Personality Traits Affect Financial Decisions

Personality Traits Affect Financial Decisions
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Personality Traits Affect Financial Decisions
The link between personality and financial decision-making is expected in psychology literature. The basic premise is that the dynamic organization and combination of qualities and traits that constitute an individual’s unique character can affect how they make financial decisions. Personality traits have been proven to underlie behavior; hence, it is feasible that they can also sway one’s economic inclinations. Indeed, an individual’s psychological systems affect how they respond to the environment and cope with challenges and lifestyle issues. Some people react emotionally, while others respond rationally to situations. Similarly, some people avoid risks while others willingly engage in risky activities. These variations are closely linked to personality qualities. In this paper, the author documents how personality traits influence financial behaviors. The general argument is that personality traits such as openness, conscientiousness, extraversion, agreeableness, and neuroticism affect financial decisions by shaping how people spend, save, invest, and plan financial actions.
Today, the Big Five Personality Traits model is the most commonly cited theory that links personality traits to financial decision-making, which maintains that five major personality traits influence human behavior. They include openness, Conscientiousness, extraversion, agreeableness, and neuroticism. These personality dimensions shape how individuals make specific life choices and, consequently, how they manage their money and investments (Brown & Taylor, 2014). (Brown, & Taylor, K., 2014). Connections between the Big Five personality traits and financial decision-making range from risk-taking behaviors to economic preferences, investment choices, and debt-related decisions.
Each dimension of the Big Five model has a unique bearing on fiscal actions. Conscientious individuals are very disciplined, trustworthy, and actively involved in decision-making. Rather than being superstitious, they make investments selectively after reflecting on their options (Nga & Ken Yien, 2013) (Nga, & Ken Yien, L., 2013). On the other hand, people with extraverted personality traits possess high-powered, jolly, and hubristic behavior. Therefore, they tend to select short-term investments (Nga & Ken Yien, 2013). (Nga, & Ken Yien, L., 2013). Agreeable people are very cooperative and selfless in group gatherings and social settings. This makes them very good at producing fair and reasonable decisions (Priyadharshini, 2020). Due to instability in emotions and high-stress levels, neurotic people are very impulsive and moody. This affects their willingness to take financial risks. Additionally, their impulsiveness causes sudden spending and investing behaviors.
The Big Five personality traits are predictors of financial behavior for various reasons (Xu et al., 2015). First, being able to plan, work hard, and have intense urges and drive is a personality trait that is important in financial management. These qualities are found in conscientious people (Xu e...