[Rek jou cheque] MONEY TALKS...ABOUT YOU
It’s been a hard year for many, on every front.
The struggle is real, and South Africans cannot wait for a well-deserved break over the holiday season.
Many people don’t particularly want to think about their money troubles at this time, and I can understand that. O’se mense is moeg!
However, Head of Financial Planning and Advice at Momentum, Bertie Nel, says research about the way we manage our spending suggests that how we spend our money is more tied to our personal habits than we think.
Nel states: “Money personalities reflect how we approach spending, saving and investing. Understanding your own financial behaviours gives you more control over how you manage your spending.”
Research by Momentum’s Head of Behavioural Finance, Paul Nixon, sheds light on how our money personality plays a significant role in our spending habits.
Nixon’s research, combined with the insights from Momentum’s Money Attitudes Assessment (3MAA), identifies three traits that influence our approach to money:
- Prudence: This trait determines whether someone is more focused on future goals or prone to impulsive spending. A high level of prudence often correlates with better financial planning and saving, making it easier to resist the urge to splurge in the holidays.
- Anxiety: Those with high levels of financial anxiety may experience stress about their financial stability and, as a result, may make poor spending decisions during times of uncertainty. Learning to manage this anxiety through strategies like diversifying investments, can offer peace of mind and reduce the temptation to overspend during the holidays.
- Prestige: A desire for financial status can drive people to overspend in pursuit of social recognition. Those with prestige are likely to view money as a symbol of success and may make purchasing decisions based on appearances. Recognising this trait is key to avoiding financial stress caused by unnecessary spending.
Nel, however, has some advice whatever your personality might be.
Nel says: “Understanding your money personality is so crucial these days, especially when it comes to managing your finances effectively this holiday season, whether you are eligible for a bonus or 13th cheque or not.”
Here are some tips for managing spending based on your money personality:
- Become more goal-oriented: Focus on long-term objectives, such as saving for retirement or paying off debt.
- Practice the “pain of paying”: This strategy helps individuals recognise the psychological impact of spending money, making it easier to resist temptation.
- Visualisation: Visualising the rewards of saving rather than spending can help reinforce prudent financial decisions.
- Diversify your investments: This will reduce financial anxiety and improve decision-making, especially during times of uncertainty.
- Stress inoculation: Learn how to cope with financial stress to avoid making impulsive decisions.
- Communicate about finances: If you share financial responsibilities with your family, having open discussions about money expectations can prevent conflict and miscommunication.
By recognising your financial habits and preferences, Nel believes South African households can take control of their year-end spending and make informed choices that align with their unique long-term financial goals.
Your personality has a significant influence on your spending habits, as it shapes how you value money, manage resources, and prioritise needs and wants.
Here are some more ways on how different personality traits, based on frameworks like the Big Five, might affect spending:
1. Openness to experience
- High openness: You may spend more on experiences, travel, arts and hobbies that allow for creativity and exploration. You’re likely to prioritise new and unique experiences over material possessions.
- Low openness: You might prefer to stick to familiar brands, routines and practical purchases, avoiding spending on novel or unconventional items.
2. Conscientiousness
- High conscientiousness: You’re likely to budget carefully, save diligently and avoid impulsive spending. You prioritise long-term financial goals, like investments or retirement savings.
- Low Conscientiousness: You might have a more spontaneous approach to money, leading to overspending or neglecting financial planning.
3. Extraversion
- High extraversion: You may spend more on social activities, events and entertainment. Dining out, parties and group travel can dominate your expenses.
- Low extraversion (introversion): You could prioritise spending on solo hobbies, books or items that enhance personal comfort at home, often spending less on socialising.
4. Agreeableness
- High agreeableness: You might spend more on gifts, donations or helping others, as you value relationships and generosity.
- Low agreeableness: You may be less inclined to spend on others and more focused on personal needs or financial independence.
5. Neuroticism
- High neuroticism: Emotional spending can be common, with purchases made to manage stress or improve mood temporarily. This could lead to impulsive spending or retail therapy.
- Low neuroticism: You’re likely to have a more stable approach to spending, avoiding emotional purchases and focusing on needs rather than wants.
Additional Influences
- Impulsivity: Those who are more impulsive (often tied to low conscientiousness and high extraversion) are more likely to make unplanned purchases.
- Risk tolerance: Personality affects how much risk you’re willing to take with investments or borrowing. For instance, adventurous individuals might take bold financial risks, while cautious ones stick to safe options.
- Materialism: If you’re highly materialistic, you may spend more on luxury or status symbols, influenced by extraversion and low openness.
Once you understand yourself, and how you relate to money, you will be able sit back and think carefully about things like spending and saving.
Just always remember, your “money personality” should never be an excuse for bad financial decisions.
We all have choices to make and we should take responsibility for those choices, especially over this time of the year.