Linking Psychological Type to Financial Decision-Making                         Judy McKenna1, Karen Hyllegard2, and Ray L...
Financial Counseling and Planning, Volume 14(1), 2003benefits (Bajtelsmit & Bernasek, 1996; Duran, 2002;                  ...
Psychological Type and Financial Decision-Making2002) contained only one article (McKenna, Martin &                       ...
Financial Counseling and Planning, Volume 14(1), 2003prefer harmony over clarity and may give up self                     ...
Psychological Type and Financial Decision-MakingTable 1.Psychological Preferences: Implications for Financial BehaviorPref...
Financial Counseling and Planning, Volume 14(1), 2003Four Styles of Managing Money                                        ...
Psychological Type and Financial Decision-Makingto be enjoyed here and now. Therefore, they operate                       ...
Financial Counseling and Planning, Volume 14(1), 2003strategic skills allow them to meet their need for                   ...
Psychological Type and Financial Decision-Makingfacts and figures, and then give them time to process                     ...
Financial Counseling and Planning, Volume 14(1), 2003authentically, and the Idealist must feel they will be               ...
Psychological Type and Financial Decision-MakingBelsky, G. & Gilovich, T. (1999, November). Behavior                      ...
Financial Counseling and Planning, Volume 14(1), 2003Note to Editor---even numbered page—use for filler
Upcoming SlideShare
Loading in …5
×

Linking Psychological Type to Financial Decision-Making

1,840 views

Published on

Published in Financial Counseling and Planning, (Volume 14(1), June, 2003). This paper won an award from the National Endowment for Financial Education.

Published in: Economy & Finance, Technology
  • Be the first to comment

Linking Psychological Type to Financial Decision-Making

  1. 1. Linking Psychological Type to Financial Decision-Making Judy McKenna1, Karen Hyllegard2, and Ray Linder3Individuals often exhibit financial planning behavior that deviates from the classical economicmodel based on rational decision-making. Theorists, educators, and practitioners based indisciplines of family economics, consumer behavior, marketing, and financial planning, usedistinctly different constructs to study decision-making; however, all of these models have strengthsand gaps in explanatory power. This paper proposes the use of an expanded model of financialdecision-making that incorporates concepts of Carl Jung’s psychological type theory as measuredby the Myers-Briggs Type Indicator and David Keirsey’s temperament patterns.Key words: Decision-making, Financial decision-making styles, Financial education, Financialmanagement, Personal financial behavior Financial Decision-Making college with large credit-card debt on top of theirThere are widespread and justified concerns that many student loans (Cornelius, 1998).Americans are not careful money managers. With littleattention paid to their money decisions, these While many individuals or families are withinindividuals may end up facing serious negative recommended ratios (Godwin, 1996) for credit use forconsequences. Two specific areas of financial concern items such as home mortgages and car payments, somefor American consumers are overuse of credit and lack of these individuals still may not be saving adequatelyof savings. for future consumption (e.g., children’s education, housing, or retirement).Overuse of CreditThe movement in the United States toward greater use Lack of Savingsof credit has contributed to a spiraling trap where Previous studies (Employee Benefit Research Institute,people find their future choices limited by past or 1997; Garman, 1997a; Yuh, Montalto & Hanna, 1998)current overuse of credit. According to American show that many Americans are ill prepared forConsumer Credit Counseling, the average American retirement, are not optimistic about social security,household has 10 credit cards and almost half of these think they will outlive their money in retirement, andhouseholds report having trouble paying their generally expect that their lifestyles will worsen whenminimum monthly payments. (American Consumer they retire. Likewise, findings from the 2001Credit Counseling, 1999). retirement confidence survey (Employee Benefit Research Institute, 2001) indicate that workersThere is growing evidence that financial problems confidence in their retirement incomes has fallen inamong U.S. consumers begin in early adulthood. recent years. In 2000, 72% of the workers surveyedAlmost half of the consumer credit counseling clients were confident about having adequate money forin Northern Colorado are between the ages of 18 and retirement; in 2001, the number fell to 63%. The recent34 (Baun, 1998). Close to 15% of the clients on debt loss of value in worker 401(k) plans has made therepayment plans in Sacramento, California are between situation even worse.the ages of 19 and 25 (Elliot, 1997). Seventy percent ofstudents at four-year colleges have at least one credit Women, in particular, face financial insecurity incard with an average limit of over $6,000 and an retirement because they live longer, often earn less thanaverage revolving debt over $2,000. College students men, and interrupt their careers for child rearing --who sign up for credit cards at campus booths carry thereby diminishing their social security and pensionaverage unpaid balances of $1,039 and often leave1. Judy McKenna, Ph.D., CFP, and Cooperative Extension Family Economics Specialist, Department of Design andMerchandising, Colorado State University, Fort Collins, CO 80523-1575. Phone: (970) 491-5772 Fax: (970) 491-4855.E-mail: mckenna@cahs.colostate.edu2. Karen Hyllegard, Ph.D., Assistant Professor, Department of Design and Merchandising, Colorado State University,Fort Collins, CO 80523-1575. Phone: (970) 491-4627 Fax: (970) 491-4855. E-mail: hyllegard@cahs.colostate.edu3. Ray Linder, CEO, Investment Advisor, 21264 Mirror Ridge Place, Sterling, Virginia 20164. Phone: (800) 742-9804Fax: (703)450-4030. E-mail: ray@goodstewardship.com Web: http://www.Goodstewardship.com©2003, Association for Financial Counseling and Planning Education. All Rights of reproduction in any form reserved. 1
