Emotions and Finance: Spending Plans and Needs vs. Wants*

Edited

1 Emotions and Finance: Spending Plans and Needs vs. Wants*

Learning Outcomes:

Recognize how emotions affect financial decision-making.
Understand why we make bad financial choices.
Learn the types of expenses a college student might face.
Differentiate between needs and wants in daily decision-making.
Consider how needs and wants influence spending decisions.

Understanding Emotions*

Emotions don’t just feel good or bad; they also contribute crucially to people’s well-being and health. In general, experiencing positive emotions is good for us, whereas experiencing negative emotions is bad for us. While it is generally good to experience more positive emotion and less negative emotion, this distinction is not always the guide to the good life. How we feel adds much of the flavor to life’s highest—and lowest—moments. Can you think of an important moment in your life that didn’t involve strong feelings? In fact, it might be hard to recall any times when you had no feeling at all.

Emotions play a large role in how we spend and save money since money is a symbol of security, success, and love. We are likely to save/hoard money in times of anxiety or uncertainty. At the same time, frustration or stress can cause us to spend impulsively and then feel buyer’s regret. Retailers design marketing strategies that touch our feelings such as sales, limited-time offers, and exclusive deals, to encourage the making of quick decisions.

Understanding your emotional triggers will help you manage your emotions to make better financial decisions. Once you know what your triggers are, you can develop strategies to control those emotions and make more informed choices such as setting spending limits, automating your savings, or seeking expert advice from a financial advisor. (Psychology of money, 2024)

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Values & Emotions

There is a relationship between your values, emotions, and personal finances.
Your values and emotions will influence your financial decisions.
To be fiscally responsible, your finances should align with your values and goals.

(NFEC, n.d., p. 8)

External Influences

External factors can influence your financial decisions. For example, not all financial information is accurate or truthful. Always do a check.
There are marketing messages that are influencing your spending.
You can assess external information to make informed decisions that align with your goals.

(NFEC, n.d., p. 9)

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Understanding College Costs**

The cost of college can include a variety of items including some you might not expect. By understanding college costs, you can compare schools and explore options for how to lower your costs.

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What is included in the cost of college? College costs include more than tuition and room and board. Here are common costs:

Item

Description

Tuition

The cost of taking courses. Course costs vary by school.

Room and board

Lodging and food costs vary by school.

Books and school supplies

Books can be expensive. School supplies include

book bags;
notebooks;
pens and pencils;
paper and computer paper; and
desk accessories such as folders, trays, and pen holders.

Fees

Fees depend upon your school. Examples include activity fees and parking decal fees. Schools can provide a list of fees.

Equipment and room materials

This category might include

a computer and printer;
reading lamps;
a microwave and refrigerator; and
sheets, towels, etc.

Travel and miscellaneous expenses

If you commute to school, include transportation costs.
If you live on campus, include travel during school breaks.
You may also want to include clothing and mobile phone costs.

(Boies, n.d.)

Needs and Wants in Daily Decision-Making

Financial habits and norms are the values, standards, routine practices, and rules to live by on which people rely to navigate their day-to-day financial lives. They support the ability to manage money effectively and respond quickly to the need to make financial decisions or to meet financial challenges (Consumer Financial Protection Bureau [CFPB], n.d.).

Money is tied to human needs and emotions. The skills associated with financial habits and norms allow a person to make financial decisions more easily, based on their attitudes, on their values and emotions, and on social norms and contextual cues. These skills help a person decide what is desirable and possible financially and guide their day-to-day behaviors. These behaviors could range from decisions about splurging on a treat to decisions regarding how much to save in a retirement account (CFPB, n.d.).

Your personal financial habits are influenced by your values and emotions; influence from your peers; advertisements that you see; your personal money habits; financial decision-making processes; your lifestyle choices; and your personal choices (National Financial Educators Council [NFEC], n.d., pp. 8-10).

Food is a need . . .

Display of healthy foods on a table

. . . a boat is a want

Motorboat Ryds 435DL and cloud reflections in Sämstad harbor, Lysekil Municipality

Decision-Making Process

There are factors that influence your decisions.
Financial decisions affect your future.
There is a process for making good financial decisions.
You are able to make financial decisions that align with your goals.
There are strategies you can use to adjust your emotional state to make logical financial decisions.

(NFEC, n.d., p. 10)

Financial Goals

Goals affect your finances.
There are tools and techniques to help you set and prioritize your financial goals.
There are methods for setting and accomplishing personal financial goals.

(NFEC, n.d., p. 11)

Philanthropy

There are actions you can take to help make this world a better place.
You can give back in ways that support your values and goals.
Giving back can be a part of your overall financial plan.

(NFEC, n.d., p. 12)

Milestones for financial habits and norms in adolescence and early adulthood

What the milestones may look like in adulthood

Demonstrates a positive attitude toward planning, saving, frugality, and self-control

Makes and follows a spending plan, saves for big purchases and for retirement

Shows positive money management habits and decision-making strategies

Lives within their means, compares features and costs to make an informed purchase

Makes spending and saving decisions that match personal goals and values; resists peer pressure

Measures financial success by own standards instead of others’, spends with values and goals for today and the future in mind

Confidently completes age-appropriate financial tasks, such as getting a part-time job and using debit and credit cards

Makes a financial plan, explores employment options, limits credit card use, avoids and manages debt

(CFPB, n.d.)

Differentiate between Needs and Wants in Daily Decision-Making

Understanding the differences between needs and wants helps you make a spending plan to manage your spending and informs your daily spending choices. Covering all your needs before you spend money on your wants is a wise financial habit.

Spending plan: A plan that outlines what money you expect to earn or receive (your income) and how you will save it or spend it (your expenses) for a given period of time; also called a budget.
Needs: Basic things people must have to survive (such as food, clothing, and shelter); resources they may need to do their jobs (such as reliable transportation and the tools of their trade); and resources to help build and protect their money and property so they can meet future needs (such as emergency savings and insurance).
Wants: Upgrades and other things that would be nice to have but aren’t necessary for living, income, or protecting what you have.

(CFPB, 2022, p. 3)

Consider How Needs and Wants Influence Spending Decisions

How can I spend my money responsibly? Distinguishing between wants and needs can sometimes be difficult. It is important to separate wants from needs in order to make smart financial decisions.

In this activity, students will:

Differentiate between needs and wants in daily spending choices.
Consider how needs and wants influence their spending decisions.

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Key Takeaways:

Know what are your needs and what are your wants.
Include financial goals in your budget such as savings and large purchases such as a car.
Realize that your personal finance decisions are based upon your values and emotions.

* This section adapted in part from Emotion Experience and Well-Being by Brett Ford and Iris B. Mauss under a Creative Commons CC BY-NC-SA 4.0 license.

** This section was adapted from chapter 6 of Personal Finance by Chris Boies under a Creative Commons CC BY 4.0 license.