Know Your Financial Personality

MONEY TALKS - Couples often have difficulty communicating with one-another especially when it relates to the issues they hold closet to their hearts; money, sex, and how to raise the kids. Often clients come to a financial advisor because they are tired of fighting about money and are looking for a third party to help. One way an advisor can assist their clients is by counseling them on their financial personality. Helping clients understand their behavior may allow them to reflect on past decisions and aid in their decision making going forward.

Bert Whitehead, author of Why Smart People Do Stupid Things with Money, first pioneered the Money Personality Matrix which plots a client’s risk acceptance against their spending propensity. Bert explains in his book how an individual’s personality shapes their financial perception which can lead to inherent conflicts of interest within their relationships. Understanding you and your partner’s money personality can help to foster a better relationship and may help you avoid some common financial pitfalls.

The Entrepreneur – Entrepreneurs have a strong passion for their business and are willing to take risks to make their dreams come true. They tend to be very competitive and keep score by counting their assets. When times are good, entrepreneurs are frequently very successful. However they often reinvest too much of their profits back into their business rather than diversifying into stocks and bonds resulting in a lack of diversification and inadequate liquidity that can be crippling if the economy goes into a recession.

The Bon Vivant – Bon Vivants work long hours, make lots of money, and are very successful in what they do. They love anything that saves them time and are always buying the latest gadgets. Social status is important to them, and they often reward themselves for their hard work by buying brand name clothing or accessories. Bon Vivants frequently have very spotty portfolios because they were built over time without any foresight. They might buy shares in a company after a conversation with someone at a cocktail party or succumb to a high pressure sales pitch on risky investments. Nonetheless, the worst mistake they tend to make is to confuse hobbies with investments.

The Nester – A Nester’s favorite investment is their home. Anything they buy for their home, whether it’s patio furniture or a bathroom vanity, is considered an investment to them. They consider any money spent outside the home to be frivolous. They often over improve their homes to the point where it so closely reflects their personality that the new owner tears out most of what has been done. Terrible investments that nesters love to spend their money on are vacation homes and timeshares.

The Traveler – Travelers cherish experiences rather than physical objects. Their photo album is often their most prized possession. Generally they don’t care much about money and even brag about how few possessions they have. They love to travel and often seek employment in fields that facilitate their lifestyle. Travelers love to spend money on anything that has an educational component. If you have a friend or family member that is a “professional student,” chances are they’re a traveler. Travelers often have transitory relationships; however, it is not uncommon for them to find themselves in relationships with nesters.

Chances are you may relate to one or more of these personalities. You may find you relate to one personality type or another depending on the specific situation you are in, which is perfectly normal. Each personality type has positive and negative traits; the positive traits tend to promote financial well-being while negative traits often lead to financial dysfunction. Recognizing your own personality and that of your partner allows you to understand each other’s motivations leading to more sound decision making and financial stability for you both.