There are a number of strategies you can make use of to find out what your “financial” personality is like, so that you can get out of debt and start learning some responsibility. Statistics show that household debt is skyrocketing, reaching new and new heights year after year. Consumer debt comprises around 30% of the total debt.

Market Principles vs. Individual Principles

We live in an age when supply is almost endless. We can buy practically anything we can imagine, and in wondrous variety at that. When you think of the traditional supply and demand graph, you would expect demand to plummet. Perhaps this can be seen as a challenge to the age-old economic principle. Not only is demand not plummeting, it is rising and rising and the state of debt testifies to this. It seems we want things so much that we no longer care that we can’t afford them. However, we should be careful when we assume that macroeconomic principles transfer to microeconomic ones. In other words, market principles do not always reflect individual ones.

Personality Balance Sheet

Experts advise debt-ridden consumers to create what they call a personality balance sheet. The idea is to make a list of your personality traits as they relate to your behaviour as a consumer and define them as advantageous or disadvantageous. What motivates most of your purchases? Granted, this is a difficult question to answer. There are many factors that motivate purchases apart from personality traits, such as age, sex, even location. Naturally people in sparsely populated areas will have a whole different set of criteria when it comes to purchasing goods or services compared to people from big cities.

How Commercials Influence Behavior

Before you can understand how your personality may be driving you into debt, you have to understand the psychology of advertising. What are producers actually going for when they advertise their products? You may have wondered how they possibly get returns on commercials, what with there being so many. Advertising’s main function is informative, true, but it also serves to educate. By advertising expensive luxury products, they work on your system of values, artificially creating demand for something costly and prestigious that you don’t need. If you are especially vulnerable to that sort of “propaganda”, as would be someone with low self-esteem who wants to be respected and admired, you’ll fall for this. You may take out a loan to get the latest BMW or Mercedes model instead of sticking with your trusted Volvo or Pontiac.

If you tend to be on the impulsive side, make sure you stay far from temptation. Take all your credit cards out of your wallet, do not go into stores if you don’t actually NEED anything, and even curb window-shopping. This is not going too far. Do you want to get out of debt or don’t you?

Main Money Personality Types

According to experts, there are several money personality types – the spender, hoarder, avoider, and amasser.

Spenders tend to buy on impulse and buy things they don’t need, whether jewelry, groceries, or anything else. They find it difficult to prioritize and save for a rainy day. Spenders are often knee-deep in debt.
Hoarders, on the other hand, usually have a budget and prioritize their purchases and long-term and short-term financial goals. For hoarders spending on travel, dining out, magazine subscriptions, and entertainment is a waste of money (and time). Hoarders usually have an emergency fund and prefer to save for college education, retirement, or just in case.
The avoider tends to put off things like paying bills on time or doing taxes. He has a hard time saving, planning, budgeting, and dealing with financial matters. This money personality type has a nonchalant attitude towards financial planning and things like retirement income, investment, or insurance. If you are an avoider, it is a good idea to talk to a professional to get in control of your financial life. Always shop with a list, create a budget, and stick to it.
The amasser is a different story – for him money means power and enhanced self-esteem. Lack of money, on the other hand, may result in depression and poor self-esteem and feelings of worthlessness and failure. The money monk is the exact opposite, feeling that money and consumption are the root of all evil. A steady paycheck or inheritance money will actually make him feel insecure.

There are three more personality types – the flyer, security seeker, and risk taker. The risk taker, for example, tends to make risky investments such as real estate investment trusts, options, currency trading, and high yield bonds. Risk takers aren’t too worried about financial matters and details. They actually get excited about potential returns, risk, and possibility. Security seekers, on the other hand, prefer low-risk investments such as bonds, savings accounts, and certificates of deposit. They like to be prepared for anything, be it a natural disaster, depression, or apocalypse and humankind vanishing from the Earth. Security seekers usually have an emergency fund for a rainy day. For them, life is about careful planning, budgeting, and saving for the future. The flyer also has a distinct way of thinking. He feels content and happy with life as it is. The flyer has a nonchalant attitude toward financial matters and as long as he is independent, free, and making his own choices, that’s all that matters.

