The Psychology of Money
Professor of Psychology
– Man who goes to a strip show and looks at the
– Study of the id by the odd.
• Psychologists’ greeting each other:
– “You’re fine; how am I?
• Business guru
– Word used by journalists because they can’t spell
• Business consultant:
– A simple organism designed to translate bullshit
• The next person you start talking to after you start talking
• A professional who asks you a lot of expensive questions
your partner asks you for nothing.
• A person who studies the problems of others in an attempt
to understand their own problems.
• A doctor who can’t stand the sight of blood.
• The art of teaching people how to stand on their own feet
while reclining on couches.
• The science that enables us to correct faults by confessing
our parent's shortcomings.
Is Money a Taboo Topic?
• Rich people, who dictate etiquette, eschew
discussing their money lest the poor figure out
how to get it for themselves. Or because friends
and relatives might want it or become envious of it.
• It is superstitious to talk of money: it means it
could be taken away.
• Boasting about money could encourage envious
others to inform tax authorities.
• On some levels we know our attitudes to money
reveal a lot about us which we would rather keep
1. Money at work
2. Emotional associations of money.
3. Learning about money.
4. Money pathology.
5. Money behaviour today.
Quality of supervision
Relations with others
Herzberg’s Two-Factor Theory
Herzberg’s two-factor theory suggests that job satisfaction and job dissatisfaction
stem from different sets of factors. These are labelled motivators and hygienes,
MONEY AS A MOTIVATOR
• More a de-motivator if salary is not “market-place”
(Hygiene factor, not a motivator)
•Very short term effect because
•Adaptation: effect disappears rapidly
•Comparison: now against a different group
•Alternatives: other things (security) worth more
•Increased worry: taxation, burglary
Kohn: Direct, specific, monetary rewards reduce motivation to do
Eisenberger: All behaviour is positively shaped by (monetary) rewards.
Does intrinsic motivation decrease with extrinsic rewards?
But all jobs have a mix of intrinsically and extrinsically interesting features
and levels of difficulty.
Intrinsic motivation is increased by a sense of mastery, competence, skill
acquisition, control and self determination.
The Trade-Off Dilemma in all business
Time (speed) Quality
If it is Quick and Cheap ..it is probably of poor Quality
If it is Quick and Good Quality ..it is probably going to be very Expensive
If it is Cheap and Good Quality ..it will probably take a very long time to make
Latent Functions of Work
•Work is a source of activity
It keeps people occupied, interested and active
•Work structures time
It gives daily life reference points; regularities
•Work gives an opportunity for social interaction
It gives one a friendship and social support network
•Work provides a source of identity
It gives people a sense of your status in society and values
•Work provides a source of creativity and mastery
It provides the feeling that one has achieved something worthwhile and
•Work gives a sense of purpose
It makes people feel needed and stops alienation
• Merit pay/pay for performance
• Bonus system
• Individual vs Group Equity + Equality
Emotional differences between men’s and women’s reactions to
In the past year, can you recall associating money with any of the following?
Anxiety 75 67 Distrust 23 25
Depression 57 46 Sadness 22 20
Anger 55 47 Respect 18 19
Helplessness 50 38 Indifference 16 16
Happiness 49 55 Shame 13 9
Excitement 44 49 Love 10 13
Envy 43 38 Hatred 8 7
Resentment 42 31 Spite 9 8
Fear 33 25 Reverence 2 5
Guilt 27 22 None 2 5
Panic 27 16
• My mother said only poor people went to heaven.
• My father said only criminals were wealthy.
• My parents warned me not to let anyone know we had
money or they would jinx us.
• My parents said I was a popular kid because they were rich
enough to have a house with a tennis court. They told me
quite plainly that if one was without money, one would be
• My parents told me I had to grew up to be a success, or,
being financially unsuccessful themselves, they would end
up ‘charity cases’.
(Matthews, 1991, pp.70-1)
• My mother always said a smart woman doesn’t ever let a
man know she's capable of making money.
• My father always said there was a ‘secret’ to making
money, but that no one in our family knew what it was.
Making lots of money was something of which only ‘other
people’ were capable.
