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The psychological value of money

The psychological value of money is in what ways money serves purposes in psychology. Money is a measure through which people judge their own position and self-worth, at least in part; it serves to offer a psychological sense of security about the future (giving people with some storable sense of control and safety in an unpredictable, chaotic, and only partially controllable world); It also gives people a sense of independence (allowing them to do what they want and choose their own connections rather than catering to others' interests or needs). Psychological counterparts of the functions of money that economists describe include a sense of worth or value (a unit of account), security and safety (a store of value for the future), and independence (a means of transaction that can be employed anywhere for any purpose).  Motivation and helping behavior are influenced by money. Money also has a cross-culture aspectand several theories discuss money, such as the prospect theory and the evolution theory. Money also has a subjective value.

Theories

Prospect theory

Prospect theory is a theory created by the psychologists Daniel Kahneman and Amos Tversky about the making of decisions when taking risks and also applies to the psychological value of money. This theory was published in the journal econometrica and can be applied within many fields including the political psychology and within international relationships. The Prospect theory is a revised version of the utility theory. The main difference in the revised version is that the decision weights were introduced. The main idea of the Prospect theory is that each outcome will be multiplied by a decision weight. This decision weight can be seen as a subjective value. This theory is not about probabilities, it is about the subjective value people feel when they make a decision. An important feature in the Prospect theory in means of economics, is the value function. This function states that losing something, like money (even with small losses), is more subjective sensitive than the profit of the same magnitude.

For instance, the magnitude in winning $1000 is less than the subjective feeling of losing $1000. The temptation of winning $1100 can not compete to losing $1000. This is because the amount of money between the two amounts is too small.

Evolutionary theory

Evolutionary theory is a theory about the adaptive value of behavioral and biological strategies depending on the environmental context and it applies to the psychological value of money. The theory offers explanations for widely shared human behavior. It states that human behavior is rooted in evolutionary derived biological drives, this also includes the desire for income. The reason that the desire for income and consumption may have evolutionary roots, is because of the observation that the desire for money follows the same patterns with drives that are clearly biological, such as the need for food, sex and sleep, as well as with the drive for subjective well-being. In the case that people are severely deprived of food, sex or sleep, then they often tend to be quite unhappy. So with this point of view, the desire for money operates like other, clearly biological, desires. In addition to that, consumption is important for the gaining and displaying of social status. More specific, people not only use consumption just to be happy, but also to manage their social relationships and social acceptance is important for the subjective well-being of people. So, money is an important determinant for the gains in subjective well-being.

When this point of subjective well-being is reached, the motivational system does not automatically switch off. Past the point of subjective well-being, the pursuit of social prestige by means of wealth may become a competing motivational system, rather than leading to subjective well-being. When a person is really happy, they are not highly motivated to improve the situation that they are in. Seen from the point of evolutionary theory this is a problem, because species that are constantly delighted and satisfied would not do all the work it takes to survive and procreate. For this reason, the happiness one gets from an achievement that lasts for many months or years would be demotivating, and in the end, non-adaptive.

Consequences

The psychological value of money affects people's motivation (for the better) and it also affects behavior towards other people (for the worse). A lot of money makes people happier and this ensures that the motivation for achieving goals changes for the better. The psychological value of money creates a sense of self-reliance and self-worth in people with more money and this ensures that the help behavior towards others diminishes. As a result people are less able to offer help or, for example, to donate money to a charity than people with little money. In addition, people with more money are also less inclined to ask for help due to the psychological value themselves, they prefer to solve it themselves. They prefer to work and play games alone. So it gives people a sense of self-reliance. Conversely, this means that people with little money see themselves as ineffective due to the psychological value of money. Therefore, the psychological value of money strengthens individualism, but diminishes collective motivations.

Cross-cultural aspects

Cultural and societal elements influence the uses, meaning, and prevalence of money. Although money is an important logical instrument in modern economic markets, it is out of their control and is heavily influenced by cultural and social-structural variables.

Cultural values have a larger relationship with social well-being than salary. This is because of cultural ideals linked with social capital or interpersonal focus, such as low individualism. Achievement motivation predicts lower social well-being as well as a greater income, since it enhances "task accomplishment." Whilst materialistic purchasing might boost happiness, the effect is usually just transitory. It is known as a hedonic treadmill because it produces brief bursts of happiness that swiftly vanish.

Individualism

Individualism plays a big part in social well-being. Individualism is linked to social mobility, a strong middle class, fewer families, a well-funded educational system, urbanization, a prosperous economy based on individual interests, and, once again, equal income distribution. Low individualism countries are instead more likely to emphasize state socialism, a private life infiltrated by public interests, political power dominated by interest groups (rather than individual voters), and rigid social or occupational classes. People with more money have more freedom because they can "do their own thing." As emerging countries like India and China become wealthier and more free, they also see a trend toward individualistic attitudes. Individualistic countries are likely to be happier as a result of their prosperity and freedom. Individualistic countries place a premium on personal liberty.

People in countries with a more progressive tax structure are happier because their residents are "more pleased with public and common goods, such as the quality of education and the availability of health care.

