Money personality and its impact on life

What is financial identity?

As Piotr Łabuz - psychologist and expert in the field of financial coaching explains: “Financial identity is the totality of resources responsible for financial decisions and actions”. We are made up of many financial identities. Usually one of them is dominant and affects our actions and emotions related to money to the greatest extent.

Financial identity has its origins in six areas:

• brain and neurobiology
• temperament and personality
• self-esteem
• Values and Motivators
• convictions
• habits

Financial identity is correlated with personality and temperament traits, so it is extremely difficult to change. Although temperament and part of each trait in the so-called 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 in coaching sessions for years.

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

We also have a certain influence on the functioning of our brain. It is known that if we are chronically sleepless, eat poorly, have a deficiency of vitamins and microelements, or abuse psychoactive substances, our brain will function much worse. We will make less appropriate decisions, including in the financial area. It will be more difficult for us to work on ourselves, change beliefs to healthier ones for our psyche or work on strengthening good habits and eliminating actions that harm us, for example by making compulsive purchases or managing money too risky.

Our brain will also function worse in fear or other strong emotions, so when making financial decisions, we should do it coolly. Set aside both negative emotions (e.g. fear) and overly positive emotions (e.g. excitement or hurraoptimism). This is especially necessary when decisions are burdensome: for example, taking a high loan or selling shares in a panic - when prices fall.

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

We can find out what financial identity we have both through self-observation and analysis of our reactions, actions and experiences, as well as we can diagnose it with appropriate questionnaires (for example, the Attitudes Towards Money Scale or the Questionnaire by Olivia Mellan).

Types of financial identity

Olivia Mellan, an expert in the psychology of money and a financial coach, distinguishes 6 essentials Types of Financial Identity. Due to the limited scope of the article, I will only briefly describe the most important characteristics of each type.

1. “Murderer” - is a person who is overly worried about finances in a way that is inadequate to the situation. For example, such a person, even if he has a fairly good financial situation, will still be constantly afraid that he has not enough money or that he may lose it.
2. “Hedonist” - loves to spend money and use it.
3. “Ciulach” - likes to accumulate money because it is associated with security. Reluctantly gives them away.
4. “Ignorant” - avoids both the responsibility associated with money and the knowledge of managing it. He does not want to bother with matters such as the effect of the Swiss franc exchange rate on the amount of housing loan he will have to repay...
5. “Manager” - money is his element. Strives to have them in large quantities and actively multiply. For him, success in the financial sphere is extremely important, and he directs his actions to achieve it.
6. “Ascetic” - is a person to whom, on a conscious or unconscious level, money is associated with something bad and immoral. He often focuses only on meeting basic needs and does little to raise his earnings. Such a person usually prefers to limit his needs, rather than actively take measures to improve his financial situation.

Why is it important to know the type of your financial identity?

Financial identity has a huge impact on how we proceed in the broadly understood management of our finances. So it is important to be aware of who we are and why we act in this way and not another way.

While there is no right or wrong, right or wrong type of financial identity, each one has its own strengths and weaknesses. Therefore, some actions (such as saving or spending) come to us easier and others more difficult.

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