Mind Over Money – Weird Ways Your Personal Finances Affect Your Brain

Weird Ways Your Personal Finances Affect Your Brain

Money is a strange thing. We spend all our lives working for it, and then it seems to vanish in an instant. What exactly is money? In crude terms, it’s a store of value. It’s something that you can keep that can be traded for pretty much anything else in the economy. Money, unlike particular goods, always forms one side of the transaction.

Money can make people do crazy things. We’ve all seen the effects that winning the lottery can have on some people: they go on a mad, uninhibited spending spree, blowing through millions of dollars in just a few months, only to wind up broke. Or if they don’t do that, they end up falling out with all their friends and family and as everybody piles in and tries to claw away at their gigantic pile of cash.

The relationship between the brain and money has been extensively researched by scientists. Researchers want to know how money affects our brains to find out which sort of behaviors people should embrace and which they should avoid.

Weird Money Fact 1: Money Can Make You High

Imaging technology has developed considerably over the last five years or so. It’s not possible to capture images of people’s brains in exquisite detail, watching how they respond to stimuli, almost down to the level of individual neurons. Researchers publishing in the Harvard Business Review recently did an investigation on the effect that money has on people’s brains and whether it creates a similar pattern of addiction to class A drugs.

They showed people a series of images – everything from naked bodies to corpses. These images had a significant effect on the area of the brain called the nucleus accumbens, thought to be responsible for giving pleasure. But nothing had quite the same effect as money – the most potent stimulant for humans yet discovered. According to the researchers, nothing could excite people as much as money. Money is for people what food is for dogs – nothing gets them riled up quite like it.

Researchers then went on to try to find out why people take risks with money. Why is it, they wondered, that people are willing to gamble it all in Vegas or on business ventures? What is it that leads to the cyclical madness in the stock market where market participants convince themselves that they cannot lose?

It turns out that it’s all because of the addictive qualities of money. The more you have, they say, the more you want – and people are willing to take bigger risks to get the hit. This is why, they believe, people are willing to take risky choices with their finances that they’re not willing to take in other aspects of their lives.

Weird Money Fact 2: Money Can Relieve Pain

The link between money and pain relief might not be very obvious to most people. After all, what’s the connection? But a recent series of studies covered by LiveScience suggests that there is. Perhaps the reason that Smaug from the Hobbit lives in a vault of gold is because he has a bad back?

The researchers decided to find out whether people’s recent experiences with money affected their capacity to feel pain. In the first experiment, people were split into two groups and then asked to dip their hands in hot water. The first group was asked to count money and then dip their hands into the water. The second group didn’t do any money counting and were just asked to dip their hands and rate their pain. The researchers found that people who had counted money beforehand experienced less pain than those who hadn’t.

In another experiment, participants were asked to recall some of their large expenses. Then they were again asked to put their hands in water. You guessed it  – the people who had to talk about their recent large expenses experienced more pain than those who didn’t.

But what about mental pain? Can counting money help with that too? It turns out that it can. Researchers have found that the simple act of counting up all the money that you’ve made in a week or a month can help to diminish “social distress.” Writing a list of your recent bills can increase social distress and pain.

The weird conclusion? If you want to feel better, just count your money.

Weird Money Fact 3: People Fall For The Money Illusion

People sometimes justify going into debt because they’ve been promised a wage increase. It doesn’t matter if they take out an extra loan, they tell themselves because they’ll be able to pay it off with their extra income. These people have fallen foul of something called the money illusion and can ultimately go into debt because of it.

You can find out more online about getting out of debt and the money illusion, but the concept is rather simple. Suppose for instance that your wages go up by 20 percent. Great, you think: now you’ve got lots more money in your pocket to spend on whatever you like. But now suppose that prices also go up by 20 percent. Even though the nominal amount of money in your bank account has gone up, your real spending power has stayed the same.

Even though the logic makes sense, people’s brains have a hard time figuring it out. It turned out that people’s brains were a heck of a lot more active in the reward centers when their nominal wage was going up, even though their real wage was flat. It turns out that most people like just having bigger numbers going into their accounts every month, regardless of whether they’re able to buy more stuff.

In conclusion, it appears that the brain is capable of some really weird behavior when it comes to money. Thanks to things like the money illusion, and the fact that money lights up the brain in the same way as a class A drug, it seems that our dysfunctional relationship is set to continue. Perhaps one day, when resources aren’t so scarce, we’ll get over our love affair with money, but don’t bet on it.

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