First of all, what is a money personality? It’s a way to explain how people approach their spending and investing, and it’s formed early in life. Yes, your parent’s approach to money is likely to be still affecting you now! For instance, if Mum always conserved her money and never took risks, this would have influenced your dominant money personality.
Starts at 60 spoke to Greg Smith, author of Unlock the Secrets of Your Money Personality. He believes you can be careful, savvy, or a spender as your underlying approach. You’ll probably pick up habits from the other types along the way as your environment changes, but a dominant type will shine through.
You know your spending style is nicely controlled. You’ve got a straightforward way to manage your money (a budget perhaps), a moderate level of knowledge about finance, and you’re open to learning more about finances if it’s from someone you trust. Downside is, you baulk at any risk when investing. But on the good side, you research anything before going ahead, so you’re less likely to fall into scams or money pits.
There’s no denying it – a Spender’s money goes out as fast (or faster) than it comes in! Although you may become prudent over time with the way you spend, you’re afraid of asking questions that would increase your financial knowledge. With this low confidence about investing, you probably feel stuck, so your money sits in your bank account and doesn’t really get you anywhere.
Savvy money people have a solid knowledge of money management. You learn through doing but also by listening to others, and you quite like visiting the local financial planners. You expect your money to work as hard as you do, and so you’re ready to learn the risk level of a desired investment and consider its future. Good at managing debt, you’re always looking at how to pay down non-deductible debts.
Smith believes that once over 60, “You realise the finite resources you have. Most over 60s have assets but a limited income stream… so that makes us be extra careful with our money.”
If sticking to being ‘careful’ though, you might leave excess funds in the bank and also rely totally on the advice of others. But, says Smith, the less knowledgeable you are, the more susceptible you are to being ripped off. And we’ve all heard those sorry tales of pensioners being sold private (non-bank) fixed interest investments, which are debt-laden structures that eventually collapse.
On the other hand, there is also the opportunity cost of your spare funds not even keeping pace with inflation. So, it might be time to stretch your wings.
Going from Careful to Savvy doesn’t require that much of a shift, Smith believes. He uses the analogy of cooking. “A lot of older ladies know how to cook, and because they have more knowledge and confidence, they are willing to take a little more risk.”
With regard to changing your money type: “It’s a fascinating change to make—but you’ve got to want to change.”
Part of improving your relationship with money is to use your focus and discipline. For instance, as interest rates on term deposits are extremely low, you could look further into other, diversified investments that keep the risk low but return a much higher rate than a bank.
While you can’t suddenly germinate great wealth, “what you can do is protect it smarter”, he says. Ask more questions, Smith says, with emphasis. “The more you know, the more comfortable you will be in looking at (various investing) options.”
Part of investing wisely is knowing your own risk tolerance. Smith believes that if you have a Spender profile, then it could be risky for you to chase high growth. It would be better to keep funds in the middle ground — diversified and balanced. This helps keeps money safe as you learn more about financial products and asset classes.
Besides more knowledge, setting specific financial goals will also help focus your efforts.
There are a number of tests you can take to determine your money type, such as the one from Your Mental Wealth, which is based on a study by researchers at Kansas State University who came up with four different money personality types, including Money Status, Money Avoidance, Money Worship and Money Vigilance.
Overall, the more you get more involved in your finances, the better you off you will be.
IMPORTANT LEGAL INFO This article is of a general nature and FYI only, because it doesn’t take into account your financial or legal situation, objectives or needs. That means it’s not financial product or legal advice and shouldn’t be relied upon as if it is. Before making a financial or legal decision, you should work out if the info is appropriate for your situation and get independent, licensed financial services or legal advice.
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