Why are we so emotional about money?

Woman with hammer to break piggy bank
Image caption To spend, or to save?

Dip into your savings to help the economy, says the Bank of England deputy governor. Misers will be horrified; spenders delighted. The BBC is researching how emotions affect how we handle money, but what is known already?

Money is emotional. Being in debt makes you anxious. Scoring a windfall - or bagging a great bargain - is exciting. And shopping? Well, vast swathes of the population dose up on retail therapy - shopping to feel better.

Our relationship with cash, cards and credit is far more complex - and emotional - than simply being a spender or a saver.

"Ask people what emotions are most frequently associated with money, and this is the rank-ordered list: anxiety, depression, anger, helplessness, happiness, excitement, envy, resentment," says psychologist Adrian Furnham, co-creator of the BBC's Big Money Test, currently under development, which explores the link between personality and money behaviour.

Because even financially astute people have bad money habits.

There are five archetypes, Prof Furnham says, and you may recognise these tendencies in yourself:

  • misers fear becoming penniless, rarely admit to being niggardly, and have trouble enjoying the benefits of their money
  • spenders shop in an often uncontrolled manner, particularly when feeling low - but it's a short-lived high, often followed by guilt
  • tycoons want to make lots of money, seeing it as a route to power and approval, and believe wealth will make them happy
  • bargain hunters expend a lot of effort on getting things for less to feel superior, and feel angry if expected to pay full price
  • gamblers feel exhilarated when taking chances, and find it hard to stop - even when losing - as a win brings a sense of power.
Image caption Bargain hunters save money but spend time

Brian Capon, who in the 1970s was assistant manager at Midland bank branches in Northamptonshire, says state of mind affects the way people approach financial decisions.

"Someone who has just found the the car or house of their dreams can be so focused on borrowing the cash to buy it that they might not be too bothered about the interest rate they pay or how accurate the information is. Often the focus can be much more on getting the cash rather than whether they can afford to repay it."

In his day, a bank knew its customers' lives - and money habits - inside out, says Mr Capon, who now works for the British Bankers' Association.

"The manager or assistant manager used to look through all the credit slips and cheques every day and over a period of time could build up a picture of customers' spending habits.

"The general feeling was that you shouldn't spend what you didn't have and you should save up to buy something you wanted. Because not many people had a bank account or easy access to credit, 'mood' spending had to be in cash, so if you didn't have the cash, you couldn't spend it."

How times have changed.

The money test - and the Bank of England deputy governor's call this week to spend savings - comes as Britain's debt mountain, including mortgages and credit cards, is £1.43tn, close to a record high.

Levels of personal debt started to shoot up in the 1980s when relaxation of the rules made lending and borrowing far easier than ever before. But this hasn't been matched with success in educating people to manage their money well.

While today's school pupils have lessons in how to read bank statements and unpick financial abbreviations, Which? money editor James Daley says those schooled before this change in curriculum rarely seek the abundance of advice available - unless they hit crisis point.

Too many people are in denial about their finances, he says, because thinking about it would make them feel bad.

"In Britain we have a tendency to be spenders rather than misers. People get locked into a lifestyle they can't afford. They should meet somebody who's been made bankrupt and find out how awful it is."

The government should switch from campaigns patiently explaining what APR means to shock tactics, he says.

"I'm surprised we don't have public safety films about over-spending and debt like the ones for smoking. That would break through to the older generations."

Open University psychologist Mark Fenton-O'Creevy, another co-designer of the BBC's money test, says a little knowledge can be a dangerous thing.

"People whose higher education had a financial component are more likely to make mistakes with their investments. They think they know what they're doing, and make rash choices.

Image caption The national pastime

"Think about how people get into financial trouble. A person told their credit card is about to be taken away because of serious debts cheers themselves up with a spending spree while they've still got it."

They know this will put further strain on their parlous finances, but shopping is their way of dealing with stress of debt.

He's involved in the pan-European project xDelia to test whether innovative techniques such as immersive games might help people gain the necessary skills to make better financial decisions.

The aim of the BBC's money test will be to test the theory that how we manage our emotions - particularly when stressed or in an unpleasant situation - affects how we manage our money.

Because knowing what APR means - or how to work out the best discount, or read a bank statement - is just a part of it.

The Big Money Test is currently under development.

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