Maybe It’s Not About Knowing More After All

At least according to a shocking new study about financial health. First, a quick review from your high school or early college statistics class. Do you remember the term correlation? If not, here is a quick down and dirty definition for you: correlation is a calculated number that tells you how closely two separate variables are related. For example, you could reasonably assume that cloudy days are strongly correlated with rain showers. Got it?

Assumptions Gone Bad

So with that definition in mind, let’s look at your personal financial health. It will come to no surprise to you to learn that the most commonly held assumption is that more financial knowledge is strongly correlated with personal financial success. That certainly seems like a reasonable assumption does it not? Yet, like grandpa told you years ago when you assume you make an “ insert expletive here” out of “u” and “me.”

Much to the surprise of many in the personal financial advice industry, a new study shows that financial health is not so correlated with personal financial knowledge after all. Ooops! What the? How can that be? Well, you may want to sit down for this, but it here goes. It turns out that knowledge of personal finances is not enough. In fact, according to this report, not only must you be financially savvy, but you must also be aware of what is now being referred to as your time-personality.

Time Personality 

This study was performed by retired Stanford University Professor, Philip Zimbardo. All told, this investigation into personal financial behavior was actually pretty comprehensive involving some 3,000 people spread out over six countries. When the results were analyzed, they clearly showed that your time personality has a significant effect on how well you manage or mismanage your money as the case may be.

The study identified three distinct time personalities. The first such group is more past oriented. Interestingly, those that were identified with the past turned out to be financially healthier. The study explained this as the result of decisions and / or actions being based upon memories instead of merely focusing on current experiences. In other words, they are using what they learned before to make better decisions today. This group tends to take less risk and are less likely to face the threat of financial ruin. At the same time, since this group is so risk averse they may miss out on better opportunities to grow their wealth.

Next on the list is the time personality group that looks to today, that is those that were identified as being more concerned with what’s happening right now. You could even go so far as to label this group the hedonists. That is, this time personality group is more about feeling good right now. You ever notice those candy displays set up right there at the checkout counter? The hedonist time personality is more likely to fall for it than the other time personality types. In terms of personal finances, this group is more likely to make wild gambles with their savings, to spend money they don’t have and ignore the consequences of poor financial decisions.

Lastly, there is the future focused time personality group. This group has no problem with the idea of sacrificing current enjoyment for future gain. Yet, this is the very same group who is more likely to over-insure against future risks or even take faulty investment advice.

Now What? 

Begin with an understanding you now have a new tool at your disposal. Once you know your time personality type you or with your partner can work to make sure that the best financial decisions are made. At the same time, note that the information revealed above does not in fact negate the value of personal financial education. If anything, this information shows you where to focus your next actions.

Suppose you find out you are more future oriented but your spouse is more of a past oriented type personality. Although at first glance this might look like chaos, this could actually be the perfect match as one could play off of the other’s weakness and build off of the strengths.

Conclusion

The bottom line is this: understanding personal finances is but a piece of the puzzle. To see the whole picture, you may well want to figure out your own time personality.

What about You?

So what do you think? Does any of this ring true for you?

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  • […] At least according to a shocking new study about financial health. First, a quick review from your high school or early college statistics class. Do you remember the term correlation? If not, here is a quick down and dirty definition for you: correlation is a calculated number that tells you how closely two separate variables […]  […]

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