Why Does Spending Money Feel So Good?

Giz AsksGiz AsksIn this Gizmodo series, we ask questions about everything from space to butts and get answers from a variety of experts.

Assuming that you don’t have an infinite supply of money—assuming your supply of money is, like most personal money-supplies, limited, and closely-hoarded, and essential to your survival—then diminishing what you have in any way should be a painful undertaking. And yet blowing tons of cash on stuff you don’t need tends generally to feel great, at least in the moment. What explains this phenomenon? For this week’s Giz Asks, we reached out to a number of experts to find out.

Scott Rick

Associate Professor, Marketing, University of Michigan

There are a few ways to think about the pleasures of spending. In the mental accounting literature, we talk a lot about acquisition utility (experienced when a product is priced less than it is worth to us) and transaction utility (experienced when a product is priced less than we expected it to be). Both are routine sources of pleasure, even when purchases are not obviously rational. For example, I might happily buy something because it’s on sale, even if that sale price is still more than the product is worth to me. In other words, transaction utility matters more than it should.

Part of the pleasure of spending is driven by misinformation: ads, claims, or packaging that makes the product seem better than it actually is. But even with perfect information, there are affective forecasting errors—people think the product that seems really novel and cool today will stay that way for a long time. We generally don’t realize how quickly the excitement of new products will fade.

I’ve also done some research on the effectiveness of “retail therapy.” We find that making choices about what you’d like to buy helps to restore a sense of personal control over your life. This can help to alleviate negative emotions like sadness or anxiety, which tend to be associated with a sense that ambient, external forces —like natural disasters or pandemics—have taken control. We find that shopping doesn’t really help with negative emotions like anger, which are associated with a sense that other people—like bosses or politicians—have exerted too much control over our lives.

Uma R. Karmarkar

Assistant Professor, Management and Global Policy & Strategy, UC San Diego, whose research develops theory-driven frameworks about consumer behavior

Although people are generally familiar with the “pain of paying,” spending money can also feel good for a number of reasons. One example that’s easy to imagine is when spending is the means to achieving or fulfilling a goal, like buying a car you’ve been saving for. You had already decided you were going to spend that money once you reached your goal. So during the purchase there are fewer feelings of losing the cash, and more feelings of excitement. This relates to the concept of mental accounting from the field of behavioral economics, which suggests that people can assign different meaning or value to money that they have mentally split up into different categories. So “new car money” could be exciting to spend while “rent money” may not feel as fun, even if you’re drawing from the same checking account.

Serious bargain shoppers are likely also familiar with the economic principle of “transaction utility,” which can be thought of as the value of the deal. Spending money often feels good when we are able to buy something at a lower-than-expected price.

Spending can also feel good when we believe it’s sending positive social signals about ourselves. Paying for an expensive bottle of wine or an item from a high-end brand can be related to having other people recognize that we are capable of making such a purchase. In this type of conspicuous consumption, spending happens for the purpose of showing others how wealthy we are. But if you’re worried that this makes people sound overly self-centered, we also feel good when we spend on others. Research on altruistic giving has called this a “warm glow”—a positive emotion arising from the perception we have done something good, like donating to charity.

One of the really interesting things that this highlights is the way that money takes on so many different meanings depending on how, when and why we spend it.

Catherine Franssen

Associate Professor, Psychology, Longwood University

The motivation and reward centers of our brain (such as the ventral tegmental area) are tightly connected. When we want something, these brain regions become heavily activated, secreting dopamine (a neurotransmitter), causing that “gotta have it” feeling. In order to settle that down, or scratch that itch, we need to seek satisfaction (regulated in part by nearby brain regions and the neurotransmitter serotonin). Those motivation and reward centers of our brain are linked to our memory banks, reminding us that buying things will trigger that satisfaction and help us feel good. So, no matter what the reason for the wanting (maybe we’re anxious or sad or have a fear of missing out on the latest iPhone), our brains remind us that buying things will make us feel better. From here we can see the slippery slope—we begin to spend money whenever anything is stressful, a strategy that has obvious long-term financial risks.

Spending money can feel bad, and actually will trigger pain responses in our brain. We feel this painful response to spending much more acutely when we use cash, and when we’ve been paid in cash. It’s like our brain keeps track of how much work it takes to pay for something. Direct deposits and credit cards fool that system so we don’t feel the pain and can just focus on the pleasure of getting new things.

Syon Bhanot

Assistant Professor, Economics, Swarthmore College

There’s a role for “mood repair” in driving people’s enjoyment of spending. I would argue that a great deal of our lives are quite uncertain and fragile, but the experience of purchasing something involves a concrete decision made and a concrete transfer of property rights. That is, when you buy something, you definitively “do” something, and you take absolute control over an item. I think this is mood-enhancing because it builds a sense of individual independence and fosters a sense of freedom to choose our path in life. Perhaps this is a bit too philosophical, but I do think it plays a role!

Another idea from behavioral economics is present bias: the desire for immediate gratification. Purchasing something involves getting something NOW, and in a world of credit card debt, often means not paying for it for quite some time. Therefore, we are in a sense hardwired to overspend in the short run and rack up debt—and the evidence is everywhere that this is what people are doing, especially here in the US.

Camelia Kuhnen

Professor, Finance, University of North Carolina Chapel Hill, and an expert in neuroeconomics, behavioral finance and corporate finance

I would say that it’s not the “spending money” part that feels good, in most cases. Rather, it’s the things you get with that money that make you feel good. If you could not pay, and get those things anyway, that would feel even better, for most people. Those items are rewards you have wanted. Upon getting those things you’ve wanted, your brain’s reward areas experience an increase in neuronal firing and in dopamine release. You consequently feel more excited, happier, for a brief period of time.

