The Psychology of Money

Does money motivate people at work? Why are some people savers and others spenders? Why is money a taboo topic?

Money has powerful emotional associations. Ask people what emotions are most frequently associated with money and research provides the following rank-ordered list: anxiety, depression, anger, helplessness, happiness, excitement, envy, resentment.

Money, for many, can stand for security. Emotional security is represented by financial security and the relationship is believed to be linear - more money, more security. Money is an emotional lifejacket, a security blanket, a method to stave off anxiety. Evidence for this is, as always, clinical reports and archival research in the biographies of rich people. Yet turning to money for security can alienate people because significant others are seen as a less powerful source of security. Building an emotional wall around oneself can lead to fear and paranoia about being hurt, rejected or deprived by others. A fear of financial loss becomes paramount because the security collector supposedly depends more on money for ego-satisfaction. Money bolsters feelings of safety and self esteem and so is hoarded.

Money of course, also represents power. Because money can buy goods, services and loyalty, it can be used to acquire importance, domination and control. You can use money to exploit others vanity or greed. With loads of money one can bribe and control and so feel powerful. Money can be used to buy-out or compromise enemies and clear the path for oneself. Money and the power it brings can be seen as a search to regress to infantile fantasies of omnipotence...or so the Freudians say.

Money is love. For some money is given as a substitute for emotion and affection. Those who visit prostitutes, ostentatiously give to charity; spoil their children are buying love. Others sell it: they promise affection, devotion, endearment and loyalty in exchange for financial security. Money is used to buy loyalty and self-worth. Further, because of the reciprocity principle inherent in gift giving, many assume that reciprocated gifts are a token of love and caring.

For many people, money is freedom. This is the more acceptable and more frequently admitted attribute attached to money. It buys time to pursue one's whims and interests, and frees one from the daily routine and restrictions of a paid job. Money buys escape from orders, commands; everything that restricts autonomy and limited independence.

Money and Rationality

Bankers, Economists and Financiers assume that people, like themselves, are rational with respect to their own money. Their models and marketing strategies are based on homo-economicus: the rational human being. They could not be more wrong. People are ignorant, irrational and a-rational with nearly everything about their money. The belief about what money is good for; how best to acquire, multiply and store it; and about the happiness it brings are demonstrably false.

Nearly everyone is in business to make money. But talking seriously and honestly about money at all at least in polite company is pretty rare. Money matters are frequently discussed - the rate of tax, cost of living, property prices - but personal finance still remains a taboo topic. Celebrities and ordinary mortals seem happier to talk about the intimate ramifications of their sex lives and mental health than about their monetary status, salary or financial transactions.

Secrets about money matters do not occur in all cultures. In the openly materialistic cultures of South East Asia, enquiries into others', and open discussion of one's own, financial affairs seem quite acceptable. In our culture, money issues are often denied, overlooked, or ignored in courtship, argued about constantly in marriage, and the focus of many divorce proceedings. Contested wills between different claimants can turn mild-mannered, reasonable human beings into irrational bigots.

Studies show that parents rarely talk about money to their children but that children acquire many of their money habits from their parents. Profligate parents beget profligate children; obsessional miserly hoarders are copied by their children or in oppositional triumph spend it all. Surveys show that over 90% of adults would like their children to know more about the financial reality of life than they currently do, but that they are not really confident enough to ensure their children are financially literature, sensible and mature.

Many philosophers have written about the irrational, immoral and downright bizarre things that people do with, and for, money. The media frequently focuses on compulsive savers and hoarders (who live in poverty but die with millions in the bank) or compulsive spenders who recklessly run through fortunes often obtained unexpectedly. The case of the late Benny Hill has recently shown he left over £7 million but spend very little. Misers are compelled to save money with the same urgency that the spendthrifts seem driven to lose it. Robbery, forgery, embezzlement, kidnapping, smuggling and product-taking are all quite often simply money motivated.

The new discipline of behavioural economics is based on thinking fast and not slow: that is using rules-of-thumb which lead to erroneous conclusions. There is now a huge interest on nudging people along by cleverly presenting information in a particular way which often hood-winks them.

Money as a motivator

One of the most debated issues is the motivational power of money at work. Where do you stand on the issue of money as a motivator at work?

