How Spending Money Can Actually Make You Unhappy

If you are like most people, you have probably experienced financial constraints at some point in your lifetime. We go to college or graduate school in lieu of working a full-time job, yet we experience financial constraints, or scarcity, during this time. Getting a pay cut or, even worse, being laid off creates feelings of constraint and financial scarcity that are both objectively and psychologically constraining. Americans are notorious for carrying debt, and most Americans don’t have enough money saved to cover an unexpected emergency costing a few thousand dollars. Financial issues are so common that there is even a “Financial Health Matters Day.”

Financial constraints are often thought about in objective terms, yet financial constraints can also be perceived in our minds. For instance, if you have money invested in the stock market and your portfolio has been steadily (or rapidly) declining, you will likely feel financially constrained or downright unhappy, even if you are objectively doing OK. On Warren Buffet’s drive to his office, he stops at McDonald’s for breakfast each day and will order a couple of sausage patties when the market is down and he is not feeling “prosperous” ($2.61), whereas he will splurge when the market is up and order a bacon, egg, and cheese biscuit ($3.17)¹. The richest investor in history appears to experience subjective feelings of scarcity, even if they are delusional.

Objective and subjective feelings of scarcity have been researched extensively, finding that scarcity can decrease intellectual performance and happiness². Recently, a team of consumer psychologists set out to examine how perceived financial constraints influence our happiness when it comes to spending money. The researchers conducted experiments with over 7,000 participants to investigate how perceived financial constraints impact how happy we are when making a purchase³. Across these experiments, the data showed that feeling financially constrained made people less happy when they decided to buy something. In other words, feeling like our personal finances are tight makes us less happy when we decide to make a purchase.

The objective relationship between financial constraints and purchase dissatisfaction is intuitive, so the researchers also looked at perceived constraint by asking participants to write about ways they feel financially constrained (versus not). Even when holding participants’ objective financial status constant, perceived constraint made people less happy when recalling a purchase they had made. This effect occurred, in part, due to opportunity cost. When we feel financially constrained and decide to buy a new TV, we are more likely to think about how we could have spent that money on the new pair of sneakers that we also need.

In a time when the stock market is perpetually down, and many Americans are getting laid off, the findings from this research are more relevant than ever. So, how can you overcome the feeling of not enjoying your purchases when times are tight? The best strategy is to consider your options upfront, make the best decision you can, and then leave any second-guessing at the door. Considering your other options after the fact does more harm than good, so just tell yourself that you made the right decision for yourself at the time. Budgeting can also help, and keep in mind to budget for unexpected expenses, such as car repairs or medical bills.

Financial constraints are a foe, not a friend. They can put us into a scarcity mindset and make us less happy with buying things that should bring us joy. But by making informed purchases, budgeting wisely, and not thinking about what else the money could have gone towards once it is already, well, gone, you can enjoy what you spend your hard-earned money on and improve your happiness.