How personality affects personal finance

Personal finance can be a difficult topic to sort through because each person is unique and will approach every situation a bit differently. It should come as no surprise, however, that their unique personality can correlate well with their financial habits.

According to the Financial Times, in fact, bad financial habits can stem from status anxiety, lacking a sense of control, loneliness, or little self-esteem. In their analysis, these habits usually present themselves as one of six major financial personalities.

The Anxious Investor
These people love risk and tend to trade stocks frequently because they believe they have the edge over others. Unfortunately, this type of investor tends to have an action bias and will often buy high and sell low without being consciously aware of it. Despite their overconfidence, these investors tend to underperform the market by several percentage points.

The Hoarder
On the opposite end of the spectrum, hoarders use money as a security blanket. They cannot handle risk, and they often keep cash even in times when investing or spending money would be the wiser choice. While there is nothing wrong with saving money for emergencies, hoarding cash is far from optimal.

The Social Value Spender
This personality-type loves to purchase things for themselves or others to boost their self-esteem. The feeling of enjoyment that they get when making these purchases can help in the short-term, but it often ends in debt problems.

The Cash Splasher
Related to the social value spender, some people like to spend money in very visible ways to increase their perceived social standing. Purchasing a meal for a group, for instance, makes the occasion all about their generosity. Unfortunately, this behavior can lead to debt and depression.

The Fitbit Financier
Some people are obsessed with tracking their financial status. Frequently switching service providers and remortgaging are great examples of this personality type. In many cases, they are compensating for the lack of control in other areas of their lives and are seeking to control at least some aspect of it with exacting detail.

The Ostrich
For some, making no decision seems easier than making the wrong decision, but in most cases, this can lead to poor financial results in the long run. This person will allow that lack of knowledge to fester until problems arise.