... is a somewhat overlooked discipline that occupies the space between psychology and behavioral economics. Advertisers and marketers trying to tempt us to spend money are well aware of it.
If we understand how the financial environment affects us, we can better control our cash instead of being controlled by it, turning us into more rational investors, more successful savers or less impulsive shoppers.
Lovers of risk, anxious investors trade frequently and believe they have the edge over others. Many have absolutely no idea what their returns actually were and only remember their good decisions.
For hoarders, money represents security. They abhor risk and may even stockpile cash that they would probably be better off investing — or even spending.
Find an advisor you feel comfortable with who can discuss the right investment approach — and level of risk — for you.
Does shopping make you happy? Do you frequently buy your loved ones presents “just because” and blow the budget at Christmas and birthdays? You could be a social value spender.
If you are concerned about your spending and borrowing habits you need to study your bills — perhaps with the support of a close friend.
Cash splashers view themselves as generous, but they also use the money to make others think more highly of them.
They are likely to wave their checkbooks about at charity auctions and spend money on things they could easily do without, from expensive cars to club memberships.
They check their online bank balance and track their spending as often as someone training for an extreme sporting event measures their calorie intake, resting heart rate and sleep quality.
Take a step back and look at the bigger picture. A session with a financial planner could help you identify your goals and plan for a less stressful future.
Someone who would rather bury their heads in the sand than organize their finances. “Making no decision always feels easier than the possibility of making the wrong decision.”
Ostriches should take their heads out of the sand — slowly. Set aside an hour a fortnight at first to examine your finances, taking a close look at your income and outgoings, and where being more organized and aware could save you money.
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People who invest are those who love the risk, trade frequently and have enough confidence to think they will beat the market.
A 2011 study found out that most investors underperform, namely 82%, because they were trading instinctively rather than strategically.
Advice: Continue to educate yourself, limit your trades to the amount you could afford to lose and try to act for your long-term financial benefits.
There are five different types of financial personalities, each of them having their own set of values and outlook towards money:
- The Big Spenders: The ones who place a high value in their possessions, and identify their worth with the things they can buy, at any cost.
- The Savers: The conservative spenders who don’t view spending their money as a worthwhile activity. They don’t take big risks on investments, preferring to save.
- The Shoppers: These are the emotional and habitual spenders, always wanting to spend money on things they might not even need.
- The Debtors: These are the unemotional spenders who do not care about how much money they have, usually spending more than they can afford to.
- The Investors: The investors are consciously aware of their finances, and invest with an eye towards the future. They have impeccable spending habits and a good credit score.
... or the collection addiction, was first spotted in Thomas Frognall Dibdin’s novels and it describes the unstoppable act of collecting first editions and illustrated copies of literature.
Later on, the same term would describe a person who is more passionate about rather than obsessed with building up a collection of literature.