• My parents, who were quite well off, never let me spend a
dime without my begging and pleading. They said I must
never forget that we could ‘wake up poor in the morning’.
Sometimes I would like awake at bedtime, afraid to close
my eyes for fear I would wake up hungry and cold.
(Matthews, 1991, pp.70-1)
• When to start a system
• Agreement about rules:
- How much
- When paid
- What covered
• Related to chores
• Increase over time
• Advice + Help
• Emotional life jacket, security blanket, method of
starving off anxiety (compulsive saver, self denier).
• Money can be used to acquire importance, domination
and control (manipulate, godfather).
• Money can buy affection, loyalty, self worth (love
buyers, sellers and stealers).
• Money buys time to pursue whims and interests free
one from daily routine and restrictions.
Money as Security
A.The Compulsive Saver
– For them saving is its own reward. They tax themselves and no amount of
money saved is sufficient to provide enough security.
– Self-deniers tend to be savers but enjoy the self-sacrificial nature of self-
imposed poverty. They may spend money on others, to emphasize their
martyrdom. Psychoanalysts point out that their behaviour is often a
disguise for envy, hostility and resentment towards those who are better
C.The Compulsive Bargain Hunter
– Money is fanatically retained until the situation is “ideal” and then joyfully
given over. The thrill is in out-smarting others – both those selling and
those paying the full price.
D.The Fanatical Collector
– Obsessed collectors accumulate all sorts of things, some without much
intrinsic value. They turn to material possessions rather than humans as
potential sources of affection and security.
Money as Power
A. The Manipulator
– These people use money to exploit others’ vanity and greed.
Manipulating others makes this type feel less helpless and
frustrated. Their greatest long-time loss is integrity.
B. The Empire builder
– They have (or appear to have) an overriding sense of
independence and self-reliance. Repressing or denying their
own dependency needs, they may try to make others
dependent on them. Many inevitably become isolated and
alienated, particularly in their declining years.
C. The Godfather
– They have more money to bribe and control so as to feel
dominant. They often hide an anger and a great over-sensitivity
to being humiliated – hence the importance of public respect.
But because they buy loyalty and devotion they tend to attract
the weak and insecure. They destroy initiative and
independence in others and are left surrounded by second-rate
Money as Love
A. The Love Buyer
– Many attempt to buy love and respect: those who visit
prostitutes; those who feel unloved not unlovable and
avoid feelings of rejection and worthlessness by
pleasing others with their generosity.
B. The Love Seller
– They promise affection, devotion and endearment for
inflating others’ ego. They can feign all sorts of
responses and are quite naturally attracted to love
C. The Love Stealer
– The kleptomaniac is not an indiscriminate thief but one
who seeks out objects of symbolic value to them.
They are hungry for love but don’t feel they deserve it.
Money as Freedom
A. The Freedom Buyers
– Money buys escape from orders, commands, even suggestions
that appear to restrict autonomy and limit independence. They
want independence not love : in fact, they repress and hence
have a strong fear of dependency urges.
A. The Freedom Fighters
– They reject money and materialism as the cause of
enslavement of many. Frequently political radicals, drop-outs or
technocrats, they are often passive-aggressive and attempt to
resolve internal conflicts and confused values. Camaraderie
and companionship are the main rewards for joining the anti-
What Causes Money Pathology?
• Early Learned Experience:
– Growing up in poverty, economic recession or clear economic
comparative difficulty has been suggested as a motive for some
individuals to be driven to secure, in both senses of the word, large
sums of money.
• Intergroup Rivalry:
– The concept of pity by the rich for the poor; and the envy and hatred of
the poor for the rich provide plenty of opportunity for intergroup
conflict. Threats to security, status, reputation and ego can act as
powerful forces as well as a psychological threat to attempt to control
• Ethics and Religion:
– Feeling guilty about money and being personally responsible for the
poor is at the heart of many religions. The self-denial, self-deprecation
and guilt associated with certain puritan sects has often been invoked
for the strange behaviour of individuals taught that too much money
acquired “too easily” or displayed too ostentatiously is sinful.