1. For: Money is an effective, powerful and simple motivator. Self-evidently, money motivates and extra money motivates people to work extra hard. It’s natural to compete and when rewarded with money for better work productivity and standards are raised for all. Further, because it is not always wise or indeed possible to promote individuals, money can be used as an equitable and very acceptable way to reward all workers. More importantly, because money is a “generalised re-inforcer” it is always acceptable to all people everywhere and at all times. Money talks, and it talks loudly and clearly.

2. Equivocal: Money sometimes, but not always, motivates. For those who are very well paid, even quite large amounts have a minimal motivational effect. Worse, money rewards can and do set employees against one another leading to conflict, disharmony and reduced teamwork. It leads as much to a win-lose as a win-win philosophy. Also, it is very difficult in many jobs to determine or measure an individual’s work performance accurately and equitably so as to decide how much money to award.

3. Against: Money is not effective and has only the power to de-motivate. Money actually trivializes work: it turns those who are intrinsically motivated at work into extrinsically motivated workers. Money rewards (bonuses, performance related pay) may bear little relation to what the worker does, or feels. If money works and is so motivating, perhaps the base salaries are too low. There are better ways to motivate people, other than cold cash. It is a naive nonsense to believe that if you increase a person’s salary by say 20% you will generate a 20% increase in their productivity (or even morale).

The data on this topic is surprising. The correlation between job and salary satisfaction is very low (around r=.10). It is about the same size as that between salary amount and salary satisfaction. The research shows that employees in the top half of the salary range have very much the same level and degree of satisfaction than those at the bottom level. So the relationship is weak and unclear.

Money as a Demotivator

I have argued that there are at least four reasons why money is seen by business psychologists as much more likely to be a cause of dissatisfaction than satisfaction. They argue that money does indeed have motivational effects but that they are nearly all exclusively negative.

The first reason relates to the idea that the effects of a pay rise very soon wear off as people adapt to their new conditions. Any improvements are therefore likely to be temporary. It can take as little as two to three months for people to “settle down” to the new situation. Money can be a very effective motivator but you need a great deal of it to stop adaptation effects. Too much for most organisations to bear.

Second, what leads to pay satisfaction is not so much absolute salary but comparative salary. So if my salary goes up dramatically, but so does that of my comparison group, there is no change in my behaviour. The question, of course, is who my comparison group is and do I really know what they actually get. This is crucial and relates to the whole problem of performance related pay as we shall see. No matter what people are paid, if they believe, with or without evidence, that they are not equitably and fairly paid, they become demotivated. The smallest differential can have the greatest effect. That is why reading the appointment pages can generate such a lot of passion.

Third, money is not everything; in fact it may be much less important than health or holidays, time with the family and job security. Here is a choice: would you take £1,000 (immediate payment) or a week’s extra holiday? Many would be happy with more time off or more job security than more money. People are prepared to tradeoff other things for money once they have enough, or grow weary of the game which is not worth the candle. The young, the desperate, perhaps the greedy, are willing to do anything for money. But are they the people on your payroll, or the people whom you want to employ?

Finally, there is the eternal implication of tax and spend…..all very well to increase pay but if increased taxes eat heavily into it there can be marginal benefit? Why earn when the government take too much. If the government takes 50% and more…hardly worth the effort.

The Easterlin Hypothesis

The greatest shock are the data from what is called the Easterlin hypothesis. This was a study that examined aggregated data collected over 50 years in America. While GDP had been growing steadily over the years, response levels of personal happiness has remained pretty stable. This has lead economists (yes, the dismal scientists) to attempt to calculate how much money you need to maximize your wellbeing. The question is what is the sum, expressed as an annual salary, beyond which you get no “bang for your buck” in terms of happiness, well-being and contentment? What do you think: £100K, twice or thrice that? The answer is half that, or twice the average UK annual salary: around £50K/$75K

Some reject this “factoid” as unbelievable nonsense; particularly those who chase the elusive dollar all day long. They mistake the pursuit of money for the pursuit of happiness. They certainly are motivated to accumulate quickly and feverishly so that they can quit and do something they really love.


Money remains a taboo topic, more so than sex and death, and yet it can arose enormous passions in the workplace and the home. It is precisely because it is often not openly discussed that it can cause so much argument and stress.

For the manager three points are important. People differ widely in how they think about their money and do not assume they are like you. Money is one, and a rather minor, source of motivation and satisfaction at work. Concentrate on managing better. Unless you are very clearly able to show a relationship between salary and productivity/seniority/speciality it is best not to encourage social comparisons.


Furnham, A. (2014). The New Psychology of Money. London: Routledge

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