  2. 2. Financial Counseling and Planning, Volume 14(1), 2003benefits (Bajtelsmit & Bernasek, 1996; Duran, 2002; Financial planners are also asking questions about theMcKenna & Nickols, 1988). relationship of personality and financial decisions. At the June, 1999 National Association of PersonalRecent government estimates indicate that 66.5 million Financial Advisers (NAPFA) meeting, Mary RowlandU.S. workers between the ages of 25 and 64 (61.0%) said that she once believed that people go to a financialdid not own any type of retirement savings account in planner to get a better return on their investments. She1998 (Employee Benefit Research Institute, 2001). now thinks that the primary role of a financial plannerFurthermore, baby boomers –the 76 million U.S. is to help clients overcome their personal dysfunctionsconsumers born between 1946 and 1963 who account and lead better and more rewarding lives (Green,for the largest segment of the working age population-- 1999).and should be concerned with saving for retirement,but 40% owe more than they own (Knight & Knight, A group of financial planners, therapists and others2000). have formed what they call the Nazrudin movement. Their purpose is to go beyond helping clients achieveNot only do inadequate savings and inappropriate economic well being, they want to help their clients bedecisions impact individuals’ and families’ financial more fulfilled, happier, and better citizens. Manyfutures, but they can also seriously affect emotional planners help their clients based on Abraham Maslow’sand physical well being. Roizen (1999), Garman hierarchy of needs, but they continue to address needs(1997b), and Mugenda, Hira, and Fanslow (1990) link at the second level of the pyramid -- security. For manypoor financial planning to stress, threatened health, clients, what is most important to them is at the top --lack of productivity at work, and marital breakdown. self-actualization (Green, 1999).The purpose of this paper is twofold: 1) to consider the Articles in the popular press by financial counselorsroles of psychological type and temperament theories and planners, educators, and others (Belsky &in understanding individual financial decision-making Gilovich, 1999; Samuelson, 1999; Carrier & Maurice,and 2) to encourage educators, researchers, and 1998) often conclude that people are makingfinancial practitioners to consider an interdisciplinary devastating financial mistakes and speculate about theapproach to assisting individuals with financial causes. There are definite gaps in what some peopleplanning. want to do and what they actually do, and it seems that research conducted from a single discipline base is Disciplinary Approaches to Decision-Making falling short of understanding human behavior.Many disciplines are concerned with the economic wellbeing of citizens. Family economics researchers use a Each discipline uses a variety of research approaches tovariety of conceptual approaches to understand how identify decision-making styles. And yet, researcherspeople make, or don’t make, financial decisions. continue to struggle with unanswered questions – whyKerkmann (1998) adapted Prochaska’s stages of do some people appear to ignore or sabotage financialchange model to describe individual receptiveness to management opportunities? Psychological type theoryfinancial behavior change. Other variables have been has been used for more than 50 years to understand andused to better understand financial decision-making strengthen the gifts of personal diversity. This theory,such as risk taking and locus of control (McKenna & in addition to temperament theory, could be veryNickols, 1988), analysis and holistic (Prochaska-Cue, valuable in understanding financial behavior.1993); and cognitive style preferences (Rettig &Schulz, 1991). Such research has advanced our Psychological Typecomprehension of the connection between financial The field of psychological type as measured by theplanning and personal decision-making styles. Myers-Briggs Type Indicator (MBTI) has attracted a diverse group of professionals who use the theory inDemographic characteristics have been used to management and organizational development, careerunderstand variance in goal attainment (O’Neill, Xiao, assessment, marriage counseling, and learning stylesBristow, Brennan & Kerbel, 2000) as well as other (Myers, McCaulley, Quenk & Hammer, 1998). Otherconsumer and decision-making behavior. The areas of interest include religion, education and crosslimitation of using only demographic variables is that cultural connections. The link from the field ofthey do not account for psychological or behavioral psychological type to financial decision-making is verydifferences among consumers. Psychographics are limited in psychological type research. The Journal ofimportant factors in the decision-making process Psychological Type has reported research on typebecause they include consumer lifestyle, values, beliefs concepts for twenty-five years. However, the researchand personality characteristics, which often have a on the relationship of type and money management isgreater influence on consumer needs and preferences lacking. A special abstract issue of 400 researchthan do objective traits (Kotler & Armstrong, 1999). articles published between 1977 and 2002 (Carskadon,2 ©2003, Association for Financial Counseling and Planning Education. All Rights of reproduction in any form reserved.
