Editor’s note: This article was first published in March 2012, in the wake of the financial crisis; the study it discusses is from around that time and the Forbes ranking it refers to is the 2012 list.
People often say that the ideal would be to see the future so we could change a few things in our lives and avoid those familiar phrases: “If I had known this… if only someone had told me that…” We can’t see the future, but we can let ourselves be guided by the experience of people whose finances already show the financial personality they carried through life.
We all fit into one of these financial personalities, although many of us may not know it yet. The insurance company Allianz carried out a study based on the wealth of the people surveyed and concluded that your wealth will match your financial personality. Here are the five types of financial personality, or financial mindset.
1. The overwhelmed, or anxious
This person is usually between 40 and 50 years old. They tend to have low but secure incomes, because what matters to them is putting in the years of work needed to retire in decent conditions. They start from the idea that a pension plan can be a good investment, which would show that people like this don’t understand much about finance.
These are probably the people hit hardest by the crisis, because the world they knew has been turned upside down: their plans have been wrecked, and they don’t have enough cash to meet their debts. A high percentage will need to cash in their pension plan and will run into obstacles when they try, so they will have learned an investing lesson (although too late for some). When you invest in a financial product, choose one that you can turn into cash if you need to. (62% of the study’s participants.)
See also: Got extra money? Pay off your debts or save and invest it
2. The iconic (chasing the American dream)
They are usually around 60. People in this group have worked very hard all their lives. They are not investors and don’t understand finance, but they love saving, so they have been frugal at every point in their lives. They have always lived within their means, without allowing themselves any luxuries. Their one idea in life has been to work, work, save and save, to try to build up enough capital to reach retirement without any financial upsets.
Once they reach the goal with this mindset, it may have been worth it for them, but… just like the first group, a recession can ruin their plans, because money loses value and they did not put their capital to work properly over all those years. (20% of the study’s participants.)
3. The smart ones
They are usually over 60, although not retired. This group knows about investing, to the point of not needing financial advisers, because they believe they know what they are doing. The problem with this group is that, while they do know how to manage money and invest it properly, they tend to be very busy, since they hold fairly important jobs in their companies. If all goes well, this group usually reaches retirement with quite healthy finances, because they earned a salary all their lives and knew how to invest it well. (10% of the study’s participants.)
4. The distracted
They are usually between 40 and 50. They tend to hold senior positions in good companies, so their salaries are well above average. They have no financial problems despite the huge amount of debt they take on. They can afford a luxury car, a house in an upmarket development, a nanny, private schools, even a chauffeur. They have no idea about finance, although they are aware that their money needs to be invested, so they leave it in the hands of advisers.
They are called the distracted because, when they draw up a real balance sheet of their accounts, they discover that they have actually been living beyond their means. They used to save whatever money was left over at the end of the month. The problem is that, as time went on, there came a point when nothing was left over. You could sum up this group with a familiar saying: “They lived like lords and retired like beggars.“
This group is often easy prey for unscrupulous financial advisers and banks. (7% of the study’s participants.)
5. The 1%
This group needs no introduction. They love business and finance. They run their own companies and are expert investors (some in business, others in the stock market, others in both). Their finances are so healthy that they could even bail out some countries. This group tends to appear in an annual ranking compiled by Forbes 🙂
There’s little we can say about this group that we haven’t said already. They are, quite simply… the 1%.
As conclusions from this financial personality analysis, all we want to show is that, whether or not we pursue the goal of becoming millionaires, and whether or not we become business owners, everyone should know how to manage their capital during their working years.
As Jerry Lynch, a contributor to this study, put it, it doesn’t matter whether you work for a company or for your own company. It isn’t about trying to become millionaires, but it is about getting a return on the money that costs us so much work to earn. For Lynch, wealth can only be achieved in three ways: coming from a rich family or winning the lottery; investing in property and/or the stock market; or running a business. And the truth is that he’s absolutely right, because there is no other way.
Further reading
- The secret of millionaires, told by millionaires
- The fisherman and the businessman: a worker’s mindset vs. an entrepreneur’s
- Jim Rohn: success was easy, but for others it was easier not to have it
Featured image: Flip Schulke, Public domain, via Wikimedia Commons.
