While we may assume that financial decisions are based on data and evidence, research from the University of Georgia illustrates the key role our personality can also play.  The study examines the so-called “Big Five” personality traits of extroversion, conscientiousness, openness, neuroticism, and agreeableness to understand their role in our financial decision making.  They found that the best outcomes are when we have the right combination.

“Based on our results, the people with the best financial outcomes tend to be those who are well-adjusted, more extroverted, and less neurotic,” the researchers say. “They’re also willing to take some risks, but they don’t take too many.”

Tolerance for risk

The researchers surveyed nearly 400 people to understand their personality, their tolerance for financial risk, their net worth, and even their happiness.

“Using advanced statistical modeling, we identified three overarching types of people based on combinations of their OCEAN scores,” they explain. “We then explored how members of those three groups differed in financial perspectives and experiences.”

The most common profile was referred to as the Over Controlled group, who tend to display high levels of both conscientiousness and agreeableness,but low levels of extroversion.  This group were not keen on risk and so tend to avoid activities like the stock market, even though it can grow their wealth.

Two other profiles were far more tolerant of risk.  For instance, the so-called Resilient group, who were the next largest, were generally stable and well-adjusted, but were also extroverted, open, and agreeable.  They were typically associated with the best financial outcomes as they are tolerant of risk but don’t go overboard.

The third group, dubbed the “Under Controlled” group were more extroverted and neurotic, but less conscientious.  They were happy to take risks but their enjoyment often spilled over into recklessness, which affected their wealth.

The team hope that their work will encourage those in the financial industry to take better stock of the role our personality plays in the kind of financial decisions we make.

“It’s really interdisciplinary work,” they say. “It’s taking very basic models of personality, together with sophisticated statistics on psychometric approaches, and then applying them to very basic questions about investing and finance.”

With such a strong link between our personality and our financial wellbeing, the team hope that financial planners will be better able to help their clients make smart decisions.

“Planners, if they want to help people, need to measure OCEAN,” the researchers conclude. “If people easily can talk about themselves—and it’s telling you a lot about how they handle money—then practitioners simply need to measure it and record it.”