A Final Word to the Wise

At its core, consumption is a social habit. We buy what others buy or encourage us to buy, even though we may not realize it. It follows that you should surround yourself with positive people who realize that there is more to life than shopping.

Why Save Money

It is a good idea to have an emergency fund to meet unexpected expenses and pay for basic necessities in case of loss of income or loss of employment. At the same time, the decision to save or not also depends on the current economic situation. When rates are at historic lows, which is the current situation, savers are literally punished and pay to keep money in their checking and savings accounts. At the same time, inflation is eating away their savings and many choose to keep their money under the mattress.

Is Borrowing Better Than Saving

Again, this depends on the current economic situation and interest rates. In some cases, taking out a low rate loan is a cost effective solution and more people can afford to borrow. They have more cash to spend on everyday and big-ticket purchases and improved purchasing power results in higher inflation and economic growth. The recent drop in oil and gasoline prices is one of the main reasons for the current state of affairs. When the pace of inflation eases over a longer period and interest rates are still low, this is a good time to borrow at a low cost.

Is It Always Good to Have an Emergency Fund

This depends on your income level, whether you have additional sources of income, number of children and household members, your age and short- and long-term financial goals, retirement goals, and other factors. There are some arguments against having an emergency fund, and one is that most financial institutions which advertise savings accounts offer a low rate of return. In this case, having an emergency fund is a particularly bad idea if you hold multiple, high-interest debts. Debt balances sitting at 15, 20, or 30 percent will cost you dearly, regardless of the earn rate on your savings account. Holding cash in a savings account may make sense but this depends on the amount deposited, the earn rate, and the state of the economy. Many consumers opt for a savings account because of the fact that this is a liquid, low-risk product. There are other ways to invest free cash such as bonds, stocks, certificates of deposit, money market accounts and riskier investment strategies such as Forex trading. In general, consumers save money to meet unforeseen expenses, pay for home and car repairs, and other major repairs. It is also a good idea to have an emergency fund in case of a sudden job loss due to an accident or another unfortunate event. Many people save for retirement, but there are better ways to grow your money than opening a savings account. Some people also use their emergency fund to pay for vacations and to make a down payment for a vehicle or house but again, this depends on inflationary pressures and rates and this is not what emergency funds are meant for.

How to Make Sure Your Savings Are Not Eaten Away by Inflation

There is no straightforward answer to this question but basic investing tips can be of help. When inflation is high, your savings are menaced because interest rates are also low. Unless you are offered a high-interest savings account, the purchasing power of your money is steadily declining. One way to protect your savings against inflation is to take more risk with the goal of getting higher returns. Financial advisers recommend investment strategies that are medium-risk and bring higher returns. One option is to invest in inflation-bearing bonds and the best part is that you benefit from tax-free returns. The rate also increases over time. Another option is to invest in stock but this is a riskier solution for seasoned investors. You may want to look at alternatives, for example, stock and shares ISA which is one way to secure income from shares and stock. It is also a relatively safe investment vehicle that brings inflation-beating returns. Basically, this is a type of ISA that allows some degree of flexibility. The returns depend on the types of investments customers choose to buy. Some businesses pay regular dividends and offer the opportunity to get decent returns. There are other investment vehicles such as annuities, mutual funds, commodities, equity, and others. Other options to protect your savings against inflation include money market mutual funds, savings bonds, corporate stocks and bonds, state-sponsored tuition plans, and education IRAs. You can also look into investment vehicles such as treasury notes, bills, and other securities and exchange-traded funds.

Conclusion

Whether it is a good idea to save or borrow depends on many factors, including your personal and financial circumstances and the state of the economy and global financial trends. One way to protect your savings when inflation is high is to use different investment strategies such as dollar cost averaging, portfolio diversification, and allocation of investments. Some investment instruments are safe and low-risk but bring low returns. They are also more liquid meaning that customers are allowed to withdraw their money without penalty and at any time. Other instruments are riskier or less liquid and offer higher returns. Whether it is a good idea to save depends on your financial goals, i.e. early retirement, buying a new vehicle, a college fund for your kids, and so on. Think of your mid-term and short-term goals as well (holiday purchases, travel, paying off debt faster, etc.) Saving can also help become financial independent and live a stress-free life.

Money and Motivation: Is Your Consumer Behaviour Driving You into Debt?