  3. 3. Psychological Type and Financial Decision-Making2002) contained only one article (McKenna, Martin & Other people progress intuitively making short-termSchmidt, 1990) using personality preferences to decisions and still reach the same end. Anexplain the link between psychological type and understanding of psychological type prepares educatorsfinancial decision-making. and financial planners to work more effectively with people based on the application of their personal styleMyers-Briggs Type Indicator: Background of decision making.A theory developed by Carl Jung (1923) and laterwidely researched and applied by Katharine Briggs and Myers-Briggs Type Indicator: Definitionsher daughter Isabel Myers (Myers, 1980), opens a new The MBTI Instrument measures four pairs ofdoor to better understanding human behavior. The preferences. These concepts suggest that individuals“essence of the theory is that much seemingly random exhibit strengths based on their personality preferencesvariation in behavior is actually quite orderly and selected from four scales (Myers, 1980).consistent….If people differ systematically in whatthey perceive and in how they reach conclusions, then Extraversion/Introversion The extraversion/it is only reasonable for them to differ correspondingly introversion set of preferences defines how people arein their reactions, interests, values, motivations, skills energized. Some people get their energy from theand interests” (Myers & McCaulley, 1985, p 1). external world -- extraverts. They seek relationships with other people and often talk in order to understandThe MBTI was developed to help people understand their own thoughts. They prefer generating ideas with aand appreciate themselves and others. The group and want affirmation from friends and associatespsychological type concepts concentrate on personal about their ideas. In Brock’s (Allen & Brock, 2000)acceptance and healthy differences among people. “Four-Part Framework”, she describes this preferenceSince 1942, instrument items have been written, as “talk it out.”validated, and subjected to tests for validity andreliability. The current form uses 94 items to identify Other people get their energy internally – introverts.four pairs of preference alternatives. Although every They want time to think things through thoroughlyindividual is able to use all eight preferences, Jung’s before speaking and don’t like competing in fast-theory suggests that individuals are predisposed to use flowing conversations. Introverts are often guardedone preference more than the other and that through about personal information and will be unlikely touse, the preference is strengthened, similar to being share personal information with people they do notright or left handed. Validation studies indicate there is know well. Brock (Allen & Brock, 2000) calls thishigh correlation between an individual’s self-report and preference “think it through.”the report generated from the answers to questions inthe MBTI instrument. The real value of this theory is Sensing/Intuitive Sensing and intuitive preferencesthat many people find exceptional personal insight describe the process that people rely on to gatherwhen introduced to the MBTI concepts. information. Sensing people trust their senses as they gather information and want to channel what they learnMyers-Briggs Type Indicator: Potential into practical applications. They often ask, “will itAlthough there has been limited attention to work?” Sensing people are comfortable focusing on thepsychological type and financial decision-making, present, have concrete ideas, and are at their beststudies of general decision-making build a bridge of dealing with specifics.understanding that can be used to connect personalityto financial decision-making. Huitt (1992) describes As an intuitive person takes in information, he or shedecision-making differences among people based on often rearranges it into a new idea based on hunchestheir psychological preferences. For example, some and inspiration. Intuitives enjoy brainstorming futurepeople naturally make decisions based on logic and possibilities, and are good at describing the big picture.critical thinking. They employ analysis, backwards Intuitives ask, “what might we do?”planning, categorizing and classifying, challengingassumptions, judging, systematic reasoning, and task Thinking/Feeling Thinking and feeling preferencesanalysis. Others make their best decisions when they describe how people make decisions. People whouse brainstorming, visualization, relaxation, taking prefer thinking work in a logical and scientific manneranother’s perspective, and values clarification. often basing their efforts on numbers and figures. They would rather be right than be liked. LogicalWhen these differences are used uncritically to help implications form the basis for their decisions. A highpeople understand their decision-making propensities, value for thinkers is objectivity.there is definite potential to link individual decision-making strengths to financial planning. Some people Those with a feeling preference make decisions bymanage their finances by planning for the long term. taking the feelings of other people into account. They©2003, Association for Financial Counseling and Planning Education. All Rights of reproduction in any form reserved. 3
  4. 4. Financial Counseling and Planning, Volume 14(1), 2003prefer harmony over clarity and may give up self client’s personality, that is, his or her preferences,comfort to accommodate others. They make decisions desires, and behavior, can assist financial advisors inbased on the potential impact on people. the design and implementation of a client-appropriate plan that can help clients reach goals and ultimateJudging/Perceiving Judging and perceiving satisfaction.preferences describe decision-making styles. Judgingpersons are decisive, planful, and orderly, and find Ware (2001) sought the ideal psychological type formaking decisions easy. They work best when they can money management, but concluded, “All personalityplan and then follow the plan. They are time driven, types can be winners in the market, but they mustlike making lists, and are generally considered well understand their own strengths and weaknesses andorganized. They delight in making decisions and compensate accordingly. This sort of self-knowledge“getting on with things.” leads to wisdom and personal mastery” (p. 48). Table 1 summarizes the preferences with implications forThose with a perceiving preference are flexible, financial decision-making.adaptable, and spontaneous. They like to keep theiroptions open and find that bringing closure is difficult. Temperament Theory andThey prefer gathering information to see what a task Financial Decision-Makingdemands rather than detailed planning. They work best For over 2500 years, physicians, psychologists,in last-minute spurts of energy to meet deadlines. Their philosophers and writers have repeatedly identifiedimportant characteristics are curiosity, spontaneity, and four holistic patterns of human behavior. These fourresponsiveness. They delight in processing and major patterns are referred to as temperaments. Theconsidering new ideas and information. temperaments describe four unique ways that people interact with the environment to satisfy their needs. InMany people express an “aha” when they are essence, temperament is best understood as a pattern ofintroduced to these concepts, but not everyone. Some consistently observable behaviors. It is a unifiedpeople feel boxed in and consider these terms limiting. configuration of inclinations, an innate pattern ofAllen and Brock (2000) caution that labeling may seem attitudes and actions. Our temperament is given to us atnegative to people and that no one is confined to a birth rather than learned, and unless our family ofsingle type. “The type table can be seen as a ‘sixteen- origin provides excess pressure to the contrary, theroom house’ in which each person has a ‘favorite’ behavioral preferences that form our temperament willroom. We might say that we all go to all rooms, be the primary driver of our behavior. Because it is theincluding the bathroom, but we might not want to live innate blueprint of the foundation of who we are,there” (p. 24). temperament is a powerful tool for understanding how we are motivated to use money to meet our“Because observing, not labeling, is the key, it is not psychological needs.necessary [for practitioners] to know another’s typepreference. It is only necessary to watch for behavior According to the father of modern temperament theory,cues in the moment, remembering that the person may Dr. David Keirsey (Keirsey & Bates, 1984)be visiting another room in their ‘house’ and will want “temperament determines behavior because behavior isto be treated in accordance with their current room” the instrument for getting us what we must have…” (p.(Allen & Brock, 2000, p. 25). 30). The MBTI can be used to identify the four temperaments. Table 2 shows the four temperamentsApplication to Financial Planning Idealist, Guardian, Rational, and Artisan and theirResearchers, including Ware (2001), Hanlon (2000), defining sets of psychological preferences.and Linder (2000), have described the influence ofpsychological type on financial planning. Hanlon Given that money “talks” in a universally understood(2000) proposed the use of personality types to language and that it is the most commonly used tool inimprove client willingness to participate in four areas everyday life, the temperament model of humanof financial planning: investments, cash flow behavior provides us with great insight into financialmanagement, life insurance and estate planning. behavior. Because each temperament has a particularDrawing from the Myers Briggs Type Indicator, set of natural skills they employ to be effective andHanlon outlined client motives as well as the best satisfied in financial matters, an understanding ofapproaches for informing and assisting clients using temperament is essential to an understanding ofpersonality preferences. Each personality preference financial behavior.was applied to client decision-making for eachfinancial area and an approach for informing the clientand managing the financial process was given. Inconclusion, Hanlon emphasized that understanding a4 ©2003, Association for Financial Counseling and Planning Education. All Rights of reproduction in any form reserved.
