Financial wellness is a pursuit of constant learning, understanding, planning and requires a great deal of disciple and dedication. We know that our financial habits determine how we spend our hard-earned money, how much savings we are left with, and how well prepared we may or may not be for the future. We are engaged in multiple monetary transactions every single day of our lives. And with the age of digital money and digital wallets, most of our online financial transactions are carried out in a matter of seconds! How are we able to make these decisions so quickly and on a whim? That’s where financial behaviour comes into play.
So, what is the meaning of Financial behaviour?
According to IGI Global, financial behaviour can be defined as any human behaviour that is relevant to money management. To improve our understanding of how we arrive at different financial decisions, it’s important to understand the psychological characteristics that influence positive or negative financial behaviour.
Our personality dictates how we respond to money at a very subconscious level, which is why it’s important that we investigate and learn about our money behaviours. And once we have a clear understanding of our own financial personality and behaviour, we can then nurture positive behaviours and work on eliminating the negative ones.
So, how do we identify our financial behaviour and personality? There are many studies and research material out there, that talks about financial behaviour and personality types. So, let me take you through a simple process based on an article published by Investopedia, that I found very interesting and easy to follow.
Financial personalities can be broadly classified into 5 types based on specific financial behaviours that we tend to adopt. Let’s look at what they are:
1. Big Spenders
Status is the driving factor for Big Spenders and people in this category are always looking to make a statement with their financial decisions. Big spenders love new cars, new gadgets, branded clothing and desire to have the latest and greatest mobile phone, the biggest television, the latest car model and a beautiful home. Discounts and bargains don’t concern them. They are comfortable with spending money, don’t fear debt, and often take big risks when it comes to investing. As the name suggests, spending is the result of most of the financial decisions, in this category.
People in this category are not very forthcoming about money. They are the exact opposite of Big spenders. They try to do everything in their capacity to save every rupee, with every opportunity that is presented. They turn off the lights while leaving the room, shop only when absolutely necessary and rarely use their credit cards to make any purchases. They generally have no debts and might comes across as frugal and financially conservative by others. They are not concerned about looking fashionable or following the latest trends. Savers are conservative by nature and don't take big risks with their investments.
Shoppers often develop great emotional satisfaction from spending money. And most often than not, make many impulsive decisions with their money. They can't resist spending, even if it’s absolutely unnecessary. They find it difficult to reason with themselves before making purchases and easily give in to their impulses. They keep a lookout for bargains and discounts so that they can feed into the spending impulse. The addiction to spend grows with time and a lot of people in this category end up in debts. Saving and investing is not a financial priority for people in this category and they might always look at it as something they will do later or the next time.
Debtors generally spend more than they earn and are deeply in debt while not putting much thought into investing or saving. Debtors aren't trying to make a statement with their expenditures, and they don't shop to entertain or cheer themselves up. They simply don't spend much time thinking about their money and lack a general interest in their money matters. They also don’t pay attention to important financial habits such as planning a budget, keeping a track of their spending, saving for an emergency or planning for retirement. Most of the times, they are caught surprised with unexpected expenses and get deeper into the debt cycle, simply because they aren’t prepared.
Investors are consciously aware of money. They understand their financial situations and try to put their money to work. Regardless of their current financial standing, investors tend to seek a day when passive investments will provide sufficient income to cover all of their bills. Their actions are driven by careful decision-making, and their investments reflect the need to take a certain amount of risk in pursuit of their goals.
Now that you have some indication of different financial behaviours that give rise to the above mentioned financial personalities, are you able to identify which category you fall under? Once you identify where you stand, you will be able to categorise your financial behaviours into positive and negative and take the necessary steps to move forward in your financial journey.
Regardless of which category you fall under, there are changes you might need to factor in to be able to strike the right balance. We’ll talk about that in our next article. Until then, we hope you dive deep into understanding your financial habits and behaviours thoroughly. Good luck!
Sources - https://www.investopedia.com/