Sad People Spend More Money

As you may already be aware I am very interested in behavioral finance and how emotions affect our financial decisions. Good money management is for the most part a psychological task rather than a simple mathematical one; hence understanding how emotions affect financial decisions can go a long way in becoming financially successful.

An interesting question is: How mood affects your spending patterns? Do people spend more money when happy vs. when they are sad or angry? Take a minute and think about yourself, when do you think you spend the most money? Anecdotal evidence would suggest people spend more money when happy and excited. Chances are you are probably spending more on the weekends than throughout the weekdays; you are also more likely to spend more money when you have just received some exciting news or have alcohol in your system.

Have you noticed any of the above patterns in yourself? Almost certainly you have; however, research shows different results.

The Study

According to Cynthia E. Cryder et al. sad people are bigger spenders. In a paper they published a few years ago “Misery is not Miserly: Sad and Self-Focused Individuals Spend More”, they found that sad and self-focused individuals spend as much as 300% more for the same type of commodity.

The researchers randomly assigned people to either watch a sad video or an emotionally neutral video, after which they were asked to purchase a commodity (i.e. bottle of water). Participants in the sad group offered about 300% more than the neutral group for the same item.

Why Sad People Spend More

The authors point out that being sad and self-focused we tend to devalue our possessions and ourselves and this devaluation makes us willing to pay more for goods which we hope will enhance our self worth. One can of course argue that material possession doesn’t necessary increase our self worth, however it does provide some psychological comfort. The new purchase often takes your thoughts away from what is bothering you and you shift your focus on your new possession that reduces the anxiety and sad mood.

How to Change

Now that you know the effect of sad mood on spending, how can you apply it in real life? Here are some tips:

Make no Purchases When Sad

If being sad leads to more expensive purchases try to not make purchases when you are in this mood – try delaying the purchase until you are back to normal.

Limited Cash

When you are sad try carrying a small amount of cash with you to avoid spending too much money. Also leave credit and debit cards at home, if you do not have access to more money you cannot overspend.

Other Means to Enhance Sense of Self

Try finding another way to increase your sense of self, maybe read a book, talk to someone, go out with a few friends or listen to some upbeat music. Try to shift your attention from what is bothering you to something more pleasant, but not a new purchase.

I realize that it is much easier to say these things than to practice them, but if you are aware of the alternatives you maybe more likely to follow them.

This study only compared sad vs. neutral people, I would be interested in seeing how happy vs. neural would compare and even more interesting and valuable would be sad vs. happy spending patterns, I guess I have a thesis topic.

Share your thoughts; do you have any personal experience that can relate to this? Do you think happy people would spend more than sad people?