Finance

How Wealth Affects Our Brains

Dan Nicholson

Exploring the psychological and cognitive effects of wealth on the human brain offers fascinating insights into behavior, empathy, and decision-making processes. Research has found that both wealth and poverty not only shape social experiences but also have profound effects on brain structure and cognitive functions. By examining insights from studies on both the impacts of wealth and the implications of poverty, we can gain a better understanding of how financial status influences our brains, and whether thinking in a certain way leads to better financial outcomes.

The Psychological Effects of Wealth

While there is a common belief that wealth brings greater generosity, research suggests that the opposite is actually true. Berkeley psychologists Paul Piff and Dacher Keltner conducted a series of studies examining how wealth changes interpersonal behaviors and attitudes and found that wealth decreases compassion for most people. 

“As a person’s wealth increases, their feelings of compassion and empathy go down, and their feelings of entitlement, of deservingness, and their ideology of self-interest increase,” Piff explained. This decrease in empathetic feelings among the wealthy can lead to a higher likelihood of antisocial behaviors, such as unethical decision-making or disregard for others' welfare.

Wealth also alters how individuals perceive their own success and that of others. As part of their studies, Piff and Keltner conducted an experiment using the game Monopoly. They revealed that wealthier players, despite the game's clear bias in their favor, attributed their success to personal efforts. “The rich players… talked about how they’d earned their success, even though the game was blatantly rigged,” says Piff. This mirrors real-world scenarios where the wealthy often overlook the structural advantages that contribute to their success.

Sudden Wealth Syndrome

Getting a sudden windfall affects the brain in a different way to wealth that is built up over time. Dr. Tara Swart Bieber, a neuroscientist and senior lecturer at MIT Sloan, explains the brain’s response to winning the lottery: “The prospect of newfound riches triggers a surge in dopamine levels, generating excitement and pleasure.” However, this surge in joy is typically temporary, as individuals tend to return to their baseline level of happiness over time—a phenomenon known as the Hedonic Treadmill. Once we get used to our situation of wealth, we no longer appreciate our good fortune.

Once individuals pass the dopamine stage, the next phases of the emotional journey following sudden wealth can mirror the five stages of grief: denial, bargaining, anger, depression, and acceptance. “Experiencing the five stages of grief upon winning the lottery might seem counterintuitive, but this emotional journey can actually offer valuable insights into the complexity of such a life-altering event,” Dr. Bieber adds. This spectrum of emotions reflects the psychological turmoil that can accompany sudden changes in financial status.

Poverty and Brain Structure

Recent findings from the University of Pennsylvania have shown that socioeconomic status not only affects cognitive function but can also physically alter brain structure. The study found that lower socioeconomic status is linked to a decrease in gray matter volume in various brain regions, including the cerebellum. “We see correlations popping up all over the brain between socioeconomic status and gray matter volume,” says Gideon Nave, a coauthor of the study. These changes underscore the profound impact of environmental stressors on neurological development.

The interplay between genetics and environmental factors is significant in shaping the neurological effects of socioeconomic status. The Pennsylvania study indicates that while genetics account for some of the variance in brain volume related to socioeconomic status, environmental factors like air quality and educational access play a larger role, particularly in regions not directly linked to cognitive functions. “This suggests that socioeconomic conditions get under the skin in some way,” Nave elaborates, pointing to the potential for policy interventions to mitigate these effects.

Cultivating a Wealth Mindset

The idea that socioeconomic status can condition individuals to think in a certain way suggests that we may be able to change our status by changing our mindset. A wealth mindset is about setting a foundation for how one approaches financial growth and management. This concept is deeply rooted in the belief that our thoughts can significantly influence our financial reality. 

Dr. Carol Dweck's research on fixed and growth mindsets can be extended to financial attitudes. “In a growth mindset, people believe that their most basic abilities can be developed through dedication and hard work,” she found. Individuals with a growth mindset about wealth believe that they can enhance their financial skills through education and practice. They are more open to learning from financial setbacks, viewing them as opportunities for growth rather than insurmountable failures.

Developing a wealth mindset involves several key psychological strategies that can lead to better financial outcomes. First, setting clear, achievable financial goals is crucial. This practice helps in fostering a sense of direction and purpose in financial planning. Additionally, embracing financial education empowers individuals to make informed decisions, reducing anxiety around money matters and increasing confidence in managing financial resources.

Conclusion

The impact of financial status on the human brain is multifaceted, affecting everything from our emotional well-being to the physical structure of our brains. Understanding that financial status profoundly impacts empathy, decision-making, and cognitive functions can empower readers to reassess and enhance their own approaches to wealth. By recognizing the psychological patterns associated with both the accumulation and lack of wealth, individuals can work towards cultivating a wealth mindset that not only focuses on financial accumulation but also on sustainable and ethical growth.

Sources

Scientific American

TED

CNBC

Science

PubMed

Psychological Science

Dan Nicholson is the author of “Rigging the Game: How to Achieve Financial Certainty, Navigate Risk and Make Money on Your Own Terms,” deemed a best-seller by USA Today and The Wall Street Journal. In addition to founding the award-winning accounting and financial consulting firm Nth Degree CPAs, Dan has created and run multiple small businesses, including Certainty U and the Certified Certainty Advisor program.

No items found.
Top
Nth Degree - Safari Dan
Next Up In
Finance
Top
Nth Degree - Safari Dan
Mid
Pinnacle Chiropractic (Mid)
Banner for Certainty Tools, Play your Game.  Blue gradient color with CertaintyU Logo
Top
Nth Degree - Safari Dan
Mid
Pinnacle Chiropractic (Mid)