Does feeling rich actually make people spend more than they should?
It’s a curious thing, people often believe they have more financial breathing room than they really do, and that belief can drive spending habits in ways they might not even notice. This illusion of wealth is surprisingly powerful. It can shape everyday decisions, from what kind of car someone thinks they can afford to whether they order takeout three times a week. Understanding how this illusion works isn’t just useful for financial experts; it affects nearly everyone who handles money.
Read also: How Brand Partnerships with Creators Are Reshaping Finance
What creates the illusion of wealth in the first place?
A big part of it comes from how people interpret financial signals. When someone sees their home value go up or their retirement account balance rise, there’s a sense of increased stability, even if that money isn’t actually available for day-to-day use. It feels like a cushion, which can make discretionary spending feel more justified. The same thing happens when someone receives a raise. Rather than adjusting their lifestyle gradually, there’s often a quick shift: a newer car, pricier restaurants, or shopping without hesitation. These changes are subtle but add up quickly, fueled more by perceived wealth than real liquidity.
Photo Credit: Unsplash.com
Credit plays another major role. Having access to large credit lines can easily distort someone’s sense of their financial health. The presence of a high credit limit doesn’t translate to real money, but it can feel like it does. Swiping a card, especially for smaller purchases, doesn’t carry the same psychological weight as handing over cash. People aren’t always doing mental math on their long-term obligations, so the debt can pile up before they notice. That’s especially true when interest rates are low or payments are deferred, it creates a soft landing for decisions that would otherwise feel risky.
How do lifestyle changes reinforce this illusion?
There’s something very subtle about how habits shift once someone starts spending more freely. Maybe they start flying business class because it feels justifiable after a big promotion. That single decision can reshape what they consider “normal” when traveling. Eating out stops being an occasional splurge and becomes a weekday convenience. Subscription services, new clothes, electronics, all of these start to feel less like extras and more like baseline expectations.
This kind of lifestyle inflation isn’t always deliberate. It often creeps in gradually, shaped by social cues and a changing perception of what one can afford. Seeing peers make similar spending decisions adds to the pressure. The result is that people often increase their expenses at the same rate or even faster than their income grows, which prevents long-term wealth from building.
Why does digital spending make things worse?
One of the most overlooked contributors to the illusion of wealth is how modern technology has changed the way people spend money. Digital wallets, contactless cards, and auto-renewing subscriptions all streamline the spending process, but they also make it easier to disconnect from the reality of financial outflows. Because these methods don’t feel like traditional transactions, they can bypass the mental friction that normally helps keep spending in check.
Even bank balances can be deceptive. A person might see a healthy checking account balance and feel free to spend, even if that money is earmarked for rent, utilities, or savings goals. Without a clear budgeting system in place, there’s no obvious sign that they’re spending too much until the consequences hit.
Is there a psychological explanation behind all of this?
There’s more going on here than bad math or poor discipline. Several psychological concepts help explain why people act this way. Mental accounting, for instance, leads people to treat money differently depending on its source. A tax refund feels like “free” money, even though it’s technically just a return of their own income. So they spend it on things they wouldn’t normally buy with a paycheck.
Another key idea is present bias. That’s the tendency to favor immediate rewards over long-term gains. It’s one reason why someone might choose to finance a vacation instead of putting that money toward their emergency fund. The future feels abstract and less urgent, even if it’s only a few months away. Optimism bias plays a role too, people tend to believe that their future income will be higher, or that they’ll get a handle on their finances eventually, which makes overspending today seem less risky.
Read also: The Role of Student Finance Clubs in Gaining Access to Wall Street
Can people avoid falling into this trap?
Photo Credit: Unsplash.com
While it’s hard to completely eliminate the illusion of wealth, awareness is a strong first step. When people understand how their brain responds to perceived financial gains, they can create systems to counteract those responses. Tracking real net worth rather than just income or cash on hand can provide a clearer picture. Separating short-term liquidity from long-term investments helps keep spending in check.
What matters most is how people define affordability. If it’s based on available credit or a temporary spike in income, the illusion of wealth can become expensive over time. But if affordability is rooted in actual savings, realistic budgeting, and thoughtful planning, it’s easier to build financial habits that last.
Even when someone’s earnings rise or their assets grow, anchoring decisions in long-term goals rather than short-term feelings can prevent the kind of spending that derails progress. It’s not about being overly cautious or avoiding enjoyment. It’s about aligning perception with reality, and making sure the feeling of wealth doesn’t drain the future it’s supposed to support.