Sometimes spending money is a pleasurable activity, even when you don’t acquire things. For example, you can donate money for a charitable cause, and feel quite happy about that. Your reward is not a physical object, but the “warm glow” of helping somebody else. This is referred to as having “pro-social preferences.”

One thing to keep in mind is that spending money to get a reward now may cloud people’s understanding of what will happen down the road. If you spend too much now, in a few months you may face financial constraints and may not be able to pay your bills. Many people are present-biased, that is, value immediate rewards a lot more than rewards coming a bit later in time. And this present-bias can cause financial problems for these people down the road.

Katherine Fox-Glassman

Lecturer and Director of Undergraduate Studies, Psychology, Columbia University, whose research focuses on the interplay of risk perception, decision making, and memory

I’m really going to answer a slightly more specific question: Why are we motivated to spend money when we’re unhappy?

On one level, it’s kind of surprising that spending money could ever make us feel good, since there are decades of research showing that (most) humans are very averse to losses. Ian Fleming noticed this tendency a half a century ago, having James Bond observe in Moonraker that in casino games, “the gain to the winner is, in some odd way, always less than the loss to the loser.” A couple of decades later, Daniel Kahneman and Amos Tversky put some numbers to this effect: on average, losses affect us twice as strongly as gains.

Loss aversion contributes to something called the Endowment Effect: once we own something, we ask for a higher price to give it up than someone who doesn’t own it would be willing to pay in order to get it. On average, there’s about a 2:1 ratio between the price that “owners” are willing to sell their item and the price that “buyers” are willing to pay. Our loss aversion helps ownership to endow items with greater value.

And yet, there’s a very simple way that researchers have found to make “owners” and “buyers” place the same value on an object: make them sad. Jennifer Lerner, Deborah Small, and George Loewenstein did that in a very clever study in 2004. They had some of their participants do a classic Endowment Effect task for a package of highlighters, and found the typical effect: those who had been gifted the highlighters valued them much higher than those who merely inspected them. But another group of participants were first shown a short clip from an extremely sad movie. Even though the clip was unrelated to the highlighter valuation task, the sad participants valued the highlighters very differently from their neutral controls: the sad “owners” demanded quite low prices to part with their prize, and the sad “buyers” were willing to pay more than their neutral counterparts. In fact, the prices in the two sad groups weren’t statistically different—sadness had entirely wiped out the Endowment Effect!

Why does entering a pricing task when you’re already sad affect your valuation of an item? Lerner and her colleagues thought it had to do with the fact that sadness is tied up with feelings of helplessness—previous research has shown that when we’re sad, we often feel like we’re at the mercy of our circumstances. That means that to get out of our sad state, we’re motivated to take control of our situation. So when you’re a sad highlighter-owner, you’re willing to give them up for cheap because that’s a small but easy way to change your situation. And when you’re a sad person who currently has no neon markers, one path to changing your circumstances could be to acquire a new highlighter set, price be damned.

In short, Lerner and colleagues provided empirical support for the conventional wisdom that “retail therapy” is a natural response to feeling sad. (Though note that their study didn’t show whether people went on to feel better after buying the highlighters—just that feeling sad made them more likely to spend.) So a partial answer to your question is that spending money feels good because (we think) it allows us to make a change in our world that might allow us to feel a little bit more in control.

Kathleen Vohs

Distinguished McKnight Professor and Land O’Lakes Chair, Marketing, University of Minnesota

Spending money feels good because spending money is the modern form of engaging in trade, and humans have been engaging in trade going back to our earliest ancestors. In fact, anthropologists think one reason why our species outlasted Neanderthals, with whom we shared the planet for 10,000 years, is that we discovered trade, and engaged in it in a widespread manner, whereas Neanderthals showed very little evidence of trade. Trade enables people to come into more resources, learn innovations, and increase their overall health and well-being. This is where one of our species’ nicknames comes from: homo economicus. Trade enabled our reproduction and survival. Our use of money is a modern-day implementation of our desire to trade; spending money feels good because it’s a way of being social that’s baked into the success of our species.

C. Monica Capra

Professor, Economic Sciences, Claremont Graduate University

In general, it is consumption, not money, that creates utility or value. We value food, shelter, education, health, entertainment, and status. Spending money means that we can consume what we need and like, which makes us feel a sense of satisfaction.

Behavioral economists believe that human psychology and culture play a role in determining our attitudes towards spending money. This explains why some people borrow to consume more, whereas others hold on to their cash even if it means hiding it under the mattress. Regardless of attitudes, however, spending money feels better when interest rates are low and Central Banks use rates as a policy tool to influence consumption.

Many people enjoy spending their own money for the benefit of others. This happens, for example, when people donate cash to charity. Cash donations are sometimes given to others because people are altruistic; that is, people derive utility from others’ ability to feel good. Other times, donations are given because people want to signal to themselves that they are good persons. Economists call this latter motive “warm glow” giving.

At a fundamental level, however, one may ask: why should evolution prescribe a liking for spending money or anything other than successful descendants? Economists who study evolution argue that it is impossible for humans to have an accurate understanding of the causal and statistical structure of the world. For example, we don’t know the exact probability of achieving a successful offspring from a sexual encounter and humans cannot sample enough offspring to learn these probabilities. To compensate for the inability to perfectly know the world, evolution would equip us with utility functions over consumption (i.e., satisfaction from spending money on things or on others) that would provide a goal for our behavior, along with a learning mechanism that would help us pursue that goal.

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