  5. 5. Psychological Type and Financial Decision-MakingTable 1.Psychological Preferences: Implications for Financial BehaviorPreferences Financial BehaviorExtravert (E) Extraverts are ready and willing Feeling (F) Spending money is always to talk to financial planners and personal with individuals whose counselors about what they need preference is feeling. They select and want. They tend to skim products and choices with a written materials or don’t read personal emphasis. They may be them at all. They may hear what interested in socially conscious they want to hear, not what the companies for their investments. counselor is recommending. They sometimes try to please by They may change a financial agreeing with everyone, and they plan after talking to someone may not ask if they don’t else. understand something.Introvert (I) Introverts want written materials Judging (J) Planning and implementing and they want time to read them plans are easy. People with before a meeting. Because judging preferences are willing introverts are good at to make decisions, and prefer to concentration, focusing on ideas, make them quickly. They are and reflection, they can make good at long-range planning broad-based contributions to a including retirement planning. comprehensive plan. Introverts Perceiving (P) Perceiving individuals are open are more likely to have to many different possibilities conservative portfolios of assets. and they look for a wide range ofSensing (S) Sensing people like to deal with information and ideas. They may facts and are often good react negatively to keeping track comparison shoppers. They will of money because it’s not look for a practical application spontaneous. They don’t like of financial concepts. They making systematic plans and want information presented in a implementing plans is difficult. sequential manner, and they like Retirement planning seems examples. confining.Intuitive (N) Individuals who prefer intuition Source: Linder, 2000 want to think about the future. They like planning to address future needs but they may not be Table 2. as interested when it comes to Temperament Patterns and Psychological Preferences evaluating and selecting various courses of action. They offer Temperament creative alternatives to spending Patterns Psychological Preferences money such as sharing, bartering, exchanging, etc. They Guardian Sensing-Judging (SJ) tend to like new possibilities and are not afraid of change. Artisan Sensing-Perceiving (SP)Thinking (T) This preference comes the closest to the ideal “rational Idealist Intuitive-Feeling (NF) man” theory. Individuals who prefer thinking ask about cost- Rational Intuitive-Thinking (NT) benefit tradeoffs. Because managing money is impersonal to them, they enjoy the challenge. Creating systematic plans fits their strengths.©2003, Association for Financial Counseling and Planning Education. All Rights of reproduction in any form reserved. 5
  6. 6. Financial Counseling and Planning, Volume 14(1), 2003Four Styles of Managing Money Having money means security to Guardians. FinancialGuardians are part of what might be called the security is important to them, as it means success,preserving temperament. Guardians have a sensible and comfort, peace of mind, and an overall sense of well-judicious temperament (Montgomery, 2002). For them, being. Because of this, Guardians, are good savers, asmoney management is about preserving a comfortable, savings allows them to meet emergencies withoutsecure and organized home and work environment. disruption of their lifestyle. They are risk-averse with aGuardians are skilled in logistics, the proper low tolerance for uncertainty and volatility, thereforemaintaining and handling of the details of an operation. they tend to avoid high-risk investments, and preferAs such, they have a natural disposition for: investments that provide, stable, consistent, and secure • Measurement -- how much time, money, and returns. material is necessary to properly maintain their environment. Artisans Artisans are part of what might be called the • Sequential Thinking -- managing their finances “doing” temperament. Artisans have a spur-of-the in an orderly fashion. moment and playful temperament (Montgomery, • Supervision -- seeing that their money is 2002). For them, money management is about having managed “right” by following the rules: frugal the freedom to do what feels good and to make an spending; saving money; minimizing debt; preparing impression. Artisans are skilled in tactics, reading the for the future. immediate situation and making instant decisions to • Caretaking -- protecting and providing for their accomplish a limited, short-term purpose. As such, families and loved ones. they have a natural disposition for:These innate skills manifest themselves in several • Adaptation – making the right financialways. Guardians are typically dependable and adjustments to deal with unforeseenresponsible, especially for the day-to-day organization circumstances.and record keeping necessary to keeping things running • Contextual thinking – understanding the“shipshape”. They are attentive to the practical needs urgency of the immediate moment as it relates toof others, and manage their resources to meet the their finances.everyday concerns of those they feel they are • Promotion – seeing how money can be used toresponsible for. advance and accomplish others’ interests. • Performance – getting things done asThe Guardian’s logistical skills allow them to meet expediently as possible.their needs for stability, safety and security. Infinancial matters, Guardians are frugal, responsible, These innate skills manifest themselves in severalconventional, cautious, and rely on past experience, ways. Artisans are typically adept at finding the mostfirst their own, and then others, in making decisions. expedient way to do or fix something right now,They naturally handle money conservatively and especially as it relates to hands-on pragmatic ways topurposefully in order to provide themselves with a handle the necessary maintenance, repairs, and upkeepsolid financial foundation. The weakness of Guardians of physical property. They are usually selfless andis that they can be overwhelmed by disorganization, generous, giving immediate, direct support to others’uncertainty or unanticipated change. Sloppy record- needs through tangible acts of service.keeping, unbalanced checkbooks, and being unable todo what needs to be done is very stressful for The Artisans’ tactical skills allow them to meet theirGuardians. needs for action and spontaneous, fun-loving freedom. They are known for bringing enjoyment to themselvesGuardians like to have their finances well organized in and others with their spur-of-the-moment lifestyles thatterms of managing paperwork, documentation and are flexible, practical and resourceful in meetingprocedures, because organization gives them the financial challenges and problems. Artisans arefeeling that their finances are under control. They are naturally impulsive, bold and opportunistic, andgood with facts and figures. Guardians tend to have inclined to bear financial risks. Their weaknesses aregood self-control as it relates to financial decisions, that they are not goal-oriented and may have too greatsetting up financial goals and then methodically a penchant for financial risk. Being forced to stayworking towards their goals with self-discipline. within limits is stressful for Artisans; if lack of fundsGuardians are frugal in that they believe responsible constrains them, they quickly figure out how to getspending means buying only what is necessary at a more.discount, if possible, and they are not as likely as theother temperaments to go into debt. Having money means having opportunities for present enjoyment to Artisans. Believing that currency equals “current-cy”, money to an Artisan is simply something6 ©2003, Association for Financial Counseling and Planning Education. All Rights of reproduction in any form reserved.
