How your money mindset affects your bank balance and wellbeing

Your financial (or money) mindset defines your financial perspective and is often influenced by how you were raised and taught about money. It can affect the financial decisions you make and your overall wellbeing. So how exactly does your finance personality type influence your approach to saving, spending and dealing with debt, and can you do anything to change it?

What’s on this page? 

1. Why money mindsets matter
2. The different money mindsets
3. How financial mindsets are formed
4. How life transitions can affect your money mindset
5. What to do if your partner has a different money mindset
6. Where to get help if you want to change your money mindset
7. Can you influence the money mindset of others in your life?

1. Why money mindsets matter

One large study found that while demographic factors, such as age and gender, make the biggest difference to individual wealth, money attitudes are responsible for up to 14% of the variation between individuals.

This was separate from how financially capable individuals are (which makes up to 24% of the difference). For example, people who associate money with security had greater investment wealth but less physical and property wealth, “suggesting an emphasis on more liquid assets”. People who associated money with love had more valuable objects, but less valuable property wealth.

Other research has shown that people who associate money with security (rather than generosity/love, freedom, or power/status) tend to be more careful with their spending and financial management. Some psychological theories also talk about “concrete” thinking styles (focused on short-term and contextual details) versus “abstract” thinking styles (focused on final goals and general characteristics).

These theories weren’t specifically designed to describe money mindsets, but can apply to them. Some research has shown that perceived scarcity can make people think in more concrete mindset – which isn’t necessarily good for your mental health.

The same research found that people with a more abstract mindset tend to have greater wellbeing, even in difficult financial situations. Other research has shown that a scarcity mindset (believing you don’t have enough resources for your needs) can change activity in the brain and affect decision-making, often in ways that are not in the person’s best interests. The opposite of this is an abundance mindset (believing there is plenty of resources). Worrying about money can lead to mental health issues such as anxiety and sleep problems.

2. The different money mindsets

As we’ve already seen, there are different ways of categorising money mindsets, with scarcity vs abundance being one of the most common broad divisions. But many writers have also described more specific mindsets.

According to Hendrix Hammond, psychotherapist and spokesperson for the UK Council for Psychotherapy (UKCP), these include:

• The Saver: Feels secure when money is saved and often avoids risk.
• The Spender: Finds joy and satisfaction in spending, sometimes at the expense of long-term goals.
•  The Avoider: Tends to ignore financial matters, leading to anxiety or disorganisation.
• The Planner: Likes to carefully budget, plan, and track finances.

Understanding which mindset you have can help you recognise patterns in your financial behaviour, says Hammond. However, you shouldn’t be surprised if you fit into more than one of these financial personality types.

Many people exhibit a blend of these “money habitudes”, according to Debbie Hancock, a chartered financial management consultant and money mindset coach. The key is to understand your dominant financial mindset so you can make more informed financial decisions.

“It is important to remember that all archetypes and habitudes have pros and cons and that one is not better than the other. A balance is what we are aiming for,” she says.

3. How financial mindsets are formed

Financial mindsets are formed in early childhood, usually before the age of seven, and are influenced by our upbringing, personal experiences and the financial behaviours we observe in our families.

Fraser Kerr, regional director at abrdn Financial Planning, says: “If you grew up in a household where money was a constant source of stress, you might develop a scarcity mindset, always worrying about not having enough. If you grew up in a household with little understanding of the value of money, you may have a tricky relationship with money and fall victim to overspending.”

The good news is that financial mindsets are not fixed. According to Hancock, while beliefs are deeply rooted, financial mindsets are not set in stone and can be challenged. She says: “Step outside your comfort zone. What new financial habits could you try, such as spending a bit more on yourself, setting up a regular savings amount or creating friction in the buying process (could you wait 24 hours before purchasing?).”

Just remember that changing your financial mindset takes time and effort. “Be patient with yourself, celebrate small victories and don't be afraid to seek support along the way,” adds Hancock.

4. How life transitions can affect your money mindset

Retirement can be a time that challenges your financial mindset, as you make a transition from earning to spending savings. The shift from accumulating wealth to spending it in retirement can be psychologically challenging. Some people find it difficult to give themselves “permission” to spend the money they've carefully saved.

There can be additional challenges, such as fear of depleting savings too quickly, or feeling conflicted between leaving an inheritance versus enjoying retirement. Taking a balanced approach is key.

It might be helpful to think of your retirement savings as a tool for both security and enjoyment. Setting clear spending parameters can help you feel more confident about using your money in retirement. You might find it useful to speak to a financial adviser or a financial planner about both your practical finances and your money mindset as you approach or enter retirement.

