Whether you realize it or not, our emotions are the backseat driver to most decisions we make in our day-to-day lives, including what we do with our money. Have you ever felt down and suddenly found yourself on a massive shopping spree or blowing all your money at the casino? These purchases show the indirect effect that emotions can have on our spending habits.

In consumer psychology, there is a broad distinction between two types of emotional influences on our spending habits: integral and incidental emotions. Integral emotions are more accessible as they arise in direct response to a decision you are trying to make. Investment culture is a great example of this. While investments are a great way to grow wealth, they are inherently risky. For some, the uncertainty and risk can cause enough anxiety to prevent them from investing. While this anxiety can protect you from making bad investments, it can also keep you from making good ones. Another context where the effects of integral emotions are evident is in advertisements. Marketers will try to elicit emotional responses in consumers to encourage them to buy their products. For example, Coca-Cola ads often portray joyful moments shared between loved ones while they sip a cold, refreshing bottle of Coke. Implicit in these ads are themes of happiness, social connection, and refreshing beverages on hot summer days. By associating these feelings with their product, Coca-Cola is attempting to sell an emotional experience to the audience to influence their purchasing behaviour.

While the effects of integral emotions on your financial decision-making may seem obvious, they can also influence your spending behaviour in ways you may not even realize.

Incidental emotions arise from events or causes that are irrelevant to the decision you are making but tend to inform the decision regardless. Let us paint a picture: You wake up to a beautiful blue sky on a warm sunny day, putting you in a good mood. Inspired by the beautiful weather, you decide to make the most of it— maybe going to a patio for lunch with friends or browsing the mall to pick out a gift for someone. The scenario shows how your mood can subtly shape your spending habits. Your good mood was not due to lunch or shopping; the weather put you in a good mood, which influenced your spending decisions.

Incidental emotions can affect a person’s ability to reason and exert self-control while affecting the accuracy of their beliefs and their tendencies to take risks. 1. Naturally, the influence of incidental emotions on your behaviour depends on which emotion you are experiencing. Studies have shown that positive emotions can enhance judgement and decision-making in many circumstances; however, they can also make you more prone to risk-seeking behaviours, increasing your willingness for frivolous spending. [1]

Not all negative emotions are equal. Nobody likes to be sad, and we try to avoid it, but did you know that sadness might improve financial planning? Sadness is known to enhance effortful and detail-oriented thinking. On the other hand, anger, especially among males, tends to increase risk-taking through its ability to lead people to underestimate risks, disregard consequences, and have a false sense of certainty and control (so think twice before venting your anger at the casino). Conversely, people’s sense of fear and anxiety decreases this sense of certainty, leading them to overestimate the potential risks associated with their decisions and stick to safer options.

It is not just the emotions you feel from moment to moment that can influence your decision-making; some research has suggested that your emotional disposition has a stronger effect on your decisions and judgement. Emotional disposition is the tendency to feel some emotions more or less frequently or intensely than others in the same situations.[2] Emotional disposition is stable and maintained throughout life, biasing how one interprets and reacts to events. Whereas momentary anger may lead people to engage in risky behaviour that they would typically avoid in a calm state of mind, people with angrier emotional dispositions consistently take more considerable risks throughout their lives and in many contexts (e.g., work, personal relationships, gambling habits).

Although our emotions play a large role in shaping our money-spending habits, it does not mean we are at the mercy of our emotions when making decisions. By increasing awareness of the impact of emotions on decision-making and spending, individuals can take steps to mitigate their influence. It is important to understand what we are feeling and why in order to prevent our emotions from pushing us to make bad decisions. Instead of allowing emotions to dictate our spending habits, we can focus on building healthier financial habits and pave the way for a more secure future.