  7. 7. Psychological Type and Financial Decision-Makingto be enjoyed here and now. Therefore, they operate needs of others, especially family, and interpersonaloutside the financial mainstream, having little interest conflict over money is very stressful for Idealists.in long-range planning, consumer or investmentresearch, or record-keeping and administration. They Idealists are the most interested in philanthropic uses ofwould much rather trust their instincts rather than money. For them, money is a pathway to improve thedetailed plans about the future or financial statements quality of lives and to support their own ideals andabout their present fiscal condition. aspirations. Idealists are global, forward-thinking money managers who are not particularly interested inBecause they are typically more oriented to what they the day-to-day administrative details of their finances.can do with their money in the near term, Artisans are Their primary financial interest is seeing how moneygenerally haphazard savers who may set future goals, can be used to effect changes in the lives of others. Thebut then will quickly abandon them for an emerging financial pursuits, plans, and goals of an Idealist are notopportunity. They enjoy the thrill of speculation as about the accumulation of wealth but to make moneymuch as the possible financial rewards, and would have extraordinary, personal meaning.rather lose money than miss out an opportunity to makemoney. Artisans have a high tolerance for risk and Idealists also have little interest in the typicaloften find their investments to be both big winners and, quantitative measurements of money, such as rate ofat other times, and big losers. return, or qualitative aspects such as risk tolerance. For money to matter to Idealists, they must maintainIdealists Idealists are part of what might be called the integrity with their personal ethics, moral standards,inspiring temperament. Idealists have an insightful and and ideals. Whatever financial choices they make, theyfervent temperament (Montgomery, 2002). For them, must be able to see themselves as being true to whatmoney management is about cultivating relationships, makes them authentically and uniquely themselves. Ingrowing personally and helping others achieve their other words, they must personally identify with whatpotential. Idealists are skilled in diplomacy, promoting they invest in, or who they have financial relationshipsrelationships among people. As such, they have a with.natural disposition for: • Interpretation – understanding the meaning of Rationals Rationals are part of what might be called others’ behaviors. the achieving temperament. Rationalists have an • Integrative Thinking – seeing how things can ingenious and theoretical temperament (Montgomery, come together. 2002). For them, money management is about • Counseling – seeing how others can help acquiring the necessary competence to understand, themselves. explain and predict, and therefore, controlling the • Revelation – insight into underlying motives financial forces that affect their lives. Rationalists are and desires. skilled in strategy, the devising of large scale, long- range plans with answers for all possible contingencies.Because the innate skills of this temperament have As such, they have a natural disposition for:little to do with handling money, financial management • Analysis – making calculations byis generally a low priority for Idealists. What matters distinguishing components and discerning theirmore to Idealists is sharing their financial resources to interrelationships.build relationships and to inspire others. They view • Differential Thinking – seeing differences,money as a means to create positive visions for the categories, classifications, functions.future, especially as it relates to human potential and • Designing – thinking of all the componentsencouraging people with insightful ways to develop necessary for plans and systems to work.and grow. • Marshalling – leading, guiding or arranging plan components in the necessary order.The Idealists’ diplomatic skills allow them to meettheir needs for meaningful personal relationships. In These innate skills manifest themselves in severalthe area of money, Idealists, then, are naturally ways. Rationalists naturally envision innovative waysaltruistic, and willing to self-sacrificially devote to create a better quality of life and are ingenious andsubstantial portions of their financial wealth to the resourceful in developing financial strategies, andbetterment of others. The weakness of Idealists is their challenging themselves to achieve personal financialgeneral apathy about money which can result in a goals. They enjoy long-range planning, especiallyfragile financial foundation and poor preparation for when they can bring an orderly approach to complexthe future. Also, Idealists care deeply about quality and financial issues with creatively comprehensive thinkingaesthetics, and settling for less than their ideal can be that accounts for the long-term consequences of anydifficult for them. Finally, not being able to meet the given course of financial action. The Rationalists’©2003, Association for Financial Counseling and Planning Education. All Rights of reproduction in any form reserved. 7
  8. 8. Financial Counseling and Planning, Volume 14(1), 2003strategic skills allow them to meet their need for challenge is to support individuals as they strive tocompetence and mastery of their lives to ensure a achieve economic security and life satisfaction.successful financial future. Their weakness is that theseplans may be overly complex resulting in “paralysis of Strategies for Motivating Clientsanalysis” and very little accomplished. The following suggestions were developed from interviews with individuals who know their type andRationalists are stressed by not seeing adequate temperament pattern. Educators and financial plannersprogress towards future financial goals, and being can use these strategies to enhance communicationforced to stick to the “tried and true”, when what they with clients exhibiting the various temperament types.have in mind is “new and improved”. Also, since theplanning is more invigorating than the doing, Guardians (Sensing-Judging) When working withRationalists can have a tendency not to follow through Guardians, planners should take on the role of aon their plans once they have been conceived in their trusted, respected authority. This role should beminds. established in the initial meeting where the planner provides the client with references and performanceRationalists are the most analytical of the four history. They also need to explain in detail the stepstemperaments. This innate skill allows them to be very and the process of how they intend to guide the client.comfortable with complexity, including innovative and Since Guardians like to belong to groups they identifyunusual approaches to money management. They are with, it’s important that the planner has had experiencealso highly skeptical, independent thinkers, who with people who are like the Guardians in terms