Humans and Money: Saving’s hard, but spending can be harder

A few years ago, when I was interviewing clients of a financial advice business, I spoke with a recently widowed client who loved the ballet. She said, given the option, she'd spend half her life at the Royal Opera House.

The interesting thing was, she did have this option, but she chose not to act on it.

She told me her financial adviser had already showed her that, even under cautious assumptions, she could live to 120, double her current spending, and still leave a meaningful inheritance to her family.

So the magic wand she'd always wanted was already in her hand…

But like many things relating to financial behaviour, knowledge alone wasn’t the problem. She still felt uncomfortable spending the money, even though she couldn't quite put her finger on why.

I find this type of scenario fascinating. Here was someone with genuine financial freedom, confirmed by a professional whom she trusted, and yet she couldn't grant herself permission to experience it. Why might that be?

Money lives in imaginary pots

The reason comes down to something the behavioural economist Richard Thaler termed ‘mental accounting’. This describes the phenomenon that we don't experience our wealth as a single unified pot. We divide our money into informal categories based on where it came from or what we feel it should be used for. And once money sits inside one of those categories, it comes with invisible rules. We might rationally know that £50 from savings is equivalent to the £50 we’ve received as a present, but our minds treat these two scenarios differently.

In many instances, this mental accounting process we adopt can be very useful. It helps us set boundaries to make sure we don’t spend our emergency fund or to improve our discipline towards saving for a specific goal.

But it’s easy for unconscious processes like this to convince us that we’re making the right decisions with our money, even when they’re not financially optimal or don’t align with what’s important to us.

Imagine you've contributed to an investment account for years. You might have started with a lump sum or built up the balance slowly. At some point, without any formal decision, it probably stopped feeling like your money to spend and started feeling like it belonged to a future version of you. You’ve made sure that, psychologically, your present self isn't authorised to touch it.

This is what had happened to the woman who was sitting opposite me. She and her husband had saved carefully over decades. That wealth had accumulated inside a particular mental account in their minds. It represented the future that they were investing in.

Even though she was now living in that future, ready to make use of this money, the label on her mental account hadn’t changed. It still fell into the ‘safety’, ‘do not touch’ mental account.

The fact that her adviser had shown that she could spend it freely didn't change this. It just created a conflict between what she knew intellectually and what it felt like the money was for.

Is mental accounting working for you?

This example might feel quite specific, but consider how you perceive your own money. Would you be more frivolous with money from an unexpected windfall than money that’s been earned? Are you more likely to put money from a bonus towards a special treat than if that money had gone into your account as part of a usual salary? If you’re like most people, the answer is probably “yes”.

Ultimately, money carries the story of how it got there. This is why simply knowing you can spend isn't always enough to make spending feel right. The money has a history. And that history shapes what it seems to be for, sometimes more powerfully than any financial plan.

Most of us use mental accounts because they work. We all put rules in place to help manage complexity and our own behaviour. Dividing money into categories makes decisions feel more bounded and less overwhelming.

The problem comes when these categories harden past the point of usefulness without us even being aware. When money set aside for the future stops feeling accessible to the person who earned it.

The client in my story didn't need different numbers. What she needed was a different relationship with what those numbers actually meant. That's a harder thing to come by than most financial plans account for. But it starts with a simple question: are your mental accounts helping or hindering your ability to live the way you want?

3 August 2026