Finances FYI Presented by JPMorgan Chase
Where did you first store your money as a child? Was it in a piggy bank, a dresser drawer, or a bank account set up by your parents? As adults, we have many more options on where our money sleeps at night. What feels like logical choices for safekeeping our cash could result from our money personalities.
Ready to learn how your money personality impacts how you save money?
Common Money Personality Types
Here are some common money personality types and where they likely keep their extra money.
Avoiders
Money avoiders ignore or shy away from dealing with their finances. They don’t check account balances, often pay bills late, and refuse to engage in money conversations. This is typically due to fear of money stress, guilt about their current economic situation, or a lack of financial understanding.
Taking the path of least resistance, avoiders will likely keep most of their money in their checking account or lying around their house. Their lack of knowledge and confidence means they may miss opportunities to earn interest or build wealth through investments. In many ways, they still behave like children with limited options and think the “piggy bank” is their only option. Instead of making proactive decisions, they live as if waiting for an adult to come along and make money decisions for them.
Worriers
Unlike avoiders, worriers think about money constantly. They are overly cautious about spending money or putting their finances at risk. Fear of losing money or not having enough may cause indecision or over-the-top risk aversion.
For worriers, the amount of money they have is somewhat irrelevant. While some may be currently experiencing economic hardships, often the worrying comes from their childhood or past situations that are no longer the case. Even after they have built up significant savings, they continue to be concerned about spending too much money. Worriers may feel safer having money in a traditional savings account, believe that investing is too risky, and miss out on higher earning opportunities. Some extreme worriers may even fear traditional banks and remain unbanked, keeping their money under the mattress or in tangible assets like gold.
Optimizers
Optimizers focus on making their money work for them. They enjoy monitoring and tracking their money and will typically put as much money as possible into investments to capitalize on the effect of long-term compounding interest. Optimizers are unlikely to try risky investments, but their tendencies toward making the most money possible could lead to attempting to win the market.
According to an article in SmartAsset, “Active investors look to outperform a specific stock index or the market as a whole.”
Actively investing or day trading requires deep market knowledge, analysis, and discipline. And, all that effort may not be worth it as studies suggest that “only 1%-3% day traders are able to consistently outperform the stock market.”
Gamblers
People with a gambler money personality seek the thrill of a quick windfall. The allure of get-rich-quick schemes often seduces them to make risky investments. These money types are usually big spenders who rack up debt because they are overly confident that more money is just around the corner.
Many gamblers get into day trading, enjoying the excitement of potential big wins. They are also likely to invest in the latest and greatest high-risk options on the market, like cryptocurrency, initial public offerings (IPOs), or currency trading.
Status Seekers
For status seekers, it is more important for their wealth to be visible than for their bank account to be full. They base their self-worth on their material possessions and seek validation and admiration from others.
Status seekers will likely invest in collectibles like vintage cars, artwork, furniture, or jewelry. They plan to sell their treasures at a profit, donate them to a local museum or charity, or pass them down as an inheritance. However, these items can be costly to maintain and insure. They may also decline in value since the worth is subjective and can change over time.
Security First, Personality-Indulging Last
All of us can fall into one or two of these buckets that lead to poor decisions regarding our savings. So, what is the best course of action? Address your money personality tendencies by identifying what is working well and what could cause harm to your financial well-being.
Financial experts agree that you should have three to six months of expenses in a savings account in case of an emergency like a job loss, accident, or illness, as well as invest 10-15 % of your pay in a retirement account. After that, if you need to indulge your money personality, you can take some of what is left after you pay your bills to build up an extra cushion, try out some riskier investments, or buy that collectible your neighbors will ogle at.
Finances FYI is presented by JPMorgan Chase. JPMorgan Chase is making a $30 billion commitment over the next five years to address some of the largest drivers of the racial wealth divide.