of age,delight in challenging conventional wisdom, and they income, and stage of life. Once Guardians havewill only take advice from someone who has tangible evidence of the planner’s credentials, they willdemonstrated greater expertise than themselves, if even be inclined to trust them and follow their direction.then. Rationalists are future-oriented, big picture Like each of the other temperaments, the Guardian willfinancial thinkers who may or may not tolerate the focus best on a plan that meets their needs according tomundane daily aspects of financial management as part their values. For Guardians, how they go aboutof the strategic process of achieving their long-term managing their finances will determine theirgoals. satisfaction with the results. Guardians are concerned with doing what’s right according to the norms orRationalists are economical as opposed to frugal, values of the groups they see themselves as belongingmeaning that they desire to establish the right value of to. In addition, Guardians need to know they are doinga financial decision, not just save money. Rationalists their duty and responsibly taking care of the groupsseek the right price, not just a low one. They typically they belong to, usually their family. They valuehave low anxiety in financial matters, as money security, stability and a solid financial foundation tomanagement to them is just other process in life to be prevent disruption to their lifestyle. They will preferunderstood, controlled and mastered. Rationalists will cautious, conservative financial plans with specifictend to accept any level of risk once they have done the steps to implement.analysis to determine that the rewards, and theprobability of achieving them, are commensurate with Guardians naturally embrace the step-by-step processthe risks taken. of planning including projecting needs and monthly savings goals to achieve goals. Being time driven, theyEach of the four temperament patterns represents will generally meet planners’ suggestions fordifferent patterns of psychologically satisfying implementing plans, but they may have detailedbehavior, generating significant and observably questions about specific recommendations. They willdifferent money management practices. As a result, not appreciate newsletters and additional information thatonly will a particular “best practice” be hard for some will help them track how well their plans are doing.personality types to implement, more critically, it maynot produce psychological or emotional satisfaction To communicate effectively with Guardians, it is besteven if it “works” financially. Therefore, the challenge to appeal to their natural logistical intelligence thatfor financial professionals and their clients is to they will use to build stabilizing structures anddevelop plans that produce meaningful psychological procedures to make sure they have the right amount ofbenefits. money in the right places at the right times. Communication should be in a direct, clear mannerIt is imperative that financial counseling and planning about what is expected of them, the goals, procedures,professionals learn how to effectively communicate and what everybody’s responsibilities are.motivational strategies as well as money managementskills. Whether in a planned and straightforward Sharing past experiences with specific examples isapproach, or in a zigzag, hopscotch pattern, our helpful to the Guardian. Be thorough and accurate with8 ©2003, Association for Financial Counseling and Planning Education. All Rights of reproduction in any form reserved.
  9. 9. Psychological Type and Financial Decision-Makingfacts and figures, and then give them time to process spirit ways as a viable and responsible way to live theirthe data. Their desire is to clarify their understanding life.before making decisions. These decisions, once made,will be firm decisions. Above all, do what you say you Idealists (Intuitive-Feeling) When working withwill do in a timely and responsible way, as this Idealists, planners should take on the role of a specialcommunicates that you respect the Guardian. companion or partner that the Idealist will share their life’s journey with. As with the Guardian, this role willArtisans (Sensing-Perceiving) When working with be established in the initial meeting. What the IdealistArtisans, planners should take on the role of facilitating is looking for is to have the sense that their relationshipthe Artisan’s enjoyment of life. Artisans want to use will be a cooperative venture; accomplish significanttheir money, not manage it, so they look to the planner purposes that are bigger than the relationship itself; andto tell them what’s presently happening with their have shared moral values, philosophy, and worldview.money; make sure their needs are covered; and mostimportantly, tell them how much “fun” or “play” Once Idealists have an intuitive sense that the plannermoney they have at their present disposal. will be a catalyst for their ideals, they will be inclined to partner with them and follow their counsel.Like each of the other temperaments, Artisans focusbest on plans that meets their needs according to their Like each of the other temperaments, the Idealist willvalues. For Artisans, the outcome of the plan will focus best on a plan that meets their needs according todetermine their satisfaction with the results. Artisans their values. For Idealists, how they go about managingare willing to do whatever works to achieve the desired their finances will determine their satisfaction with theresults and are less concerned with what others think is results, which, for the Idealist, means doing what’s inthe right or customary thing to do. Also, Artisans live alignment with their personally held values.in the moment, so the very concept of planning is notonly foreign but uncomfortable because it involves a An effective motivator for an Idealist, who generallytime-consuming process of making decisions about shies away from financial issues, is to keep themmoments that have yet to arrive. focused on their ideals and who their financial plans will benefit. Idealists’ commitments are to people orArtisans achieve longer-term financial security by causes, not the money, so they will be motivated tousing strategies such as automatic contributions to comply with their financial plans as long as they seeretirement accounts. These strategies allow Artisans to their ideals being achieved.prepare for the future as they focus their time andenergy on the money they have to spend today. To an Idealist, financial planning is not about the money, so they need to know that their financial plansIn addition, Artisans need to have freedom to act translate to a life that has meaning and significance.without constraints and to see clear, immediate results They value relationships, individual uniqueness, andfrom their actions. They value variety, adventure, authenticity – people being true to who they are. Abovestimulation and expediency. They will prefer financial all, Idealists do not want to be defined by their money,plans that are not restrictive, emphasize