How Can We Understand and Change Our Financial Habits?

Financial literacy is most often understood as the ability to create a budget, invest, or navigate taxes. However, a growing body of research shows that technical knowledge alone is not enough: our financial decisions are shaped not only by rational thinking but also by emotions, past experiences, social pressure, and psychological resilience. Therefore, a healthy relationship with money develops at the intersection of financial knowledge and the ability to manage stress, uncertainty, and risk, as well as to recognise our own cognitive biases.

Financial literacy is more than the ability to calculate

Traditionally, financial literacy is defined as the ability to understand basic financial concepts, plan income and expenses, and make informed decisions about saving and borrowing. In reality, however, even people with solid financial knowledge often behave irrationally: they overestimate their capabilities, postpone long-term planning, or give in to impulsive decisions.

Behavioural economics explains that financial behaviour is influenced by cognitive biases such as loss aversion, herd mentality, and the overconfidence effect. This means that financial literacy not only involves considering what we should do with our money, but also why we so often fail to act as we intend. Psychological resilience plays a particularly important role in financial decision-making. It refers to the ability to adapt to difficulties, maintain emotional balance, and make decisions even under pressure. In financial life, resilience becomes crucial during crises: unexpected loss of income, inflation, market volatility, or personal life changes often trigger significant stress. Individuals with higher psychological resilience are less likely to make impulsive financial decisions, can tolerate risk and uncertainty better, recover more quickly from financial setbacks, and are more consistent in adhering to their financial plans. This suggests that psychological resilience functions as an ‘internal shock absorber’, helping transform financial knowledge into consistent behaviour.

This resilience is closely linked to our emotions and the way our relationship with money forms from early childhood. Our first lessons about money often come from observing our parents’ behaviour and hearing their attitudes toward debt, saving, or ‘success’. For some, money becomes associated with security from an early age; for others, with fear or constant scarcity. Later, this relationship is strongly shaped by the social environment – comparing ourselves with peers, consumption standards promoted on social media, and broader societal norms.

Emotions such as shame, guilt, or fear can become barriers to speaking openly about finances and seeking help. For this reason, financial literacy education, especially for young people, should include not only calculation and planning skills but also emotional awareness – the ability to recognise and manage feelings related to money.

How financial personality type shapes money behaviour 

During lectures on the psychological aspects of personal financial decision-making, Vilnius University students completed Furnham’s Money Attitude Scale questionnaire, which reveals how individuals perceive money – as an expression of security, power, love, or freedom.

These meanings strongly influence how we manage money in everyday life: how we plan personal budgets, respond to discounts, make decisions, and experience financial stress. Once we understand our dominant ‘financial personality type’, we can choose strategies that align with our worldview rather than requiring constant self-discipline or internal conflict.

The results showed that as many as 73% of respondents primarily value security (31% as the sole dominant type, 42% in combination with other types). These individuals rarely need to learn how to save; on the contrary, they often worry about not having enough, save at the expense of their quality of life, hesitate to spend even on necessities, and are highly sensitive to rising prices or economic uncertainty. They are therefore encouraged to view spending as prevention rather than risk (e.g. quality shoes today may lead to lower health costs in the future). It may also be helpful for them to set aside a small monthly amount for guilt-free spending or to allocate savings to a separate account. This helps reduce tension and prevent emotional burnout.

Meanwhile, 61% of students (14% the sole dominant type, 47% combined) place the highest value on financial freedom. They dislike budgeting and following strict rules, frequently ‘reward’ themselves, and are less likely to consider long-term consequences. For such individuals, a budget should be seen not as a restriction but as a roadmap that protects their future choices. For instance, a ‘save for later’ list helps maintain a sense of freedom and reduce regret over impulsive purchases. Linking savings to future experiences and naming savings accounts after desired goals (e.g. travel, leisure, or an education fund) can help reshape attitudes and prevent unnecessary spending.

Another 48% of students (9% the sole dominant type, 39% combined) view money as an expression of love for others and themselves. Their main challenges include emotional and impulsive spending, difficulty saying ‘no’ to family members, guilt-driven purchases, and high expenditures during holidays or sales. For these individuals, it is helpful to separate love from money: instead of thinking, ‘If I don’t buy this, I’m selfish’, they can shift to ‘My attention and presence matter more than things’. Exploring non-financial expressions of care – time, attention, shared experiences, or handmade gifts – can reduce financial pressure. A designated ‘gift budget’, i.e. a fixed monthly amount allocated to gifts or supporting others, can also help create healthy boundaries and reduce guilt. Additionally, since strong emotions often trigger spending, it is beneficial to name those emotions (‘I am very happy right now’, ‘I am disappointed in myself’, ‘I feel sad’) and postpone purchases until emotions have subsided. 

