Have you ever thought that you are just bad with money? Or because you are good at maths, you should automatically be good with investing? Or if you had more money, you would be better at managing it? Well, I’m here to tell you that the way you have managed your money all your life is no accident. Our different personality traits and preferences, along with a range of emotional and mental biases, have a strong impact on the way we handle money. 

This is commonly referred to as behavioural finance. Behavioural finance helps us understand how financial decisions around things like investments, spending, risk and personal debt are greatly influenced by human emotion, biases and individuals’ perceptions of reality. 

According to the CFA Institute, there are four types of money personalities, which affect the “how” and “why” when making certain financial decisions. Which of these profiles best describes you?

Preserver

Preservers place a great deal of emphasis on financial security and preserving wealth rather than taking risks to grow wealth. Some preservers are “worriers” in that they obsess over short-term performance and are slow to make investment decisions because they dislike change. They will stick with the status quo, even if it is not working, out of fear of making the wrong decision.

Most preservers are focused on taking care of their family members and future generations, and spend money on things that are known to improve quality of life like education and houses. This can be seen in the way older generations make their financial decisions. 

If you identify as a preserver, the best way to handle your money is to plan your savings and investments around your stages of life. Strategies should be created around short, medium and long-term goals; each with their own distinctive objectives, risk profiles and return expectations. Preservers need to see the big picture before they can commit to any plans for their money, and creating these life stage goals is a great way to get started.  

Follower

Followers usually do not have their own ideas about investing because they lack knowledge or are not interested in financial markets. They often follow the lead of their friends and colleagues in investment decisions, and want to be in the latest, most popular investments without considering the risks.

The biggest problem with followers is that they follow the herd, which means they pile into the same investments as others with the hopes of making money. This can often be seen with people who join get-rich-quick schemes or fall victim to pyramid schemes.

If you are a follower, it is time for you to invest in yourself and understand your investment decisions, and how they fit into your overall plan. Educate yourself on common financial terms and concepts, and understand the “why” behind investing in an asset rather than simply relying on others’ advice.

Independent

An independent is a strong-willed and free thinker. Independents are self-assured and do their own research when making decisions. They are often analytical and critical thinkers, and trust themselves to make informed decisions.

The downside with this personality is that Independents are susceptible to being overconfident and relying too much on their own information rather than getting evidence from other sources. They go as far as mentally filtering out any information that does not support their decision. They also have a tendency to think that any success in investing is due to their own talents/knowledge and not normal market movements.

Independents enjoy investing and are comfortable taking risks, yet often resist following a financial plan. Of all behavioural investor types, Independents are the most likely to go against the herd in their financial decision-making, even if it’s to their own detriment. Independents are also the least likely to ever seek or take financial advice from professionals. 

Accumulator

Accumulators are interested in accumulating wealth, and are confident that they can do so. They are the most aggressive behavioural investor type. They are entrepreneurial, and often the first generation to create wealth. Most Accumulators are or have been successful in prior business endeavours, and are confident that this makes them automatically good with managing and investing money. 

They are often hands-on and want to be heavily involved in the investment decision-making process, although some lack investment knowledge. As such, they often adjust their portfolio allocations and holdings to market conditions, and may not wish to follow a structured plan.

The issue with accumulators is overconfidence. History has shown that it is impossible to predict markets, yet accumulators continue to try and do so and expose themselves to extreme risk. So, if you are an accumulator, acknowledge that you don’t know everything and seek financial advice when necessary.

* Thembi is a financial planner and coach. She runs her own financial coaching business FinWellness Solutions. Get in touch at kandangatn@gmail.com