What is money personality?
According to Piotr Łabuz, psychologist and expert in financial coaching: “Money personality is the overall set of resources which determine our financial decisions and actions”. We all have some elements of various money personality types. Usually one of them is the dominant one and has the greatest impact on our actions and emotions related to money.
Your money personality has its origins in six areas:
- the brain and neurobiology
- temperament and personality
- values and motivating factors
Your money personality type is correlated with your overall personality traits and your temperament, and as such, it is extremely difficult to change. Although your temperament and part of each of the Big Five Personality Traits is biologically conditioned, we can significantly influence other areas – especially our beliefs and habits, values, motivating factors and self-esteem. For years, I have been addressing these aspects with my coachees in coaching sessions.
Your approach to finance is especially closely linked to conscientiousness (which is one of your personality traits). Highly conscientious individuals usually find it easier to save money and manage funds rationally. Less conscientious people can of course acquire all of those skills, but it usually takes more effort on their part.
To some degree, we can also influence the way our brain works. It is clear that if you do not get enough sleep in the long term, you do not eat well, you have insufficient vitamin and micronutrient intake or you abuse psychoactive substances, your brain’s function will be impacted. You will take worse decisions – also in the financial sphere. It will be more difficult for you to work on yourself, to change your beliefs so that they are better for your mental wellbeing or to strengthen your good habits and eliminate things that you do that are harmful, such as compulsive shopping or excessively risky money management.
You brain will also function deficiently when exposed to anxiety or other strong emotions, which is why you should take financial decisions with a cool head. You should put aside all emotions, both the negative (e.g. fear) and the overly positive ones (e.g. excitement or excessive optimism). This is vital especially in the case of momentous decisions, such as taking out a big loan or the premature panic selling of stocks when prices are slumping.
When working on yourself, also as regards better financial management, it is worth understanding how your brain works and how this translates into emotions and decisions. It is especially important to understand how the amygdala and the reward center work.
To find out what your money personality type is, you can observe yourself and analyse your reactions, activities and experience or you can use specific questionnaires (e.g. the Money Attitude Scale or the questionnaire by Olivia Mellan).
Types of money personality
Olivia Mellan, an expert in money psychology and financial coach, has identified 6 basic money personality types. Due to the brief nature of this article, I will only discuss the key highlights of particular types.
- “The worrier” – a person who is excessively preoccupied with money to a degree which is disproportionate to the situation. Even when their finances are sound, they will still worry about having too little money and possibly losing it.
- “The spender” – a person who loves spending money and enjoying it.
- “The hoarder” – likes hoarding money because they associate it with security. They are reluctant to spend it.
- “The avoider” – avoids the responsibility related to money and any knowledge about money management. They are not concerned with things like the impact of the Swiss frank exchange rate on the amount of the mortgage they will need to repay.
- “The amasser” – money is their element. They seek to make a lot of it and to actively increase its value. Financial success is extremely important to them and they do whatever is in their power to achieve it.
- “The money monk” – a person who, either consciously or subconsciously, associates money with something bad or immoral. They usually focus on meeting just the basic needs and do little to increase their earnings. They usually prefer to limit their needs than to actively act to improve their financial situation.
Why should you know your money personality type?
Your money personality type has a huge impact on how you manage your finances. It is worth knowing what we are like and why we act the way we do.
Although there are no good or bad, correct or incorrect money personality types, all of them have some positive aspects and drawbacks. Therefore, certain things (such as saving or spending money) will come easier or harder to some people.
As part of financial coaching, we can work on developing a better understanding of the positive and negative consequences of your personality type, learn to strengthen the positive and work on the negative aspects.