You can also get a free appointment to discuss your pension from Pension Wise, a government-backed service from Money Helper. It’s available if you’re over 50 and have a UK-based defined contribution pension pot (either a personal or workplace pension), or you've inherited a pension pot or are able to take your pension early due to ill health.

5. What to do if your partner has a different money mindset

If your partner has a different money mindset – perhaps you are a saver, while they are a spender – this can be a significant source of tension in your relationship, particularly when it comes to financial goals such as saving for your retirement.

Open and honest communication with your partner is essential to overcoming this. It can be worth exploring how you both came to develop your different mindsets, so that you can look at ways to move forward and build a financial plan together. Kristen Cunliffe, certified financial coach at Kristen Money Coach, advises that you explore how the two of you approach money situations differently, without blame or shame.

“I think when we understand why someone has developed a certain belief around money, we can show more compassion and understanding and then hopefully find a compromise which suits both parties.”

Hammond adds that it’s important to discuss your priorities and come to mutual agreements, as well as be willing to adjust as circumstances change and regularly check your financial plans are on track.

“These conversations aren’t about changing your partner’s mindset but finding ways to align your goals and work together,” he says. For couples approaching retirement, different money mindsets can become more pronounced.

For example, one partner might want to do lots of travelling in early retirement, while other might prefer to preserve their savings for later years. It’s worth spending time to discuss this and think about what you have in common as well as what’s different.

Sit down and individually write out your ideal retirement lifestyle, then compare notes. You could even create a “vision board” with pictures from newspapers or magazines to show what you want your retirement to look like. It’s always helpful to understand what’s important to your partner, and for them to do the same.

You might discover that you have more shared financial goals than you thought, but perhaps you each prioritise them differently.

• The charity Relate has useful information about talking about money in your relationship.

6. Where to get help if you want to change your money mindset

If you feel like your money mindset is getting in your way, or causing issues in your relationship, understanding your feelings around money and where they come from can be a useful starting point. Some people find it useful to regularly write down their thoughts and feelings around this, perhaps focusing on a specific area, such as spending money, if that feels relevant to you.

It can be helpful to come up with a plan of action, including small, achievable goals. If you want a bit of extra support, you could take part in a financial wellbeing workshop, such as this one from Planned Future, or read books on the subject, such as Claer Barrett’s What They Don’t Teach You About Money. You could even consider “financial therapy”, also known as money counselling.

This is a relatively new field that addresses the emotional and psychological aspects of money. Financial therapy could help you deeply explore your relationship with money and what drives your behaviour and attitudes.

“Financial therapy combines emotional and practical approaches to address the root causes of money-related stress,” explains Janeil Pierre, financial confidence coach and author of the upcoming book The Money Confidence Code.

“We can then look forward to working out how you actually want to live and work on building healthier attitudes and practices around money,” says Philly Ponniah, financial coach at Philly Financial. “Often when clients realise what it is from their childhood that is still impacting them now, decades later, they can feel a sense of relief from the awareness of that.”

Financial therapy is often provided by counsellors or psychotherapists, but it can be provided by finance professionals such as financial coaches. Note that while counsellors or psychotherapists can help you implement better habits when it comes to budgeting and saving, they shouldn’t provide financial advice unless they are qualified and regulated to do so.

• The mental health charity Mind has useful information about money and mental health 
• The Society of Later Life Advisers (SOLLA) can help you find a specialist in financial planning for older adults 
• Many local Age UK branches offer face-to-face money guidance
• If you’re struggling with money issues, Citizens Advice can help, or the charity StepChange if you’re struggling with debt 

7. Can you influence the money mindset of others in your life?

Just as your own money mindset has been influenced by those around you, you can influence the financial attitudes of younger generations in your life, such as children and grandchildren. Talking about money and its value as early as possible is essential to this, as is leading by example.

Some examples of this could be using shopping trips to discuss price comparison and budgeting; sharing stories about how you managed major financial decisions; or demonstrating charitable giving and explaining what your values are.

You could even open a junior ISA for them and take the opportunity to explain how compound interest works. It can sometimes be easier for grandparents to have more relaxed conversations about money than parents do.

Ponniah adds: “Make it fun for grandchildren, involve them in working out the cost of a meal you make with them, talk about what you want to prioritise spending on such as a holiday. Try not to say, ‘we can’t afford that’, say instead, ‘we’re choosing not to spend on that’.”

• See our guide to the best gifts to teach children about money