Are You Hardwired for Big Money Mistakes?

By A. Andrew Raub

Why does one person insist on balancing her checkbook to the penny every month and tracking her budget precisely, while her friend has no concept of a budget and assumes that if she has checks left, she has money in the bank? Why does one investor fill his portfolio with stocks from hot tips, and another spends hours pouring over investment research? Why would one family find it easy to give to any cause that tugs on their heartstrings while another gives almost grudgingly? Is it possible that we are “hardwired” to react to money in a certain way? Temperament and personality studies say yes - we are built with certain predisposed responses based upon our individual temperaments.

We are unique, and many of our characteristics cannot be changed, just managed. We were all born with inherited temperament traits - our own set of raw materials. Slowly, as we grew, these traits were colored by our life experiences. Parents, home life, school experiences, career choices and so on shaped and chiseled us into unique individuals. Our basic makeup didn’t change, but our shapes were altered. Yet, our fundamental temperament traits remained intact and affect how we interact with the world around us.

The theory of temperament traits dates back to Hippocrates, the father of modern medicine. In the twentieth century, psychologists began again to embrace temperament theory as an accurate way to help people discover their strengths and weaknesses in decision-making and communication. In 1928, William Marston introduced the DISC profile that we will examine here. Other work followed, including the well-known Myers-Briggs assessment and most recently, Keirsey and Bates’ work on temperament theory in their book, Please Understand Me.

The four temperament categories are based on the core needs that drive each of us. These needs affect all our decisions, actions and reactions, and our life goals. The four temperament styles are: Dominant, Influencing, Steady, and Conscientious. Of course, these temperaments rarely occur as extremely as in the following examples. Most people are a mixture of two or more of the temperaments with one being stronger than the others. Let’s look at how each of these four major styles operate and examine their financial management implications.

Get Moving with the Powerful D

Dave Dominant is a driver and doer—he gets things done his way. He tends to live at the edge of his income and may put large amounts of money at risk to finance his latest idea. Because Dave is often unwilling to listen to advice and has a strong sense of self confidence, he may sabotage his own dreams by taking unwise risks and amassing too much debt. His greatest fear is loss of control.

Have Fun with the Popular I

Isabel Influencer is outgoing, talkative, generous and very impulsive. She thinks she can always wring one more monthly payment out of her paycheck, resulting in mounting debt. Because she doesn’t keep records, she has no idea of how much she is spending. Isabel’s desire to be liked can lead to showy purchases and impulse buys. Her biggest fear is rejection by others.

Relax with the Peaceful S

Sam Steady is patient and dependable. His trusting nature makes him an easy target, and he does not willingly take risks. Because of his resistance to change, Sam may stay in a negative situation too long before taking action. He is also a slow decision maker and tends to make more traditional investments. He fears conflict and confrontation more than anything.

Get Organized with the Perfect C

Carol Conscientious is organized, analytical, and the consummate planner—she always knows the state of her finances. Carol rarely gets into financial trouble because she is thrifty and cautious, but she may splurge to get the best because she is a perfectionist. If she experiences a financial failure, it may be because of excessive caution, procrastination, or difficulty handling sudden changes. Her greatest fear is being incorrect or unprepared.

The Pressure Cooker

Each temperament has unique strengths and weaknesses, and therefore unique responses to pressure and stress as well. As we’ve discussed before, managing finances is an emotional and stressful undertaking. That pressure can magnify a personality’s extremes. A trait’s greatest strength can become a liability when out of control.

The D’s unique strength is to create action. So, when under stress, D’s will often create action and confrontation when none is required. They will insist on doing things their own way and often refuse wisdom from others.

The I’s greatest strength is to articulate his or her thoughts and interact with others. But, when stress hits, emotional I’s respond by talking and expressing opinions before gathering facts. Much like D’s, they tend to think they can take control and solve the problem.

The S’s unique strength is follow through and maintaining the status quo. Yet when stress comes, they may retreat into a mode of non-confrontation to avoid the problem all together. Procrastination and fear can become their worst enemy as they seek to hide.

The C’s greatest strength is to analyze and validate information. So, in times of stress and change, C’s become caught up in paralysis by analysis - spending time trying to analyze their way out. Much like the S, the C’s need help moving to action.

The Meaning of It All

Now what? How can you put this new understanding of your money personalities to work? In my opinion, you can draw three basic conclusions:

First, you need to realize that like everyone else, your built-in tendencies make you unique, and you tend to act and react based on your uniqueness. Yet, we usually view the world through our own set of lenses and find it difficult to believe everyone else is not like us. Try to identify the money personalities of those close to you to better understand any potential areas of conflict.

Second, stressful situations either magnify or nullify each temperament’s strengths and weaknesses. These unique reactions affect how you make decisions about money and investments. If you can understand your decision-making process better, you can also increase your chances of making better choices.

Third, weaknesses you might have discovered are opportunities for improvement. Instead of succumbing to some of the more negative aspects of your money personality, you can counteract these tendencies by teaming up with a spouse, friend or advisor and preparing a written money plan.

So - how are you hardwired? And, what will you do with your uniqueness to make you more successful in future money decisions?