Different personalities spend and invest differently.

When it comes to finance and investment, most people tend to think of the environment or economic and social factors that affect the value of money or the value of private stocks. Although economic factors have a significant impact on the capital market, the behavior of each investor has a joint effect on the value and amount of investment in various assets. After studying in detail in a field called behavioral economics, it was found that human decisions depend on many other factors, both seemingly reasonable and often contradictory.

There are many internal and external factors that affect a person's financial behavior, one of which is personality, which is a pattern of human thoughts, emotions, motivations, and behaviors that are relatively permanent or difficult to change. Personality can take many forms.

There are many personality models that have been studied in the past, starting from using personality models to diagnose mental disorders to personnel selection. The most popular model with research evidence to support the study of personality in academic work is the five-factor personality model, which consists of five personality dimensions that each person will have different amounts, including:

• Openness to experience
• Conscientiousness
• Extraversion
• Agreeableness
• Emotional stability

Researchers who study financial behavior, which refers to actions related to money from spending, saving, investing, and planning, believe that personality is one of the many reasons why people have different financial behaviors.

The research results of Gokhan Ozer and Ummuhan Mutlu in 2019, with a sample of Turkish respondents, found that conscientiousness was the personality trait that caused people to behave financially the most, followed by agreeableness and openness to experience. Emotional stability and extraversion had no effect on financial behavior.

Teerapong Pinjisakikool's research from Silpakorn University in 2018 used data from the 2005 Netherlands Census to study and found that financial behaviors such as financial risk tolerance were positively correlated with extraversion and openness to experience and negatively correlated with conscientiousness, agreeableness, and emotional stability.

The ratio of investment in bonds and mutual funds was negatively correlated with extraversion only after the effect of risk tolerance was removed.

The equity ratio was negatively correlated with emotional stability.

The saving ratio was not found to be related to any personality trait.

The results of both studies help to show that different personalities lead to different financial behaviors. The research results will be useful for investment advisors to provide advice on different types of investments to investors according to their personality. At the same time, investors may be able to learn about the investment style that is right for them after taking an assessment and learning about their personality, so that the investment can be as desired as possible.

References

Ozer, G., & Mutlu, U. (2019). The effects of personality traits on financial behaviour. Journal of Business Economics and Finance, 8(3), 155-164.

Pinjisakikool, T. (2018). The influence of personality traits on households’ financial risk tolerance and financial behaviour. Journal of Interdisciplinary Economics, 30(1), 32-54.