It’s become a cliche for personal finance writers to repeat platitudes like “personal finance is personal.” While it is true that what is considered a “good” financial decision will be different for each person, most personal finance writers fail to help their readers understand how to make financial decisions tailored to their unique circumstances. They duck the hard work by slapping on another broad platitude like “make financial decisions based on your goals and preferences.” Personal finance is personal, and many struggle with money because they do not connect their financial decisions to their personality.
This article explores how extroverts, known for their outgoing nature, might encounter specific hurdles in their journey to financial well-being. Understanding the link between personality and financial tendencies can empower you to make informed decisions and cultivate wealth-building habits tailored to your unique strengths and weaknesses.
We’ll delve into research highlighting the potential pitfalls extroverts face, such as higher debt and lower investment rates, and provide actionable strategies for overcoming these challenges. By the end of this article, you’ll gain insights into how your personality traits can impact your financial outcomes and how to leverage this knowledge to achieve your financial goals.
The Relationship Between Wealth Accumulation and Personality Traits
A 2011 paper studied the relationship between the assets and debts of British citizens and their personality traits. The researchers studied thousands of people over 17 years to determine if certain personality traits were associated with better financial outcomes — more assets and less debt. They broke the data set into two categories: single people and couples. This provided interesting results because the psychology of a single person making financial decisions is much different than the differing psychology of two people who have to make joint financial decisions. Anyone who has had joint finances with another person knows how hard it can be to get on the same page regarding money.
The study suggests that certain personality traits can indeed influence financial behavior and outcomes. This highlights the importance of understanding your own personality and how it might affect your money management style. The next section will explore the specific challenges extroverts may face in building wealth.
Understanding these influences can empower individuals to make more conscious and effective financial decisions.
Extroverts Are Surprisingly Bad with Money
For single people, Extroverts had the most debt compared to any other personality trait. A one standard deviation increase in extroversion was associated with a 21.7% increase in consumer debt. For couples, extroversion had a negative correlation with asset holdings. The higher a couple scored on extroversion, the fewer assets they held relative to the average couple. Extroverts were also the least likely to invest in the stock market. This is particularly harmful in their ability to accumulate wealth in the long run, as high-risk assets like stocks also have the highest expected return on investment over the long run.
This research indicates that extroverts, despite their social advantages, may struggle with financial discipline. Their tendency to spend on social activities and experiences might contribute to higher debt and lower savings rates. This is something to keep in mind.
The key takeaway here is that awareness is the first step towards change. Extroverts can mitigate these challenges by consciously developing financial habits that counteract their natural tendencies.
The Impact of Agreeableness on Debt
For couples, the personality trait most associated with consumer debt was agreeableness — a personality trait associated with putting other people’s needs ahead of your own. A one standard deviation increase in agreeableness was associated with a 22% increase in consumer debt. Outgoing and energetic single people and couples that put other people’s needs ahead of their own were the two groups with the most debt. When framed in that way, it’s easy to imagine a young single person who loves to socialize, eat out, and travel and a middle-aged married couple who shoulder the financial burden of their children and elderly parents. The least surprising result is that the personality trait that had a negative correlation with consumer debt was conscientiousness, which describes people with a high-level of self-control. For single people, no personality trait was particularly associated with asset accumulation.
This shows that being agreeable, while a positive social trait, can lead to financial strain. The desire to please others and prioritize their needs can result in overspending and neglecting personal financial goals. This is especially relevant for couples, where joint financial decisions can be influenced by one partner’s agreeableness.
The study underscores the importance of balancing generosity with financial prudence. It is important to be kind and giving while being aware of your finances.
Practical Tips for Extroverts to Build Wealth
If you are an extrovert, take a deep breath. This study was correlational, not a causal study. We don’t know for sure that someone’s extroversion is causing poor financial decisions. Even if there is a causal relationship between extroversion and poor financial management, that does not condemn you to a bleak financial future. Not all extroverts are destined to rack up credit card debt or under-invest in stocks and other wealth-building assets.
Extroverts can implement several strategies to overcome their financial challenges. Creating a budget can help them to spend responsibly. Automating savings and investment contributions ensures that wealth-building occurs consistently, regardless of social spending habits. Seeking advice from a financial advisor can provide personalized guidance tailored to their specific personality and financial situation.
By taking proactive steps and developing sound financial habits, extroverts can harness their strengths and mitigate their weaknesses, ultimately achieving their financial goals.
The Takeaway
It is, however, useful to be aware of how your personality traits might impact your natural tendencies with money. But never forget you control your destiny. Think of it like someone who does a test and finds out their genetics make it more likely they will contract a certain medical condition. Increased odds do not equal certainty. In the same way, we make daily choices with our diet, exercise, and sleep habits to minimize the odds of negative health outcomes we can also create sound financial habits like tracking our spending and building a regular savings plan.
Understanding the interplay between personality and finances is crucial for building wealth. While extroverts might face unique challenges, they are not destined for financial failure. By acknowledging their tendencies and implementing strategies to counteract them, extroverts can achieve financial success.
Ultimately, building wealth is a journey that requires self-awareness, discipline, and a willingness to adapt. By embracing these principles, anyone can overcome their financial obstacles and achieve their long-term goals.
Leave a Reply