People are not rational beings. Some of us like to think we are. People who don't think they make emotional decisions are just as likely to make them. Since they are not aware, there is even more risk. We cannot help but be driven by our emotions, and if we ignore them instead of embracing them, we create more significant risks. Financial professionals who aren't digging deeper into client behaviour could be missing the opportunity to connect with their client’s Money Mindset.
In Dalbar's 2021 annual Quantitative Analysis of Investor Behaviour report, they concluded that investment results depend more on investor behaviour than on fund performance. Considering the impact of client behaviour on financial performance, it only makes sense for financial professionals to invest more time in understanding the behaviours and mindsets that drive clients.
We've observed seven distinct Money Mindsets around spending, saving, borrowing and investing. Ten years ago, we launched our Money Mindset Quiz to allow anyone to uncover their financial tendencies and learn how to work with them. Thousands of people take our Money Mindset Quiz every year. We continue to hear from people that their results accurately reflect their tendencies when making various financial decisions.
The mindsets are based on a control scale. They range from the most controlling financial tendencies to the least controlling. None of the mindsets is better than the other, meaning that none are good or bad. They just are. They all have good attributes that clients can be encouraged to embrace, and each of them has characteristics that can increase their chances of financial mistakes.
Check out the Money Mindset Quiz now to uncover your Money Mindset (don’t forget to click to get the free eBook once you’re done). Then, read the description of each of the mindsets below.
The Brick Wall
This mindset loves to research. These people are skeptical, make careful and measured decisions, and are generally confident and practical. The trait that helps people with this mindset be financially successful is their tendency to think before they act. The most considerable risk for these people is the belief that they don’t make emotional decisions when, in fact, they do, just like any other human being. This lack of awareness, or willingness to accept that emotion plays a role in their choices and makes them more susceptible to mistakes.
This mindset has a bias towards saving. These people like to feel safe and will work hard to maintain that security. They are risk-averse, and don’t tend to be frivolous spenders. The most powerful trait for people with this mindset is the commitment to saving. However, the overwhelming need to feel safe and secure doesn’t always mean they have savings or security. People with a bunker mindset can find themselves without savings, just like anyone else. Their biggest risk is the paralyzing anxiety that can set in when they don’t feel financially safe, or if they have to make a decision and none of their options seem safe enough.
This mindset is brilliant at setting perspective. These people are great at multitasking and making others feel supported. They value experiences over things, and are prone to living for today, even if they don’t have enough saved for tomorrow. They can make an intelligent argument to support just about any decision. The biggest risk for people with this mindset is their lack of ability to prioritize. They can sometimes make everything a priority, which ultimately means that nothing is a priority.
This mindset is driven and excited about life and all of its possibilities. These people feel like they can do anything they set their mind to, and they are usually right. They have a bias towards action and are often quite entrepreneurial. They value progress over security, and tend to juggle too many goals at once. These people have their heads in the clouds, and sometimes need some help keeping their feet on the ground. The biggest risk for people with this mindset is biting off more than they can chew.
The Undercover Agent
This mindset is very private. These people don’t like anyone in their business that doesn’t have to be. From a high-level look at their lifestyle, it would be hard to tell where all of their money goes. They are guarded and careful about sharing their personal financial information. These people value experiences over things. Their greatest risk is their tendency to spread all of their financial accounts across many institutions and advisors. They do it to avoid the discomfort of any one individual or organization being their sole source of products or advice. Unfortunately, this behaviour creates a lot of risk and can mean they get bad advice because no one knows their whole picture.
This mindset is focused on reputation and lifestyle. These people don’t get too caught up about being in debt, as long as they feel they can afford it and they are living the way they want. These people are confident, charming and usually quite accomplished. They tend to value things and status over experiences. The most significant risk for people with this mindset is their tendency to gloss over the details, and that can lead to accidental overspending and overleveraging of their cash flow.
This mindset is kind and loyal. These people don’t like dealing with the details of their personal finances. Given the opportunity to avoid it, they will. These people are trusting and prefer to have someone to work through financial options with, rather than doing it on their own. The most critical issue for people with this mindset is caused by their reliance on support from others when making financial decisions, as they can be susceptible to manipulation.
Knowing your own Money Mindset isn’t only helpful to individuals. When professionals know both their own and their clients’ mindsets, it can make it easier to build long-lasting relationships and help clients reach their financial goals. Above, the Money Mindsets are listed in order of most controlling (The Brick Wall) to least controlling (The Optimist). Professionals may find it more challenging to work with clients who are far apart from their own mindset. It’s not impossible, of course, but opposite mindsets can make establishing an impactful client relationship more difficult. Spouses and partners may also find it more challenging to collaborate and cooperate on personal finance matters if their other half is on the other end of the control scale from them.
It can be a challenge to figure out how to help your clients manage their Money Mindset to make the most of the advice you provide. For practical strategies to support your clients in making meaningful financial change no matter their Money Mindset, watch our webinar: Understanding your client’s Money Mindset.
Free eBook available!
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CacheFlo is a financial education company that builds eLearning and tools to help financial professionals and individuals make behaviour-based changes, which allows them to get more life from their money. We want to make it easier for people to predict the impact of their financial choices before they make them.
About the Certified Cash Flow Specialist (CCS) program
CCS professionals go through enhanced cash flow-based training to develop the skill set to deliver behaviour-based cash flow advice. They start the financial planning process with a cash flow plan to genuinely help their clients get more life from their money.
Coleman, M., (Apr 19, 2021). Dalbar QAIB: Investors are Still Their Own Worst Enemies. Ifa.com URL