During my last conversation on technology’s expanding role in financial advice with Joe Duran, the CEO and founding partner of United Capital, he said something that caught me a bit by surprise. Based on his company’s behavioral economics research, people typically fall into three categories when it comes to biases with money and are primarily driven by either fear, commitment or happiness. Joe calls them your Money Mind®, as illustrated below. What’s unexpected: Fear is the primary motivator for almost half of the surveyed, who tend to be too conservative with money and are afraid to spend it.
The findings are at odds with what I’ve often read: Americans spend beyond their means, borrow a ton and don’t save enough for retirement. The percentages are also fairly consistent across age groups and genders, as Joe explained it. But no matter the breakdown, it makes sense that knowing thyself is key to making sound and balanced financial decisions. Who you are determines how you approach money and financial matters. The more you understand yourself, the better you’d be at setting financial goals that are right for you.
Fear, on a quest for peace of mind
Protectors by nature, those with fear shaping their financial point of view are looking for security. They focus a lot on cost. According to United Capital, they are careful and deliberate in making financial decisions, often well prepared for the unexpected. Yet sometimes their cautious approach—agonizing over big decisions and afraid to take risks—makes them more prone to investing in ideas too late and selling off prematurely. “What could go wrong?” is a question they ask themselves a lot, keeping them up at night and pushing them to make personal sacrifices to maintain security. Interestingly though, most successful people are motivated by fear. At times it doesn’t matter how much success they’ve had, when it comes to retirement, it’s still hard to feel secure or satisfied.
Joe’s advice: Try to separate the irrational fears from the rational. Recognize that risks are inherent in every investment and need to be taken. Focus on what you can control. Take a vacation; you deserve it.
Commitment, looking after people
These givers are dedicated to the people or causes they love, and they tend to make financial choices to serve others while sometimes neglecting their own best interests. These commitment-focused people are loyal family, partners and friends, and in some ways, generous to a fault. Often relying too much on others when making financial decisions, they can be too easily convinced by those with strong opinions. Forgetting to consider personal consequences or not doing enough homework and planning for retirement is a common pitfall. Giving too much to dependents could lead to too much personal sacrifice.
Joe’s advice: Take responsibility and take an active role in planning for the future. Watch out for loved ones and yourself. Weight several viewpoints before making a decision.
Happiness, enjoy life today
Pleasure seekers at the core, those motivated by happiness are an optimistic group. In terms of finance, they are decisive and quick to identify investment opportunities, as data from United Capital shows. They enjoy life and living in the present, but as far as money, sometimes they tend to live beyond their means or take on too much debt. They can be too casual, not spending enough time to consider consequences or true costs of their decisions, and not paying enough attention to risks. Planning for retirement at times leaves them feeling frustrated.
Joe’s advice: Save more. Prepare for possible future challenges with a sound financial plan. Understand that not sacrificing a little now could mean sacrificing a lot later. Patience will pay off in the long run.
Hollie Fagan is the Head of BlackRock’s Registered Investment Advisor business.