Financial Psychology

You know it, but it's not a “top-of-mind” thought to connect your emotional state with money decisions. Your feelings do impact your choices. And your personality---that too affects decisions.

Jack Tharp

Recently, a report entitled "Money Matters" examined college student attitudes, their motivation, and behavior in financial decisions.  Seven individual profiles were identified.  Do you fit one?

1)     Cautious                            5) Spending Compulsion

2)     Debt as Necessity            6) Utilitarian

3)     Possessions                       7) Debt Aversion

4)     Indulgence

Cautious:  Adhering to a budget is standard operating procedure.  Some debt is okay, but more of a last option.  Purchases are made via a checking account, not credit cards. No money; no spending.  

Utilitarian:  Stuff is not important.  Simplicity rules.  Spending is for basic needs not desires. “Keeping up with the Jones” is not a life principle. 

Indulgence:  The dictionary states indulgence is too much…Individuals labeled indulgent are on a quest for happiness.  Spending becomes an elixir producing momentary good feelings.

Debt as Necessity:  Spending means borrowing.  Everyone has a loan; it’s the “American Way”. These personality types believe debt is a default position. 

Possessions:  Things equal status. Material objects are perceived as symbols of success.  “Better to have it now” is the mantra.

Spending Compulsion:   Spending is a goal in itself. In contrast with utilitarian, spenders readily acquire impractical things.  Not unlike indulgers, spenders too seek pleasure. For spenders it’s all about the action. 

Debt Aversion:  Debt is a bad word.  Emotion runs deep for these individuals. They are the last to be convinced that reasonable levels of student loans are an investment.