Life After Full-time Work Blog

Learn about preparing for life after full-time work through posts from Don's upcoming book.

#28: What Does Spending Money Do For You?

In the same way that we observed that there’s more to life than money (see Post #4), so too there’s more to spending money than obtaining something that’s useful to us. Here are some emotional benefits.


In his 2010 book What Investors Really Want (McGraw-Hill Education), Dr Meir Statman wrote something profound. We all know that we make investments in the hope of financial gain. Financial economists have proclaimed that for generations. But Statman observed people and said that we make investments for two other reasons, sometimes. Both of these reasons are emotional rather than financial. One points inwards (it makes us feel good about ourselves), the other points outwards (it expresses something about ourselves to others). Putting them together, he called these utilitarian, emotional and expressive benefits. And he said that they’re all valid, indeed perfectly normal, reasons for investing.

For example, buying a car has the utilitarian benefit of giving us the means of getting from one place to another. Buying a fund that invests in environmentally friendly companies makes us feel good about ourselves. Buying a Bentley or a hedge fund proclaims something about us to others.

When I first saw this, I thought (and I still think) it was profound. Indeed, like the very best ideas, they feel like common sense – but not until someone else has expressed them. Until then we may have a vague intuitive notion about them, but it takes a brilliant mind to express them simply and powerfully. I also remember thinking that I now understood myself better, because I now understood my own motivations better. I felt that I became a wiser, better, less anxious investor as a result.

Statman is one of the founders of behavioral finance, the branch that goes beyond economic theory (“this is what totally rational people do”) to explaining what normal human beings do. (Dr Richard Thaler won the 2017 Nobel Prize for Economics for his outstanding contributions to this very field. And while I’m thinking of the leaders in the field, let me mention Dr Hersh Shefrin too.) A few years later (2017) Dr Statman published a book that he calls Finance for Normal People (Oxford University Press). And along the way he extended his three motivations for investing as being equally applicable to spending.

At which point I thought again: yes, that’s obvious! (And again: why didn’t it occur to me before he said so?) The only difference between spending and investing is the time period in which the benefit is expected. Spending refers to an outlay for which the benefit occurs soon. Investing refers to an outlay for which the benefit is expected at some time in the future. So yes, it makes sense that utilitarian, emotional and expressive motivations exist for spending too.

A consequence of all of this is that, since people are different, spending that brings some form of benefit to some people will not work for other people. Things that some people consider essential to their lives and happiness will be unimportant for others. And Statman tells us: that’s OK. These are not absolute values, these are personal values. And we should be grateful for his capturing these ideas for us and making them feel like common sense.

He doesn’t say that everything we do is therefore sensible, just because we do it. Oh no. He tells us that, in addition to being normal-knowledgeable, we can also be normal-ignorant and normal-wrong. (Too bad – for a moment I was hoping that everything is OK. No such luck.)

For example, buying a dream with a lottery ticket brings an emotional benefit, even if it’s temporary. But if we buy the lottery ticket because we over-estimate our chance of winning, that’s ignorance. Wanting a thrill is one thing; but overestimating our ability as, let’s say, the driver of a car is ignorance. Dividing our money mentally into different buckets for different purposes can make sense because our tolerance for not achieving the various goals may be different. But kidding ourselves with the benefit of hindsight that we knew in advance which of several possible outcomes of an event would occur is wrong and could cause unnecessary misjudgment in the future. You get the idea. The three motivations make sense; our actions may not.

Anyway, my purpose here is just to assure you that you’re the only person who can decide what you are motivated to do with your money. Other people’s “shoulds” can be relevant as inputs into your thinking, rather than as forcing your decisions.



We get three kinds of benefits when we spend money. There’s the utilitarian benefit that something is useful to us. There’s the emotional benefit that something makes us feel good. There’s the expressive benefit that our purchase says something we consider positive about ourselves to others. They’re all valid reasons for decision-making.

Leave a Comment

I have written about retirement planning before and some of that material also relates to topics or issues that are being discussed here. Where relevant I draw on material from three sources: The Retirement Plan Solution (co-authored with Bob Collie and Matt Smith, published by John Wiley & Sons, Inc., 2009), my foreword to Someday Rich (by Timothy Noonan and Matt Smith, also published by Wiley, 2012), and my occasional column The Art of Investment in the FT Money supplement of The Financial Times, published in the UK. I am grateful to the other authors and to The Financial Times for permission to use the material here.

Leave your question or comment