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Spending too much money often has an underlying emotional or psychological motivation, which is why money only sometimes buys happiness. People often make expensive purchases because spending money increases feelings of power. Feeling powerless may help explain different types of financial problems, such as credit card debt, failing to make mortgage payments, and not investing for retirement.

Finances and the Psychological Threat of Powerlessness

Researchers Derek D. Rucker and Adam D. Galinsky of Kellogg School of Management at Northwestern University asked research subjects to recall times when someone else had power over them. While remembering these feelings of powerlessness, the participants were willing to pay higher prices for status-symbol items.

"The increased willingness to pay for status-related objects stems from the belief that obtaining such objects will indeed restore a lost sense of power," write Rucker and Galinsky. Many consumers believe that spending money on expensive purchases will decrease their feelings of powerlessness.

Emotional Reasons People Spend Too Much Money

Here's how these researchers explain the concept of spending money and the psychological threat of powerlessness:

"As an analogy, consider two individuals, one a successful millionaire and the other a recently demoted banker," wrote the researchers, adding, "Both might view a Rolex watch as a clear status symbol. However for the millionaire, wearing the watch might not make the millionaire feel any more powerful than he/she normally feels. In contrast, for our demoted banker, wearing the same watch might make the banker feel significantly more powerful."

How Making Expensive Purchases Increases Feelings of Power

"[This study] suggests that in contemporary America, people use consumer purchases to compensate for psychological states of insecurity," say Rucker and Galinsky. "Spending beyond one's means in obtaining status-related items is a costly coping strategy for dealing with psychological threats such as feeling powerless."

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