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A Tightwad and a Spendthrift

| June 06, 2016
Financial Planning

There is usually one of each in every family. So what makes some people stock away every dime they make and others oblivious to the concept of saving and always in debt? Interestingly enough, there has been extensive psychological research performed on the spending behaviors of individuals: why some people spend money frivolously and why some people don’t spend money on anything. The research concluded that it had nothing to do with how someone was raised, what was taught to them, gender, age etc. Instead, an area of the brain called the “insula”, which is usually stimulated when we experience unpleasant situations like bad odors, was thought to be the principal foundation for how individuals perceive spending. Researchers concluded that people with more insula activity tended to be tightwads and those with less tended to be spendthrifts.1. So if you’re a parent, you can take a big sigh of relief. Whichever your kids are, it may have very little to do with you!

Is there such a thing as balance?

You know that gentleman that goes to the coffee shop every morning - everyone in town knows he’s worth tens of millions, but he drives a 1985 truck and you never see him spending money. Well that same someone has just as hard of a time when it comes to the necessities of life. I read a story about a man fitting that description that was developing health problems and was unable to get the specific care he needed from his personal physician. When asked why he didn’t see someone else, he explained that it would cost him money because it was outside his health insurance network.

Then there is the couple who wants to start planning for retirement in a few years. They are in their early sixties and making $300,000 per year. Ironically, their lifestyle is and has been lavish and their net worth is a mere $200,000. Their goals for retirement right now are near impossible.

Frankly, neither one of these extreme relationships with money are healthy. But take heart: spending behaviors can be changed…to some small degree. The researchers of spending behaviors found that if the situation was modified slightly, individuals would change their behavior slightly. For instance, a saver was more likely to spend money if you stated it is a “low five dollar fee,” rather than a “five dollar fee.” Likewise, spenders were less likely to spend money if they paid for it in cash as opposed to using a credit card.

How can knowing this help? If you or a family member has an extreme relationship with spending, here are a few tips to begin achieving more balance:


For Savers:

  • Use credit cards rather than cash—plus you can rack up bonus points.
  • Shop when you are depressed. You might buy more.
  • Make a commitment to buy a particular item by a future date and tell your friends and family.
  • Prepay for vacations, food, drinks. You’ll have more fun.
  • Reward yourself for accomplishing goals by making a promise to buy something.
  • Look into the future. Will you regret missing out on something or not doing something (vacations)?

For Spenders:

  • Use cash for every purchase and withdraw the cash yourself from your account.
  • NEVER shop when you are depressed.
  • Make a commitment to save a specific amount by a future date and tell your friends and family.
  • Have savings deducted automatically from your bank account or paycheck.
  • Pay often. Pay for everything as you go…food, drink, etc.
  • Treat yourself by buying something only when you reach your savings goals.
  • Look into the future. How much longer will you have to work if you spend? What will you not be able to buy in the future if you spend now?

There is a funny thing about “spending psychology”: Savers feel guilty about spending and are usually stressed Spenders don’t worry about tomorrow and spend carelessly. But both savers and spenders feel good when they save money. I encourage you to find a balance for your family. Save for tomorrow, but don’t forget to live Life on Purpose!


  1. Journal of Consumer Research: Tightwads and Spendthrifts