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How Your Personality Affects Your Financial
Decision-Making
All investors are not created equal. That's why financial
planners start their first client meetings with a discussion of
money attitudes, goals and risk tolerance — the driver at the
root of all investment decisions. Some planners do this by
general conversation, others by detailed surveys they ask their
clients to fill out.
The survey route can be a more valuable tool because it
forces clients to face their money issues, perhaps for the first
time. Despite the difficulty in facing up to such key issues,
individuals get a better idea of where their money strengths and
weaknesses really lie. Often, the real difficulties lie in how
money is spent.
The real value of answering a lot of questions about your
risk tolerance is to tell you what you don't know — how the
sources of your money, the way you made it, your money
viewpoints and current methods of handling it will inform every
decision you make about it in the future.
The most important thing a questionnaire can reveal is your
true money priorities and behaviors. Trained financial advisers,
such as CERTIFIED FINANCIAL PLANNER™ professionals, use both
conversation and surveys to reach some firm answers that might
surprise you.
Are there particular money types? In reality, you'll find
quite a number of surveys out there that define money types in
particular ways, but you'll find personalities that are common
on the scale from conservative to liberal. Deborah L. Price, a
Financial Planning Association member and founder and CEO of the
Money Coaching Institute, offers these scenarios in an article
titled, "What's Your Money Personality?":
The Innocent. Price notes that Innocents often live in
denial, are easily overwhelmed by financial information and rely
heavily on the advice and opinions of others. They tend to be
the most trusting because they generally don't see people or
situations clearly — which leaves them open to bad decisions at
best and fraud at worst.
The Victim. She notes that Victims are people who tend to
live in the past and blame their woes on outside factors and
situations they claim they can't control. These people may have
been abused, betrayed, or have suffered some great financial
loss, but they generally see life as a self-fulfilling prophecy
that they can't change.
The Warrior. Generally seen as a successful person in the
business and financial worlds, they will listen to advisors, but
they make their own decisions. They tend to be great caretakers.
The Martyr. These people generally put other people before
their own financial health. They use their money to rescue
others based on their high expectations for themselves and the
people they're rescuing, but these decisions may be costly in
the long run.
The Fool. The Fool, explains Price, is a combination of the
Innocent and the Warrior because they have no clue about what
they're doing but they'll act fearlessly. They are financially
adventurous and they act on impulse.
The Creator/Artist. These people often have a love/hate
relationship with money. They're constantly struggling to make
their finances work, but they often feel that caring about money
means something bad.
The Tyrant. Price reports that this type hoards money and
uses it to manipulate others. They may have everything they
need, but they're never comfortable with their lives because
they fear losing control.
The Magician. Price defines the Magician as the ideal
money type. They're aware of their circumstances and
responsibilities and can see situations very clearly.
A financial planner tries to see through the static to find
out what you really need to create a solid financial life. But
it might make sense to ask yourself a few questions before you
and your planner sit down:
- How would you
describe your financial status right now?
- What's important
about money to you?
- What's your family
history with money?
- What do you do with
your money?
- If money wasn't an
issue, what would you do with your life?
- Has the way you've
made your money — through work, marriage or inheritance —
affected the way you think about it in a particular way?
- How much debt do you
have and how do you feel about it?
- Are you more
concerned about maintaining the value of your initial
investment or making a profit from it?
- Are you willing to
give up that stability for the chance at long-term growth?
- What are you most
likely to enjoy spending money on?
- How would you feel
if the value of your investment dropped for several months?
- How would you feel
if the value of your investment dropped for several years?
- If you had to list
three things you really wanted to do with your money, what
would they be?
- What does retirement
mean to you? Does it mean quitting work entirely and doing
whatever you want to do or working in a new career full- or
part-time?
- Do you want kids? Do
you understand the financial commitment?
- If you have kids, do
you expect them to pay their own way through college or will
you pay for all or part of it? What kind of shape are you in
to afford their college education?
- How's your health
and your health insurance coverage?
- What kind of
physical and financial shape are your parents in?
One of the toughest aspects of getting a financial plan going
is recognizing how your personal style, mindset, and life
situation might affect your investment decisions. A financial
professional will understand this challenge and can help you
think through your choices. Your resulting portfolio should feel
like a perfect fit for you!
December 2009 — This column is produced by the Financial
Planning Association, the membership organization for the
financial planning community, and is provided by Don McCarty of
Financial Decision Partners, a local member of the FPA.
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