Motivation and emotion/Book/2024/Money and motivation

Money and motivation:
How does financial incentive influence motivation?

Multimedia presentation (5 min)

Overview

Case study: Jasper, a coding professional who enjoys his work, recently received a job offer from a government agency that nearly doubles his current salary but does not align with his interests. After accepting the position for financial security, he soon finds himself dreading work and feeling fatigued by his colleagues. Research indicates that prioritizing extrinsic rewards, such as salary increases, can diminish intrinsic motivation, a phenomenon known as motivation crowding (Frey & Jegen, 2000). Jasper's struggle to regain his initial enthusiasm illustrates how higher financial incentives can fail to foster long-term job satisfaction, particularly when they overshadow intrinsic motivators (Abdullah & Wan, 2013). Herzberg's two-factor theory further suggests that while financial rewards may address basic needs, they are insufficient for promoting job satisfaction without meaningful work (Alrawahi et al., 2020). Ultimately, Jasper's experience highlights the importance of intrinsic factors in sustaining engagement and satisfaction in the workplace.

Figure 1. Coins

Money is considered to be a major motivator when it comes to work, personal goals, and education. This chapter explores the effect money has on motivation and how it motivates us in both a positive and negative way. Understanding how money can be used as a motivator is vital for organisations and people to improve morale and performance. Money can play a vital role in predicting human behaviour. It can drive actions and influence decisions for anyone, in any situation, such as a workplace, education, or personal goal setting, money can be a powerful tool to motivate.

However, money's impact on motivation is not straightforward and can drive negative effects on motivation as well as positive ones. Money can decrease intrinsic motivation and reduce satisfaction and creativity. This chapter looks at the complex relationship between money and motivation, looking at how something can boost people's will to work, job satisfaction, and commitment to something, while also taking it away from others. By looking into the different psychological mechanisms involved in monetary motivation, people can develop an understanding of when and how to use money as a motivator and the effects it can have on a workplace, for both an organisation and individuals.

Theories of motivation and money

Motivation crowding theory

Frey and Reto Jegen (2000) proposed the idea of motivation crowding theory. This is when external interventions, such as money in this case, can 'crowd out' intrinsic motivation. The Crowding out effect happens when some external incentives reduce intrinsic motivation and make people feel pressured or controlled. This then takes their original enjoyment away from the task. However, there is also crowding in effect which can help to increase intrinsic motivation. This is the idea that when external motivations seem to support one’s autonomy, one can be more engaged in a task (Corduneanu et al., 2020).

The motivation crowding theory can either encourage or destroy intrinsic motivation depending on how an individual sees it. If an external motivation is seen as supportive or affirming, it is more likely to crown in motivation, whereas if it is seen as controlling, it is likely to crowd out motivation. When people feel like their autonomy is being controlled by external rewards, their intrinsic motivation will fall, and they will feel controlled by their external rewards (Deci et al., 1999).

For example, if someone enjoys doing art as a hobby and becomes an animator, they may lose interest in their passion for art due to strict deadlines and having to follow strict orders. Instead of focusing on the joy of the job itself, people become too concerned with gaining the external reward, in this case, money, or in other cases avoiding punishments such as due dates. The change of focus can reduce the satisfaction that was previously felt from completing a task. However, when external rewards come in the form of praise or recognition it can often improve motivation. When someone is praised for their hard work after it has been completed, it can often affirm their competence and lead to an increase in motivation (Droe, 2012).

Building a workplace that is encouraging and values a supportive culture can help to keep employees motivated and increase workload, rather than just offering them more money. Making an individual’s work feel meaningful and important often can motivate them more than money and other external rewards.

Extrinsic motivation

Extrinsic motivation involves doing an action for the purpose of gaining external rewards (Morris et al., 2022). This can be in the form of money, avoiding punishment, or praise and recognition. Extrinsically motivated people tend to do tasks with the sole purpose of obtaining a reward or specific outcome. Money is often seen as a symbol of success and high status in many cultures around the world. Wanting to be seen as successful can often motivate people to work harder to be able to live a successful lifestyle in others and their own eyes (Rose & Orr, 2007).