Money Problems are Caused By:
fallacy: throwing good money after bad
• Greed: the ally of manipulator and con artist
• Fear: inhibits reasonable risk taking
• Envy: it distracts one, may limit opportunity and wastes
• Anger: can destroy business relationships and negotiations
• Self-concept: believing they do not have the ability to become
• Contentment: simply being happy with one’s lot
• Honesty: not being prepared to sacrifice certain principles for
• Compassion: emotional softness, tenderness and caring that may
lead to poor economic decisions
• Sentiment: attachment to traditions, possessions that make people
not value being rich to sufficiently want to achieve it
Are people rational?
• Psycho-logical rather than logical.
• Prone to inconsistencies
The Rational Saver? - Keynes
• Precaution:To build up a reserve against unforeseen
• Foresight:To provide for an anticipated future relation between
the income and needs of the individual or his family different
from that which exists in the present (old age, education).
• Calculation:To enjoy interest and appreciation – because
larger real consumption in the future is preferable to a present
• Improvement:To enjoy a gradually increasing expenditure,
since most people look forward to a gradually improving
standard of living.
The Rational Saver? - Keynes
• Independence:To enjoy a sense of independence and power
to do things, though without a clear idea of definite intention of
• Enterprise:To secure a capital mass to carry out speculative
or business enterprise.
• Pride: To bequeath a fortune to others.
• Avarice: To satisfy pure miserliness.
Eight Causes of Debt
1. Attitudes to/social support for debt:
– as society has moved from abhorrence of debt to
acceptance of credit, so modern consumer society
accepts (even encourages) debt.
2. Economic socialisation:
– Families that model acceptance of debt perpetuate
3. Social Comparison:
– If people compare themselves with a richer
inappropriate reference group, they may easily get
into debt ‘keeping up with the Joneses’.
4. Money Management:
– Poor ability to manage money reflects both
disorganised life-style and problematic finances.
Eight Causes of Debt
5. Consumer behaviour:
- inappropriate purchasing patterns (believing luxuries are
necessities) soon causes debt.
6. Time horizons :
- the less realistic a person’s time horizon, the easier it is
for he or she to run into debt.
7. Attitudes to debt:
- clearly, if one is neither worried nor embarrassed by
debt, it is easier to fall into it.
- the more people have an external locus of control the
more they are likely to fall into debt.
• Reflect attitudes to and behaviour regarding…
• Borrowing, Credit, Debt, Insurance, Spending
• Different groups
• Baby boomers
• Generation X
• Cohort and life cycle or real generational
• Conservative savers?
• Victims of welfare and state promises
• Anti-credit, anti-debt.
• Mend and make do stoics.
• Risk-takers and hedonists.
• Investors + achievement-oriented
• Idealistic materialists
• Future oriented and optimistic
• Alienated + disenchanted
• Now oriented + credit addicts?
• Self-absorbed but directionless
• Materialistic & security conscious.
• Parent dependent for longer
• Used to long term debt
• Financially semi-savvy?
The Seven Deadly Sins of Investing
• Confirmation Bias:
– Only looking for information and news which is in favour of your ideas
• Optimism Bias:
– Believing that you are above average and that misfortunes are more likely to
• Illusion of Control:
– Overestimation of the control you have over economic affairs thinking that you
can always influence the outcome
• Overconfidence in Prediction:
– Believing that your prognostication of the future is the best one
• Risk and Regret Aversion:
– Either being too cautious to invest or to risky to get out (risky shift; Shift to
• Group Think:
– Responding to conformist pressure to think like others
• Memory Distortion:
– Selective forgetting and memory for past experience in the financial world
What should banks know and do
• Acknowledge that many well-educated, sophisticated
adults remain ignorant and embarrassed about money. It
is a thin line between being patronizing, educative, and
• Find out what each client thinks about money. What are
the emotional associations and “hot buttons”.
• Remember each type needs a different sales strategy and
possibly a different product.
• Explain the mythology, symbolism, imagery better –
more psychology, and use it in marketing.
• Be confident. You will be somewhere between a
psychiatrist, hairdresser, and gynaecologist because of
your role as confidant.