Personality plays a role in influencing how you sail your money boat and how you maintain your relationship with money. Of the five major dimensions of personality — conscientiousness, openness, agreeableness, extraversion and neuroticism – conscientiousness dominates as having a major impact on people’s relationships with money. But all personality types can learn to be smart about money.
Research by Yilin Xu at Boston College’s Center for Retirement Research found that people who described themselves as conscientious and careful fared better after the 2009 financial crisis than did those who were more open to adventure and sophistication. As the world’s financial systems were collapsing, the “adventurers” continued to spend their income while the careful folks cut back on the personal spending.
However, this was a 2000 survey conducted by mail sent to 5,000 households as part of the U.S. National Health and Retirement Study. Had the survey been conducted when the U.S. economy was expanding rather than contracting, the people open to new ideas and approaches might have been more financially successful than the careful analysts.
In a 2015 study published by the National Bureau of Economic Research, Yilin Xu and team found that among young adults, high levels of conscientiousness correlated with much financial distress, such as failure to pay a utility bill, becoming insolvent or worrying about lack of food. At the same time, the same survey found that emotional stability has a major impact on the financial health of the young adults. The study was based on 15,000 people aged 24 to 34 years who were part of the National Longitudinal Study of Adolescent to Adult Health.
The researchers found that a one standard deviation from the average (i.e. 68 percent variation from the mean) was correlated with an 18 percent reduction in financial distress for the conscientious folks and a similar 18 percent increase for the neurotic participants. It seems that the boring but careful accountants among us are naturally best at paying the bills and keeping food on the table.
More importantly, research shows that people who spend money in accordance with their personality types are happier than those who try to go against their ingrained personalities – at least when testing for extraversion and introversion. In 2014, Sandra Matz at the Psychology Department collaborated with Joe Gladstone and David Stillwell at the Judge Business School of the University of Cambridge on a study. They contacted over 150,000 customers of a commercial bank based in the United Kingdom and asked if they could review their personal bank statements. Amazingly, 625 individuals agreed.
They asked a standard list of 10 personality questions (known as the Big Five Inventory, or BFI test) plus a set of questions on satisfaction with life (known as SWF scale). Then Amazon’s Mechanical Turk was set loose to categorize the actual spending of the 625 customers and sort the expenditures for each of the five major personality types. Spending covered areas ranging from foreign travel, life insurance, books, health and fitness, restaurants, pubs, and charities. In total, over 76,000 bank transactions were analyzed.
Then to see the impact of spending on happiness, the researchers offered all participants the equivalent of $10 vouchers – and directed the spending. The researchers found that the extraverts were happiest when they spent their vouchers in a pub while the introverts were in the best moods when allowed to spend their funds in a bookstore. Furthermore, both groups suffered a reduction in their life satisfaction scores when obliged to spend funds in opposition to their personalities, i.e. introverts in pubs, extraverts in bookstores.
For more on money personalities, you might look atinsights from IBM’s artificial intelligence known as “Watson”.
The lesson here is that you keep in mind your personality type as you decide how to spend your hard-earned funds and invest in yourself – and which partner to choose in life decisions. If you were not lucky enough to be given the conscientiousness gene, the book has some suggestions on hacks that will help. Financial planners talk about the need for individuals to feel in control of their money, smart in how they use it, and successful in meeting their goals. All the tools will be needed to ensure that we are good captains of our money boats. You do not need to follow all the suggestions but finding a few that help you will take you far along your sunset sail.