External rewards often lead to short-term motivation which can often disappear once the reward is given (Lohmann et al., 2017). It is a great motivator, for example, completing extra tasks at work that someone might not normally be expected to do. For money to be a successful motivator, it must be used strategically, or motivation may decrease. Using money for unenjoyable tasks or goals can help give someone that extra motivation they may have been missing and can encourage people to reach their short-term goals sooner (Cerasoli et al., 2014). Unfortunately, money is not as effective at long-term goals. Once the reward of money has been given it is hard for people to stay motivated for a long time and often crowds out intrinsic motivation. If individuals become reliant on money and other external rewards to complete tasks, it can often lead to a cycle of needing higher rewards to have any motivation to complete tasks (Alfie Kohn, 1995). It has also been found to reduce creativity as people become too focused on gaining these external rewards, and not focusing on the work they put in.

Using both extrinsic and intrinsic motivation can be a great way to keep people motivated for the long term. Money can be a great external motivator for short-term goals, but for the long term is not very sustainable.

Intrinsic motivation

Intrinsic motivation is the enjoyment that comes from the activity itself rather than any rewards such as money or recognition. Intrinsic motivation is a key motivator for people as people tend to participate in an activity if they enjoy it, have a want to learn new skills or gain knowledge (Di Domenico & Ryan, 2017). People also tend to feel in control when intrinsically motivated, leading to more engagement in an activity, and feel more satisfied when completing tasks, they are interested in leading to more intrinsic motivation. This can be affected by money as relying on financial gain can lower intrinsic motivation and create external control (Ryan et al., 1983).

External rewards can often negatively affect intrinsic motivation by creating short-term satisfaction that does not often last. Amabile (1996/2018) found that those who are intrinsically motivated are more productive, creative, and engaged with their work, showing that when people do work, they are interested in, they are more likely to produce better results. Intrinsic motivation can be affected by external factors however such as financial struggles, or deadlines needing to be met. This is where other motivators such as money can come in and help keep people motivated. Intrinsic motivation is important in a workplace for long-term fulfilment, engagement, and commitment in a workplace whereas external motivators such as money are good for short-term satisfaction.

The use of both external and internal motivators is important for individuals to be happy with what they are doing, rather than just relying on money to motivate them to work harder.

The role of money in different contexts

Work and employment

While money has always been considered a main motivator in the workplace, its effectiveness depends on how it gets integrated. When used well with other strategies that focus on taking care of employee mental health and satisfaction it can be an effective motivation.

Money can be an essential motivator to many as it provides food, healthcare, and a home. For everyone, money is not just a motivator, but a need in their life. However, being happy in a job is not just about money. Research has pointed out that once this basic money threshold is met, money can no longer keep people satisfied in their jobs. This is where factors like recognition, purpose, and more working opportunities become key motivators (Li-Ping Tang et al., 2000).

The Two-Factor theory, by Herzberg, says that money is a hygiene factor and must be paired with other factors as it cannot increase long-term motivation alone. Alrawahi et al. (2020) applied this theory and found that factors like relationships with co-workers and professional development were far stronger motivators than money and recognition.

It may not be a great long-term motivator, but money can still be effective short term. Being able to set up incentives like performance-based bonuses’ has been found to improve short-term motivation (Luzon, 2022). This can lead people to take on extra work they may not normally do and feel satisfied when completing it not just for the money, but also for doing some extra work. When companies can use monetary rewards in Association with opportunities for career development and meaningful work, they will likely see an increase in job satisfaction (Abdullah, & Wan, 2013).

There is no doubt money is a key motivator for many people and is a motivator in for getting jobs. But without proper strategies to implement it, although essential, cannot keep people satisfied forever. Money should be used with other factors such as professional development, recognition, and meaningful work to help keep employees satisfied in their jobs.

Education and learning

Money often influences the education area as well. Access to resources as well as being a motivator for education and success. Like everything involving money and motivation, the link is quite complicated and has many different factors affecting it.