Masculinity

For wealthy individuals, masculinity, mainly its aspect of achievement motivation, appears to be a classic case of the social dilemma. At the individual level, it is positively connected to wealth; but, at a national level, it is negatively associated to wealth. Low masculinity or feminine countries think that the wealthy should pay taxes to support the poor, that a robust social safety net should be in place, that international problems should be amicably settled, and that immigrants should be integrated rather than assimilated. This is the same set of cultural norms that promote social capital and are regarded to be ideal for the global workplace. Femininity's social capital, such as assisting or trusting others, forming and fostering warm personal connections, caring for others, and actively improving quality of life, predicts happiness. Social capital in terms of group membership, social trust, volunteering, or altruistic leanings are strongly associated with national social well-being.

Countries who have bigger inequality, score lower on social well-being. Inequality fosters sentiments of unfairness or jealousy, which are examined as social comparisons.

Ethics and social responsibility

Europeans and Americans value self-achievement more than wealth. Among Asian countries such as China, Hong Kong or Singapore money plays a huge part. The pursuit of wealth is the goal because money can solve most problems. This attachment to money may be partly due to uncertainty experienced by the countries such as the historical economic disasters and diaspora in for example, China. There are a few factors whether a country or culture believes if money works wonders. The factors are ethics and social responsibility, Guanxi and Machiavellianism.

More Western countries such as Americans and Canadians are more ethical than their Asian counterparts. Even though deception is seen as immoral in Western countries, it is accepted in Asian countries if it contributes to the wellbeing of the state or itself. Which leads to more corruption in Asian countries. The value system operating in western social focuses on honesty and community support. Western countries are more ethical, countries such as Canada believe that money works wonders. This may be due to the low cost of living. In Asian countries the cost of living is high, therefore a large amount of money is needed for it to ‘work wonders’.

Guanxi

Guanxi is also common in many countries. Western countries such as Canada believe strong in Guanxi because of ignorance. Asian countries are more aware of the benefits and disadvantages. Guanxi mainly concerns reciprocity. Western countries regard this more as a 'short term', symmetrical reciprocity, while in Asian countries it is more about the long-term perspective. When a Chinese reciprocates, he or she repays with a higher value than the favour given. Gift-giving is also more common in Asian countries. It is common to give a gift during social interaction or during difficult times. This is also very common during business meetings. Giving gifts and reciprocity has to do with the collectivistic cultures in Asia. To belong to an in-group you will have to meet certain requirements and practices. They also place more emphasis on building relationships. This is due to scarce resources and intensive competition.

Machiavellianism

Machiavellianism is a character trait in which people use manipulation and deception for self-interest. They will prioritise money and do everything in their power to achieve wealth, whether ethical or unethical. Machiavellianism occurs more in Asian parts such as Hong Kong. In Hong Kong, competition is very high. It is not only prevalent in businesses, but also in school and sports. Collectivism also plays a role. Information is often shared so that in-group members have an advantage over out-group members. This benefits the in-group as well as the self. Another characteristic of a Machiavellian is the need for achievement. Hong Kong scores the highest on the need for achievement, showing more Machiavellianism.

The stronger the belief in Machiavellianism and Guanxi, the stronger the belief of money. In the West the belief of money is less likely to be business related. In such countries, the belief of money is stronger when it is associated with a personal crisis or the society instead of a business.

Gender also plays a role in the believe of the power of money. Men believe more in what money can do than women. But, this differs from country to country. In Hong Kong, for example, women see money more as ‘enjoyment’ while men, on the contrary, see it more as a business investment.

Black Americans

The perceived socioeconomic position of Black Americans is influenced relatively somewhat by income, whereas education and occupational prestige have no bearing. Black Americans seems to view class as more of a caste system. Money is significant for Black Americans' self-definition, but the fact that money does not enhance their appraisals of their social status in US society does not suggest that money is irrelevant for their self-definition. Money, education, and occupational prestige are more important than any other factor in predicting self-esteem among Black Americans.

Aside from self-esteem, money appears to buy Black Americans anything else. Family income was the strongest predictor of respondents' commitment to identity and positive assessment of their cultural background in a 1990s survey of roughly 500 Black adolescents.

Higher income gives Black Americans a higher feeling of self-esteem and gives Black teenagers a stronger attachment to and pride in their ethnic identity. Whereas income does not appear to influence (much) how Black Americans understand their place in society, it does appear to be psychologically essential for self-identity and group definition.

Subjective value of money

The subjective value of money is hard to evaluate, even though everyone is familiar with it. The value of money is different for each person, it cannot be evaluated on a single monetary scale. It is, therefore, evaluated on different subscales that “are composed of comparison standards that are generated at the time of judgement”. These subscales are generated through a dual-process system, where they explain how they result in more or less sensitivity in relation to their absolute value. Money has been studied widely across many disciplines. It is a proxy for utility, the value, or pleasure that an alternative yields, because money is fungible, exists on a ratio scale, and can be easily traded for goods that yield utility in most cultures.

The fact that evaluating the subjective value of money is so hard, is because of two reasons. The first reason is that money is not “inherently evaluable”. In life, there are first-order and second-order reinforcements. Money is a second-order reinforcement meaning that it reinforces a first-order and additionally it is measured on an artificial scale. Therefore, if we want to know the utility it creates, we need to be able to transform the monetary scales onto a psychological utility scale. This process is pretty much impossible. The second reason is that “monetary values encompass an infinite range of values”. Considering that, there is no one way to measure all the gains and losses that come from money. Subscales need to be put into place. However, these also lead to several problems being that they are incredibly subjective. They depend on the context, person, time, etc.