How Our Moods Affect Our Money

It’s a common understanding that if you’re feeling blue, a little “retail therapy” may do the trick, but just make sure you don’t go off the deep end and make yourself feel worse by buying the farm. So say the experts, who either cite academic studies on the effect that moods have one one’s finances, or are armed with anecdotal evidence from years of experience.

Many studies have shown that mood and finances are deeply intertwined and that how people feel about themselves can dramatically influence their success, says Dr. Srini Pillay, assistant professor of psychiatry at Harvard University and chief executive of NeuroBusiness Group, a Cambridge, Mass.-based firm that coaches business executives on communication skills.

Pillay pointed to one 2008 study by T.A. Judge and C. Hurst, “How the rich (and happy) get richer (and happier),” published in the Journal of Applied Psychology, which showed that higher core self-evaluations were associated with both higher initial levels of work success and steeper work success trajectories. “As a result, people have more ascendant jobs and careers,” Pillay said. “Many other studies have confirmed this finding as

well—that happier people are more likely to be more successful.”

“An Emotional Buzz”

Mood can also affect spending behavior, says Pillay. According to a 2008 study by Oono Takahashi et al. published in the scientific journal NeuroEndocrinology Letters, being depressed may lead to being more impulsive in one’s financial decisions. Another 2008 study of the brains of depressed people by B. Knutson, J. P. Bhani et al. published in Psychological Bulletin, showed that when people are depressed, they are less able to discriminate between gains and losses; and when anticipating gains, their brains go into a state of greater conflict. “This can significantly affect their financial decision-making,” Pillay said.

“Stressed people tend to spend more money,” says Christine Moriarty, a certified financial planner and president of MoneyPeace Inc., a personal finance education firm in Bristol, Vermont. “My conclusion from coaching individuals and seeing what they do is that they tend to spend money to solve problems, save time and make things easier,” Moriarty said. “However, they are so stressed out and over time-committed that they have no idea how this affects their full financial picture.” While physically touching money actually lowers stress, most stressed people spend money on credit cards, so the actual touching of money is not involved and hence, charging can give them an “emotional buzz,” she says.

Watch Out, Glass Half-Fullers

Susan Bruno, a certified financial planner and principal at Beacon Wealth Consulting LLC in Rowayton, Conn., said that people who feel that the “sun will always come out tomorrow,” can sometimes be the ones who ignore long-term planning, because they believe they will always be able to fend for themselves in a pinch. On the opposite side of the spectrum, there are those who may feel so negative about the future that they feel it’s pointless to plan for it.

“Those who are in the middle of the spectrum tend to be very pragmatic in their planning for the long-term,” Bruno said. “While they are fairly optimistic about the future, they know they still must plan accordingly—versus those who think, ‘Why the hell should I bother?’”

Many Americans are overly optimistic that they will be able to afford a comfortable retirement but are doing too little to prepare for one, according

to the 2010 Retirement Confidence Survey released in March by the Employee Benefit Research Institute and the American Savings Education. According to the survey, fewer than half of workers (46%) report they and/or their spouse have tried to calculate how much money they will need to have saved for a comfortable retirement by the time they retire.

Our Neighbors, Our Moods

The collective mood of the country can also affect the national economy overall, says Lauren Lyons-Cole, LearnVest’s financial planner in residence. “The better Americans feel, the more likely we are to think our economy—which represents our collective success as a nation—will improve over time.” The national mood seems to be improving, according to the latest Conference Board Consumer Confidence Index. The Index, which had rebounded in March to 52.3, increased further in April to 57.9, and is now at its highest reading since September 2008, when the economy hit the wall.

Let’s just hope we don’t get so rosy-eyed again that we forget the need to prepare for our futures.

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