near-term as in “upper class” or “affluent”. Therefore, they preferimpacts rather than long-term results, and facilitate financial plans that allow them and others affected bytheir here-and-now enjoyment of life. They will want their plans to experience their unique identity.the planner to handle the details and long-term courseof their finances. To communicate effectively with Idealists, it is best to appeal to their natural diplomatic intelligence that theyTo communicate effectively with Artisans, it is best to will use to build bridges between where people are nowappeal to their natural tactical intelligence that they and where their potential lies. Begin with hearing theirwill use to make quick decisions to handle imminent dreams and visions for the future. They are much lessneeds or accomplish near-term goals. Communication interested in talking about what is than what can be,should be simple without being condescending, and and they will be anticipating feedback that shows thatuncomplicated by financial buzzwords or jargon. Be the planner believes in the Idealist and their purposes.brief, get to the point, and don’t be too serious. In fact,with Artisans, a sense of humor creates trust. Planners should center on the Idealist’s personal concerns, especially their relationships. Idealists areArtisans respond best when their freedom is not being very sensitive to nonverbal communication and cancompromised and they do not respond well if the detect phoniness and hidden motives, so it’s best toplanner appears to be imposing their personal speak the truth, even when it is difficult. Above all, theconvictions of “right” and “wrong” on the Artisan. Idealist must feel that the other person is actingAbove all, the planner must respect the Artisan’s free©2003, Association for Financial Counseling and Planning Education. All Rights of reproduction in any form reserved. 9
  10. 10. Financial Counseling and Planning, Volume 14(1), 2003authentically, and the Idealist must feel they will be them to learn and to ensure that all possibilities andgenuinely accepted if they act authentically. contingencies have been analyzed in terms of the long- term goals. Ultimately, the planner must recognize thatRationals (Intuitive-Thinker) When working with Rationals prefer to direct their own lives, and isRationals, planners should take on the role an interacting primarily for intellectual stimulation and toindependent-minded expert. What the Rational client is test their own ideas.looking for is a mastermind who will teach rather thandirect them. Therefore, they will require the planner to Conclusionsbe a perpetual student of financial markets and Educators and financial planners have developed andvehicles, and be well-versed across a broad range of disseminated educational publications, which describefinancial issues. What Rationals want to do is think the “right” way to manage money. This way is planned,about their financial plans, not just create goals and has a long-time perspective, is analytical, and requiressteps to reach them. Once Rationals have established plenty of personal initiative to implement. For manythat they are dealing with an expert, they will be people, financial knowledge is only a piece of effectiveinclined to listen to their input, although not necessarily financial management. Individuals and families whoimplement it. can acquire self-understanding skills can internalize a range of tools to become more successful, effectiveLike each of the other temperaments, Rationals will money managers.focus best on plans that meet their needs according totheir values. For Rationals, the outcome of the plan will If financial planners, counselors and educators lackdetermine their satisfaction with the results. They are knowledge about what motivates clients to followwilling to do whatever they believe will attain the recommendations (Kerkmann, 1998), they will bedesired results and, being very independent-minded, handicapped in helping individuals understand andare put off by with what others think is the right or apply financial information. The challenge is tocustomary thing to do. understand an individual’s personal assets and limitations in order to promote personal change andIn addition, a Rational needs to be taken seriously as effectiveness. Self-understanding and respect helpsomeone who is knowledgeable and competent. They people identify alternatives as well as make thevalue autonomy, intelligence, expertise, and logical commitment to reach their goals. A model thatconsistency. They will prefer financial plans that are addresses individual strengths and assets andintellectually as well as financially challenging, determines strategies for overcoming planningespecially if their plans are innovative and economic in weaknesses will be more successful in linking goodthe sense that they produce the maximum benefit for decisions to good plan implementation.the resources put to use. The ideas presented in this paper are preliminary. TheRationals enjoy academic papers on topics such as financial management practices matching themodern portfolio theory, the global economic situation, preferences and styles are consistent with theory andand analyses of how various investment sectors are confirmed by interviews, but will be strengthenedstrategically positioned due to economic, political, and through further study. This line of inquiry offers antechnological factors. Planners should keep a file of opportunity for future research to confirm thedebates on current topics drawn from their own distinguishing behaviors of each preference and style.professional meetings and journals to share with The next, most critical research step, is to identifyRationals. Rationals also appreciate knowing how they strategies that will work for different styles, especiallycan use the Internet or other technology to advance those who are not in sync with the ideal planningtheir learning and understanding of financial markets. model.To communicate effectively with Rationals, it is best to Referencesappeal to their strategic intelligence that they will use Allen, J. & Brock, S. A. (2000). Health care communicationto create comprehensive and complex plans that using personality type. London and Philadelphia:optimize the relationships of the pieces to each other. Routledge.Begin with the ends in mind and then work backwards American Consumer Credit Counseling. (1999, March 29).to fill in all the detailed steps of their plan, but Credit card stats. [WWW document]. URL http://www.consumercredit.com/Color_Pages/understand what the Rational is really doing is cardstats.htmldesigning a problem-solving model to analyze what to Bajtelsmit, V.L. & Bernasek, A. (1996). Why do womendo with their money. invest differently from men? Financial Counseling and Planning, 7, 1-10.Be prepared for Rationals to be skeptical, questioning, Baun, R. (3/29/98). Credit counseling clients. Fort Collinschallenging and playing devil’s advocate, both for Coloradoan, p. 1.10 ©2003, Association for Financial Counseling and Planning Education. All Rights of reproduction in any form reserved.
