Financial Psychology Center

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Louis DeNicola

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Can your personality affect your finances?

Let’s be real: You may not know—or think about—the psychological factors that contribute to your financial decisions. But if you want to build healthy financial habits and improve your relationship with money, this topic is worth exploring.

“Our personality has a huge impact on our behavior, preferences, and values,” says Alex Melkumian, PsyD, founder of the Financial Psychology Center in Los Angeles, CA. And when it comes to money, he says that each of our personality traits can impact our financial psychology and mindset in different ways.

The “Big Five” personality traits

Your personality exists on a spectrum—that means you don’t have a single personality type or show one personality trait (people are complex, after all). However, scientists have developed a personality model that identifies five traits found in most human beings:

  • Openness to experience
  • Conscientiousness
  • Extroversion (which also includes introversion)
  • Agreeableness
  • Neuroticism

“Every person embodies some portion of all five of these,” says Dr. Melkumian. “They’re neither good nor bad, but each one can have a negative and positive impact on how you deal with money.”

Want to know where you land? You can take a free personality test here or here. Keep reading for a breakdown of how each trait could affect your finances.

1. Openness to experience

Openness to experience ranges from being closed to being open and reflects your creativity and curiosity. It could show up in whether you’re game to try new things or prefer to go the conventional route.

  • If you’re more closed, you might have an easier time focusing on the financial goals you set.
  • If you’re more open, you could be good at coming up with non-traditional ways to earn money.

“Openness can be a driving force behind a lot of financial success,” Dr. Melkumian says. “Creatives [can be] really high in openness, for example.” However, people who are more closed may have an easier time implementing new plans.

2. Conscientiousness

Conscientiousness ranges from spontaneous to conscientious, and it reflects your thoughtfulness, organization, dependability, and grit.

  • If you’re more spontaneous, you might be more likely to take big risks that lead to big rewards.
  • If you’re more conscientious, you may find it easier to create—and stick to—a financial plan.

Conscientious people tend to be dependable and punctual, which can be a positive trait in a money manager, but they may also seek validation from others. “They may worry about what others will think of their financial decisions,” says Dr. Melkumian. “It may prevent them from taking a risk that they should [consider].”

3. Extroversion

Extroversion ranges from introverted to extroverted and reflects your sociability, assertiveness, and how you feed off the energy of others.

  • If you’re more introverted, you may not be as likely to compare yourself to others when making financial decisions.
  • If you’re more extroverted, it could be easier to build a professional network that you can leverage to advance your financial goals.

Some people are also somewhere in the middle (ambiverts), or move from one end of the spectrum to the other. “You need a little bit of both to be the best professional,” says Dr. Melkumian. The extrovert in you can help you connect with others, while the introvert will keep you from being overly concerned about others’ approval or validation.

4. Agreeableness

Agreeableness ranges from hostile to agreeable and reflects your honesty, generosity, and how you care for and trust others.

  • If you’re more hostile, you might have an easier time advocating for yourself and your needs.
  • If you’re more agreeable, you could be good at collaborating and forming trust-filled relationships, which is key if you’re sharing finances with a partner.

One more thing: Agreeableness may also have an impact on your ability to earn money. For example, “You might [be less likely to] demand the top pay for your skillset being more agreeable,” Dr. Melkumian explains. That can in turn affect your financial planning.

5. Neuroticism

Neuroticism ranges from stable to neurotic and reflects your confidence, resilience, self-esteem, and how well you self-regulate your emotions.

  • If you’re more stable, you may be less likely to make rash financial decisions.
  • If you’re more neurotic, your strong emotions could propel you to achieve your financial goals.

“Emotions get a bad rap in the field of personal finance,” says Dr. Melkumian. “As long as we’re able to keep ourselves out of the extreme negative emotions, they can be motivating and helpful.”

So, what can you do next?

Look for ways to leverage your personality to accomplish your financial goals. Luckily, Upwise is for everyone, and it’s designed to help you create positive habits. So while you may not change your personality, you can work toward improving your financial future.

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Will COVID Change Our Habits Permanently?

(Money Management) – The coronavirus pandemic has upended everyone’s life and led to some significant habit changes. The old (and ironically somewhat tired) personal finance advice of skipping a morning latte may be forced upon you if you no longer have a morning commute.

Such an impactful event also brings up questions of how people are coping and which new habits will stick when we no longer have to worry about the coronavirus. We talked to some experts to find out how COVID has changed us and what changes may be still to come.

FIGHT, FLIGHT, OR FREEZE

Looking back at how people initially responded to the coronavirus outbreak offers some insight into how a crisis can impact us.

