continuous pursuit of the status quo can lead to exhaustion and a strain on personal finances. However, developing financial consciousness offers a potential solution to alleviate these pressures. A paradigm shift in our ideological relationship with money becomes essential to foster a healthier mindset and promote financial well-being.

Research has shown that the brain’s reward system, primarily mediated by the neurotransmitter dopamine, plays a significant role in consumer behavior. When we engage in consumption, particularly in response to perceived social status or the pursuit of happiness, dopamine is released, reinforcing the behavior. Psychologist Dr. Diana Tamir explains, “When people are given the opportunity to spend money on others, their happiness increases more than if they spend it on themselves.” However, this pursuit of material possessions, driven by the desire for status, can lead to a cycle of never-ending consumerism and financial strain.

Studies indicate that a significant majority of Americans (7 out of 10) experience stress related to money at some point during a given month. Finances consistently rank as one of the leading causes of stress in many countries. Many individuals feel that certain financial factors remain beyond their control, making it challenging to achieve financial wellness. Effectively managing personal finances, particularly addressing behavior changes and subconscious habits, takes time and dedication.

We frequently succumb to the allure of purchasing depreciative assets that go beyond our essential needs, driven by ego, vanity, and social comparisons. These tendencies can adversely affect our self-confidence and overall well-being. Adopting a frugal lifestyle and embracing a key habit of managing savings can help maintain financial stability while fostering a positive financial future.

Compound Interest And Subconscious

Drawing inspiration from James Clear’s book “Atomic Habits,” the concept of compound habits, or compound interest in financial terms, provides an ideological framework for achieving financial and mental wellness. This philosophy emphasizes that even the smallest actions we take in our daily lives accumulate over time, significantly impacting our future. Cultivating positive financial habits, such as saving and investing early, enables individuals to gain a competitive advantage in their financial journey. Additionally, nurturing holistic habits, including prioritizing physical and mental health through reading, meditation and fitness, facilitates sound decision-making and overall well-being.

Self-awareness regarding our emotional responses to money plays a crucial role in our financial well-being. Reflecting on how we feel after making a purchase, identifying patterns of spending, and monitoring our bank account can help us understand and manage our emotional connection to money. On the other side of the financial spectrum, credit and debt also warrant attention. While certain contexts may make debt beneficial due to interest rates and inflation, it is generally advisable to prioritize debt repayment and maintain financial discipline. Breaking down payments and addressing one at a time becomes essential in managing financial obligations effectively.

Creating a monthly budget and diligently tracking expenses should be a mandatory practice. Gaining a comprehensive understanding of income and spending enables individuals to anticipate and prepare for unforeseen scenarios such as job loss or accidents. Experts often recommend maintaining an emergency fund equivalent to six to twelve months’ worth of income, providing a financial safety net. Once a sense of financial security is established, individuals can explore avenues for investment, whether it be in real estate, stocks, or nurturing a passionate side business or career path that has the potential to generate profits.

The Interplay of Finances and Mental Health

Financial wellness also hinges on discipline, particularly emotional intelligence, which extends beyond mere numbers and encompasses consumer behavior and the subconscious. Engaging in introspection to understand how money personally affects us and devising strategies to mitigate its negative effects becomes paramount. Equally important is developing the ability to navigate economic and personal crises, recognizing the need for resilience and adaptive financial decision-making.

In conclusion, the relationship between finances and mental health is profound and multifaceted. Money exerts a significant influence on our well-being, shaping our behavior, emotions, and societal interactions. By fostering financial consciousness, cultivating positive habits, and nurturing self-awareness, individuals can navigate the complex dynamics of money more effectively. Embracing a holistic approach that encompasses physical, mental, and financial wellness empowers individuals to achieve greater financial stability and overall well-being.