Money, Mindset, & Marshmallows: The Psychology of Spending

Have you ever bought something on sale even though you didn't need it? Or gone on a little spending spree just because payday arrived? We've all been there. Sometimes those buys feel great. Other times, they leave us wondering, "Why did I even buy that?" So why do we do it? Why do we spend money on things we don't need when it's essential to our survival?

To understand our spending habits, we need to explore the psychology behind how we manage money. Our choices around what we buy and why we spend aren’t often logical. 

Here are some of the hidden influences that have a big impact on our spending decisions:

• Instant Gratification: Our brains love the rush of getting something now. That little dopamine hit from clicking “Buy Now”? It isn’t just convenient - it’s psychologically irresistible.

• Emotional Triggers: Shopping can become a way to manage emotions - buying something when we’re sad, celebrating success by rewarding ourselves with a purchase, or spending to relieve stress.

• Social Comparison: Whether it’s friends, neighbours, or social media influencers, seeing what others have can quietly (or loudly) nudge us into buying something similar. We like to feel like we fit in, even if it comes at a cost.

• Scarcity Mindset: Tactics like limited-time offers and low stock warnings create urgency that overrides rational thinking. The fear of missing out can lead us to spend impulsively, even when the purchase isn’t truly necessary.

  
  

To really grasp why we’re so drawn to these behaviours, we need to take a step back and look at how our brains are wired. Throughout human history, seeking gratification has been a survival mechanism. Feeling satisfied, whether through eating when hungry or sleeping when tired, has always signalled safety. Today, we’re still wired the same way, but now that mechanism shows up in the form of a quick online purchase or spontaneous splurge. 

A classic psychology experiment helps us explain this: the Marshmallow Test. Researchers offered children a choice: eat one marshmallow now or wait a little and get two. Some gave in immediately. Others distracted themselves. A few managed to wait. 

What really stood out wasn’t just who waited the longest. It was how differently each child approached the challenge and why. Later research showed that factors like trust in their environment, family background, and even socioeconomic status played a major role in how well they could delay gratification. In other words, resisting temptation isn’t just about willpower; it’s shaped by experience.

This same principle applies to how we manage money. Like the children in the experiment, we’re often choosing between instant gratification - spending now - or holding out for something more meaningful in the future, like financial security or long-term growth. Making that long-term choice isn’t about having strong willpower. It’s about understanding the psychology driving our decisions and putting systems in place that make the better choice easier, more automatic, and more rewarding.

At Index Financial Services, we’re here to help you build those systems. We understand that money decisions aren’t just about figures - they’re about feelings, habits, and mindset. That’s why we take a behavioural approach to financial advice, helping you make choices that truly align with your needs and goals. By understanding how you think and feel about money, we help you uncover why you spend the way you do and how to build practical habits that support long-term success. We develop personalised strategies designed to feel natural and sustainable for you.

In our next post, we’ll explore more ways that understanding your financial psychology can set you up for long-term success.

Until then, ask yourself: when it comes to your money, are you a one-marshmallow or a two-marshmallow person?