  11. 11. Psychological Type and Financial Decision-MakingBelsky, G. & Gilovich, T. (1999, November). Behavior Montgomery, S. (2002). People patterns: A modern guide to modification. Dow Jones Investment Advisor, 155-186. the four temperaments. Del Mar, CA: ArcherCarrier, L. & Maurice, D. (1998, February). Beneath the Publications. surface: the psychological side of spending behaviors. Myers, I.B. (1980). Gifts differing. Palo Alto, CA: Consulting Journal of Financial Planning, 11(1), 94-98. Psychologists Press, Inc.Carskadon, T.G. (Ed.). (1999). A grand synopsis of 345 Myers, I.B. & McCaulley, M.H. (1985). Manual: A guide to studies in psychological type, 1979-1999. Journal of the development and use of the Myers-Briggs Type Psychological Type, 50, 1-43. Indicator. Palo Alto, CA: Consulting PsychologistsCornelius, C. (9/18/98). Students get tangled in plastic. Press, Inc. Denver Post, p. 4B. Myers, I.B., McCaulley, M.H., Quenk, N.L. & Hammer, A.L.Duran, N. (2002). DC speaks: Siebert: Prep women better for (1998). MBTI manual. (3rd ed.). Palo Alto, CA: retirement. American Banker, 167(109), 1. Consulting Psychologists Press, Inc.Elliott, J. (1997). Young and in debt: A focus on prevention. Mugenda, D.M., Hira, T.K. & Fanslow, A.M. (1990). Credit World, 85(4), 35-36. Assessing the causal relationship among communication,Employee Benefit Research Institute. (2001). The 2001 money management practices, satisfaction with financial retirement confidence survey summary of findings. status, and satisfaction with quality of life. Lifestyles: [WWW document]. URL Family and Economic Issues, 11, 343-360. http://www.ebri.org/rcs/2001/01rcses.pdf O’Neill, B.; Xiao, J.J.; Bristow, B.; Brennan, P. & Kerbel,Employee Benefit Research Institute. (1997). The Reality of C.M. (2000). Successful financial goal attainment: Retirement Today: Lessons in Planning for Tomorrow. Perceived resources and obstacles, Financial Counseling EBRI Issue Brief Number 181. Washington, D.C.: and Planning, 11(1), 1-12. Employee Benefits Research Institute. Prochaska-Cue, K. (1993). An exploratory study for a modelGarman, E.T. (1997a). Retirement savings and the poor of personal financial management style. Financial financial behaviors of workers. Proceedings of the Counseling and Planning, 4, 111-134. Personal Finance Employee Education Best Practices and Rettig, K.D. & Schulz, C.L. (1991). Cognitive style Collaborations Conference, Roanoke, VA, 1(1), 45-49. preferences and financial management decision styles.Garman, E.T. (1997b). Personal finance education for Financial Counseling and Planning, 2, 25-54. employees: Evidence on the bottom-line benefits. Roizen, M.F., M.D. (1999). Real age. Are you as young as Financial Counseling and Planning, 8(2), 1-8. you can be? New York: Cliff Street Books.Godwin, D.D. (1996). Newlywed couples’ debt portfolios: Samuelson, R.J. (1999, February 22). “Hell no, we won’t Are all debts created equally? Financial Counseling and save.” Newsweek, p. 42. Planning, 7, 57-69. Ware, J. (2001). The psychology of money: An investmentGreen, J.J. (1999, November). Internal affairs. Dow Jones managers guide to beating the market. New York: John Investment Adviser, 50-60. Wiley & Sons, Inc.Hanlon, R.P. Jr. (2000, July). The use of typology in financial Yuh, Y., Montalto, C.P. & Hanna, S. (1998). Are Americans planning. Journal of Financial Planning, 13(7), 96-112. prepared for retirement? Financial Counseling and Planning,Huitt, W.G. (1992). Problem solving and decision making: 9 (1), 1-12. Consideration of individual differences using the Myers- Briggs Type Indicator. Journal of Psychological Type, 24, 33-44.Jung, C.G. (1923). Psychological Types. New York: Harcourt Brace.Kerkmann, B.C. (1998). Motivation and stages of change in financial counseling: An application of a transtheoretical model from counseling psychology. Financial Counseling and Planning, 9(1), 13-20.Keirsey, D. & Bates, M. (1984). Please understand me. Character & temperament types. Del Mar, CA: Prometheus Nemesis Book Company.Knight, L.G. & Knight, R.A. (2000) Counseling clients on credit. Journal of Accountancy, 189(2), 61-72.Kotler, P. & Armstrong, G. (1999). Principles of marketing. (8th ed.). Upper Saddle River, NJ: Prentice Hall.Linder, R. (2000). What will I do with my money?: How your personality affects your financial behavior. Chicago: Northfield Publishing.McKenna, J., Martin, D. & Schmidt, L. (1990). "Does personality type influence retirement planning?" Journal of Psychological Type, 20, 52-60.McKenna, J. & Nickols, S.Y. (1988). Planning for retirement security: What helps or hinders women in the middle years? Home Economics Research Journal, 17(2), 153- 64.©2003, Association for Financial Counseling and Planning Education. All Rights of reproduction in any form reserved. 11
  12. 12. Financial Counseling and Planning, Volume 14(1), 2003Note to Editor---even numbered page—use for filler

×