Just as some people are the life of the party and others would rather sit and read a book alone, everyone has their own, distinctive financial personality.
Whether you're a saver, a spender or a budgeter, your financial personality speaks volumes about how you view money and how you live. Your financial personality also reflects your financial attitudes and influences your financial behavior, according to a paper by the International Journal of Social Science and Economic Research.
Knowing your financial personality may help you change your financial behaviors for the better, says Dean Deutz, a private wealth consultant with RBC Wealth Management-U.S. in Minneapolis.
"It's knowing when it's time to stop saving because you have enough, for example. Or, knowing you can spend but still need to save for a possible emergency or for the future," he says.
Your financial personality plus your investment profile help form the building blocks of a financial, estate or tax plan.
An investment profile reflects your risk tolerance, such as your preference for aggressive or conservative investments and if your goal is to generate income versus growth. Your financial personality reflects traits and attitudes, such as whether you pay your bills on time, or how you feel about the future.
RBC Wealth Management-U.S. doesn't use formal labels for financial personalities, but Deutz says most clients generally exhibit the characteristics of one of or more of these three categories:
- Savers: Those who save now so they can enjoy their money later. Savers are debt averse; they pay off their mortgage early.
- Spenders: People who want to enjoy their money now and worry about the future later. They don't save much and tend to borrow.
- Sharers: Those who want to share their money with family, friends, charities or their community.
Deutz says how carefully people track their money also says a lot about their financial personality. While many like to know where their money is going and keep careful track of it, there are others who don't care how much they spend. He also believes when it comes to talking about money matters, people tend to be either private or public.
Recognizing these characteristics may help clients understand why they make the financial decisions they do, Deutz says. It also helps financial advisors better understand clients and tailor their guidance, he adds.
Open to new ideas
Alan Wolberg, a senior wealth planner with City National Bank, follows a different set of personality characteristics to gauge clients' receptiveness to information. His are:
- Aggressive: These Type A personalities seek advice from experts regarding their wealth. They know how much money they have, what they spend and why. Their competitive nature means they may ignore financial need or markets in their decision making. They may be too hawkish, overlooking the need sometimes to preserve, not grow, assets.
- Technical: These people just want data. They make decisions based solely on quantitative information, which can become overwhelming for them at times. They're interested in investments that show growth over the short term.
- Affable: These personalities just want to chat, but may follow advice to be liked or be popular. They often don't know how to budget or write a check, and may want to explore some wilder investments.
- Amenable: These people are not decision-makers and need guidance. They're generally not aggressive or proactive in their approach and tend to keep money in cash because it's easy.
Many people don't fit into one personality type, but express different components of more than one, Wolberg and Deutz say. For example, an investor can be both budget-minded and overspend.
No matter the traits or characteristics a person may exhibit, Deutz says, there's no right or wrong personality type.
"The important thing is understanding which personality you have, so you can work to your strengths and address your weaknesses," he adds.
Financial habits and beliefs often begin in childhood or early adolescence, formed by imitating or rejecting examples set by parents about money. But other people and factors, such as education, social expectations and economic conditions, may influence your financial personality over time, according to an article by the Australian Journal of Education.
“Some people's money personalities have existed since they started a paper route at eight years old," Deutz says. “On the other hand, families can pass along values in how they reward and incentivize their children around money."
It can be rare for an investor to completely change their financial personality, but they could modify parts of it, Deutz and Wolberg say.
For example, Deutz says younger investors tend to spend more and save less. If an investor wants to retire at age 50, and their current financial plan shows the probability of meeting that goal is less than 70 percent, the client may need to change their financial choices or their retirement goal, he explains.
“We'll look at saving more, spending less or changing your investment returns through reallocation and tax planning," he says. “It's about understanding who you are, how you can get where you want to go and having a plan to get there."
RBC Wealth Management, a division of RBC Capital Markets, LLC, Member NYSE/FINRA/SIPC.