Money personality and its impact on life

What is financial identity?

As Piotr Łabuz, a psychologist and financial coaching expert, explains: "Financial identity is the sum of the resources responsible for financial decisions and actions." We are made up of many financial identities. Usually, one of them is dominant and has the greatest influence on our actions and emotions related to money.

Financial identity stems from six areas:

• brain and neurobiology
• temperament and personality
• self-esteem
• values and motivators
• beliefs
• habits

Financial identity is correlated with personality traits and temperament, so it is extremely difficult to change. Although temperament and a portion of each of the "Big Five" personality traits are biologically determined, we have a huge influence on other areas—especially our beliefs and habits, values and motivators, and self-esteem. I have been working with clients on these issues during coaching sessions for years.

Our approach to finances is highly correlated with conscientiousness (one of the personality traits). Highly conscientious people usually find it easier to save and manage money rationally. Of course, people with low conscientiousness can also learn these skills, but they usually have to put in more effort.

We also have some influence on how our brain functions. It is well known that if we are chronically sleep-deprived, have a poor diet, suffer from vitamin and micronutrient deficiencies, or abuse psychoactive substances, our brain will function much worse. We will make less accurate decisions—including in the financial realm. It will be harder for us to work on ourselves, change our beliefs to ones that are healthier for our psyche, or work on strengthening good habits and eliminating harmful behaviors, such as compulsive shopping or overly risky money management.

Our brain will also function worse when we are afraid or experiencing other strong emotions, which is why we should make financial decisions with a cool head. We need to set aside both negative emotions (e.g., fear) and overly positive ones (e.g., excitement or blind optimism). This is essential, especially for high-stakes decisions, such as taking out a large loan or rashly selling stocks in a panic when prices are falling.

When working on yourself—including in the area of better financial management—it is worth understanding how our brain functions and how that translates into emotions and decisions. It is particularly important to understand how our amygdala and reward center work.

We can discover what our financial identity is through self-observation and analysis of our reactions, actions, and experiences, or we can diagnose it using appropriate questionnaires (e.g., the Money Attitude Scale or the questionnaire by Olivia Mellan).

Types of financial identity

Olivia Mellan, an expert in the psychology of money and a financial coach, identifies 6 basic financial identity typesDue to the limited scope of this article, I will only briefly describe the most important characteristics of each type.

1. The "Worrier" – a person who worries excessively about finances in a way that is disproportionate to their actual situation. For example, even if such a person is in a fairly good financial position, they will still constantly fear that they have too little money or might lose it.
2. The "Hedonist" – loves spending money and enjoying it.
3. The "Hoarder" – likes to accumulate money because it makes them feel secure. They are reluctant to spend it.
4. The "Ignorant" – avoids both the responsibilities associated with money and the knowledge of how to manage it. They do not want to bother themselves with matters such as how the Swiss franc exchange rate affects the mortgage they have to pay off...
5. The "Manager" – money is their element. They strive to have it in large quantities and actively multiply it. For them, financial success is extremely important, and they direct their actions toward achieving it.
6. The "Ascetic" – a person who, consciously or unconsciously, associates money with something bad and immoral. They often focus only on meeting basic needs and do little to increase their earnings. Such a person usually prefers to limit their needs rather than actively take steps to improve their financial situation.

Why is it worth knowing your financial identity type?

Financial identity has a huge impact on how we approach the broad management of our finances. It is therefore worth being aware of who we are and why we act the way we do.

Although there is no good or bad, correct or incorrect type of financial identity, each one has its strengths and weaknesses. That is why some actions (e.g., saving or spending) come more easily to us, while others are more difficult.

Through financial coaching, we can work on better understanding the positive and negative consequences of our personality and financial identity, as well as learning how to reinforce the good aspects and work on the unfavorable ones.