Incentives have been used to help motivate students for many years. These incentives include things like grants, scholarships, and awards and have been found to increase motivation and improve marks in students (Reed & Hurd, 2014). This can also help people from low-income backgrounds get a good education and stay motivated to study what they are interested in. Students on scholarships have been found to have higher grades and are more likely to graduate due to less financial stress, access to good resources, and more time to focus on their work. (Moreira et al., 2019; Plotkowski & Joseph, 2020).

More funding towards schools can help provide a setting that students want to learn in and feel motivated, as well as better access to resources like textbooks and support systems. (Baker, 2016). Being able to provide better opportunities for students can help to keep them motivated and money provides these chances.

However, money can still have some negative effects on education. When there are incentives involved, students can often ‘lose sight’ of why they are studying as they become too focused on the reward (Mackenzie, 1984). To avoid this, schools need to make sure the rewards are meaningful for students and provide an environment that focuses on better education rather than just completing a task for a reward.

Personal goals

Money can play a big role in motivating people to reach and achieve personal goals outside of work and education. It can affect people’s well-being, goal-setting, and ways of life. Many personal goals for people tend to involve money in them such as saving for retirement, making it one of the key external motivators.

Figure 2: money and bills

Most personal goals people have surround buying material possessions or necessities in life. When people set these personal goals around money, they often have higher motivation to complete them as they are clear goals that make one feel a sense of achievement and see clear progress (Di Domenico et al., 2022). These goals are good examples of intrinsic motivation, but often are driven by external motivators such a validation and status. Being able to save money is seen as a big motivator as it normally means completing long term goals or ambitions (Hryniewicz, 2019).

Money can also help achieve other personal goals by providing people with freedom and spare time. Having financial freedom can help people set goals without having to worry about many external factors and gives people the freedom to set their own goals. For example, people who had saved up lots of money may be able to retire early and be able to stay [[Motivation and emotion/Book/2024/Motivation in retirement|motived in retirement]] due to having time to set their own personal goals (Narushima et al., 2018).

Being able to find a balance between material and non-material goals is important, however. When people set goals based purely on money and material possessions, they often can feel a sense of unfulfillment and even reject relationships in pursuit of more money (Garđarsdóttir et al., 2009). People can often focus too much on gaining money to impress others and not for their own personal gain. Robak et al. (2007) found that in college students, gaining money to compare to others, and spending money impulsively were not correlated to good mental well-being.

Money can be a major motivator for personal goals but focusing too much on money for material gains can be harmful to one’s mental health. For short-term goals, it can be great such as working extra hours at work, and long-term goals like saving for a house. Being able to have intrinsic self-goals can help to keep money a healthy motivator.

Conclusion

Money plays a vast role in motivation for many different aspects of life, including education, work, and personal goal setting. It is a necessity in everyday life to provide basic needs such as food and shelter, making it an important external motivator. The relationship between money and motivation is not black and white.

Money's long-term effects on motivation vary and it is found that more often tends to negatively affect intrinsic long-term emotion. This can lead to a decrease in personal purpose, satisfaction, and well-being. But money can also help motivate people to do more extra work in the short term. Using money with other factors such as career opportunities, meaningful work, and recognition can help to keep intrinsic motivation strong while also boosting and providing external benefits. By understanding different psychological theories behind money and motivation, individuals and organisations alike can find ways to use money as a successful motivator, without any negative side effects.

Quiz

1 According to the Motivation crowding theory, what happens when money takes over and become controlling? External rewards are ignored, motivation stays the same Intrinsic motivation decreases Intrinsic motivation increases Intrinsic motivation increases when a better offer comes 2 What is a potential negative effect that could happen if someones main focus in life is money? More money Increase in intrinsic motivation Unfulfillment Increase in time See also Financial investing, motivation, and emotion Employee motivation and money Intrinsic and extrinsic motivation https://en.wikipedia.org/wiki/Motivation_crowding_theory References Abdullah, A. A., & Wan, H. L. (2013). Relationships of non-monetary incentives, job satisfaction and employee job performance. International Review of Management and Business Research, 2(4), 1085 Alfie Kohn. (1995). Punished by rewards: the trouble with gold stars, incentive plans, A’s, praise and other bribes. Boston, Etc., Houghton Mifflin. 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