Bottom of FormThe remaining 33% of students (combined types) perceive money as a position of power. For them, spending is a way to demonstrate status, success, or competence. They often overestimate their decisions and risk falling into debt to maintain their image. For managing finances, the 24-hour rule is particularly useful: before purchasing a non-essential item, wait one day, and then decide whether it is truly necessary. True financial power lies in the ability to refrain from unnecessary purchases rather than to display them. Ultimately, while a certain amount may be reasonably allocated to status-related spending, it is essential to set clear limits.

What prevents us from planning our finances?

No financial personality type is inherently better than another, and people often display a combination of several types. Difficulties arise not from how we value money but from unconscious behavioural patterns that shape our everyday decisions. 

What cognitive biases interfere with our financial decisions? One of the most common pitfalls is the illusion of urgency and artificially created scarcity. Sellers often encourage us to act quickly, using phrases such as ‘only 3 items left’, ‘offer valid for 2 hours’, or ‘18 people are currently viewing this item’. Under pressure, our critical thinking weakens, and decisions become instinctive. Instead of rational analysis, we focus on the fear that the opportunity is ‘about to disappear’. Psychological research shows that in such situations we tend to overestimate the value of the offer and underestimate potential negative consequences – from unnecessary spending to later feelings of disappointment or guilt. That is why it is important to pause and ask yourself: ‘What is rushing me – a real need or external pressure?’ 

Another bias is the urge to buy things right away and put off debt repayment, because short‑term pleasure seems more important than long‑term benefit. Our perception of time develops in childhood. This is illustrated by the classic Stanford marshmallow experiment, in which children could either eat the marshmallow in front of them immediately or wait and receive two marshmallows later. Those who resisted the immediate temptation not only achieved better academic performance and had better health outcomes later in life, but also made more rational financial decisions as adults. This bias can be reduced by linking saving to a specific, emotionally meaningful long-term goal.

Another common bias is the effect of conformity. When we see labels such as ‘most popular choice’ or ‘everyone has already joined’, we often assume we should buy it too. We give in to conformity when we think others know better, when we do not want to stand out, or when we fear making a mistake. If the purchase turns out to be unsuccessful, we may comfort ourselves by thinking we were not the only ones. The people behind pyramid schemes exploit our desire to belong to a group. They deliberately create an illusion of success, mass participation, and community: sharing supposed success stories and emphasising how many people have already joined. In such situations, decisions are often driven by the fear of missing out rather than by facts or risk assessment. Psychological studies reveal that when we base our decisions on what others are doing, we are less likely to ask ourselves essential questions: ‘Do I understand how this works? Does it match my financial capacity and goals?’ Instead, we rely on collective opinion, which may be misleading.

When we stick to poor decisions simply because ‘so much has already been invested’, we encounter the sunk cost fallacy. This happens when past expenses start shaping current decisions, even though those costs, rationally speaking, cannot be recovered. We often do this with unused gym memberships, unnecessary subscriptions, or services that no longer provide value. Psychologically, it is difficult to admit that a decision did not work out – it triggers disappointment, shame, or guilt. However, by continuing a decision that no longer makes sense, we only increase the loss: each additional month or payment becomes another price we pay for avoiding the admission of a mistake. Financial awareness in this context means the ability to separate past expenses from present choices and the courage to ask yourself: ‘I I had to decide today, would I still choose this?’

A healthy relationship with money is not about maximising savings or constantly chasing profit. At its core, it is about awareness, balance, and the ability to make decisions that reflect personal values. It starts with financial self‑knowledge – understanding our attitudes towards money and recognising the situations when we tend to act impulsively. Stress-management skills matter just as much: financial planning should go hand in hand with psychological tools, from emotional regulation to breaking big goals into small, achievable steps. Finally, financial mistakes must be normalised – they are an inevitable part of learning and should be viewed as experience, not personal failure. Only then do financial decisions become mature, value-based choices rather than actions driven by fear or guilt.