“First and foremost, COVID is affecting our mental health by creating an initial stress response: fight, flight, and freeze,” says Dr. Alex Melkumian, founder of the Financial Psychology Center in Los Angeles.

Perhaps you’ve seen or experienced some of these responses. People “fighting” by updating their LinkedIn profile and jumping into a job hunt. Flight and freeze might look like avoiding the situation and putting off everything until the last minute. Although, a similar lack of response can come from optimism bias—the belief that everything will work out okay.

Of course, there’s more at play than an initial response, and people react differently depending on the situation. For example, after a layoff some people may avoid filing for unemployment due to shame or pride rather than a flight or freeze response.

Crisis responses have also played out in different ways on a large scale. If you think back to the early days of the pandemic (a lifetime ago), you’ll remember how panic-buying led to toilet paper shortages.

SOME FINANCIAL HABITS ARE ALREADY CHANGING

Over half-a-year in, people have had time to adjust, develop new routines, and implement changes. Some of these might not be habits, per se, but they can still have a long-term impact.

“A lot of what holds people back is that they think there’s all the time in the world to get it done,” says financial therapist Lindsay Bryan-Podvin. “When the reality hits… the fire burns to get things going.” Many of her clients are finally crossing things off their financial to-do list, such as getting life insurance or writing up a will.

A McKinsey & Co. survey from October 7, 2020, offers more insight into what types of financial habits may be changing:

  • Most people are cutting back on discretionary spending.
  • About 23% to 25% of people recently started using food or grocery delivery services for the first time, or are using them more often. Of those, over half plan to continue using these services after the coronavirus subsides.
  • A small group (12% to 13%) is trying curbside store and restaurant pickup for the first time, and about half of that group plans to continue using curbside pickup.
  • More than two-thirds of people are trying new shopping methods, brands, or stores. Many are “trading down” to find cheaper brands and retailers.
  • Since the pandemic, people are increasingly aware of how companies care for their employees’ safety (23%) and a company’s purpose or values (17%).
  • The increased use of social media, wellness apps, online streaming, and online fitness programs may continue post-pandemic. Topping the list of changes that may continue is an offline activity—regularly cooking.

Katherine Milkman, a professor at the University of Pennsylvania’s Wharton School, also recently shared some insights on what habits can be “sticky” in an interview on the Slate Gist podcast and article by Joe Pinsker in The Atlantic.

For example, it’s not hard to imagine someone developing a preference for a lower-cost brand or more convenient services. But washing your hands for 20 seconds might not stick when there’s no fear of a virus.

TRAUMAS MAY STAY WITH US

Specific habits aside, there could be a lasting impact on people’s relationship with their work and finances.

Even before the pandemic, the American Psychological Association’s annual Stress in America survey from 2019 found that most people listed work and money as one of their most significant sources of stress. The pandemic and resulting layoffs has only exacerbated those stressors.

“This is our Great Depression,” says Melkumian. “The level of anxiety and concern and worry could be exponential to where we were before. From a mental health standpoint, we’ll see an increase in financial trauma.”

There’s no single answer to how this plays out. The pandemic is affecting households in drastically different ways, and even those who are impacted in similar ways may have different responses.

“How much we’re going to be ruled by fear, caution, worry, anticipation, and doomsday scenarios is going to be part of our overall psychology and how we approach finance,” says Melkumian. “There may not be answers until we get there, but we need to beware of our psychology.”

He also draws the connection between financial stressors and the resulting impacts on how you may interact with your spouse or kids, and your overall wellbeing. “In turn, how does that affect your physical health? What happens to your family and identity as a provider and contributor?” Melkumian asks.

BUT THIS IS ALSO AN OPPORTUNITY FOR CHANGE

While the pandemic can cast a foreboding shadow over everything, if you can get out of crisis mode, it can also be a significant opportunity to rethink your life and the habits you want to change.

As Bryan-Podvin shared, some of her clients have done this by checking off some of their financial to-dos. She’s also observed a growing interest in making more drastic lifestyle changes. “They’re starting to consider what life would be like if they downsized housing and could retire earlier, or spend more money elsewhere,” she says. What might have been a daydream before has become a more realistic option.

“Obviously there’s a lot of uncertainty. We’re in a limbo pattern of not knowing when we can resume normal life,” says Melkumian. “But I’d love COVID to be the call to action to improve and increase our financial consciousness, awareness, and literacy.”

If you’re ready to start making some lasting financial changes, a free one-on-one counseling session is a great place to start. Our debt and budget experts are available 24/7 to help you discover resources, learn valuable skills, and begin realizing your goals.