Diana Clement: Understanding the psychology of money

Childhood experiences can influence your money personality. Photo / Thinkstock

Many a love match has failed thanks to irreconcilable financial differences. Yet partners with different money personalities can work well together if they know how.

Not everyone thinks the same about money. One Kiwi spilled the beans on Trade Me's forums about her husband, whose approach to money left his pregnant wife scrambling to pay the bills by selling off their belongings online. Jenniebee's story, which can be read at http://tinyurl.com/6ypb9ym, revealed two loving individuals who couldn't understand each other's approach to money.

Financial adviser Liz Koh became interested in the psychological side of money because she saw too many clients making little progress in creating wealth despite earning good incomes.

She belongs to the US-based Planner Therapist Alliance and uses the wisdom from that group to benefit her financial advisory clients - some of whom sound like they need the therapist's couch more than a planner's number-crunching.

Money mismatches aren't just about having a spender and a saver. Koh splits people into four different types: hoarders, achievers, entrepreneurs and thrill-seekers. They sit on two axes: risk-taking and desire to create wealth.

The entrepreneurs and the thrill-seekers are the risk-takers and the achievers and entrepreneurs are motivated by a desire to create wealth. Yet ironically the hoarders, who have lower risk appetites and desire to create wealth, sometimes end up being the wealthiest.

The fact is that achievers and thrill-seekers are less likely to walk through the door of Koh's financial advisory practice because they spend their income and more on keeping up with the Joneses or personal pleasures and don't have money to invest.

Hoarders and entrepreneurs often have money to invest, but have completely different approaches to creating wealth. One is looking for the big bang and the other is steady as she goes.

Often couples' arguments over money centre on one being right and the other being wrong - with the dominant personality pushing that he or she is right. There is no wrong money personality, however, says Koh. "It is not about right and wrong. It is about understanding the other person's perspective."

Koh has an interactive money personality test on her website: Moneymaxcoach.com. Until I wrote this article, I thought that money personality profilers were a bit fluffy. I've changed my mind and have decided that any tool that helps people understand their interaction with money is useful.

Claire Matthews, director of financial planning at Massey University, recommends that financial advisers get their clients to use a money personality profiling tool such as the one at Sorted.org.nz. "That one asks 25 questions about different money-related issues. It gives [clients] a description of how they might behave and what the issues around money are [for them]. It also allows the adviser to understand their clients," says Matthews.

Money personalities can be influenced by childhood experiences. One couple I spoke to on the condition of anonymity had difficult childhoods that had translated into reasonably extreme money behaviour. One learned from her childhood that it was down to her to provide what she wanted, which was translated into buying first sweets, then consumer goods.

The other had learned to save every cent and worried that her partner would spend all the money and they'd end up being bag ladies in their old age. They resolved to be honest about spending, but to have separate finances.

I decided for this article to spread my net wide and contacted a number of professional organisations looking for budget advisers, financial planners, as well as academics who had an interest in personal finance and psychology.

Retired stockbroker Simon Tierney, who is now manager of the Jubilee Budget Advisory Service in Invercargill, responded. He estimates that more than half of the couples that come into his service are financially mismatched.

He made the good point that opposites can balance each other out. A spender can teach a saver to enjoy life, and vice versa, provided they are working in unison, not as two completely separate individuals.

Conversely, two of the same type of money personality can drag each other down. Koh often sees older couples where both are hoarders. While they have lots of money saved, they haven't necessarily enjoyed their lives.

These money personalities also reflect the wider relationship differences. Someone on the higher end of the risk scale may be happy with their children going to an outdoors camp or learning to ride a motorcycle, whereas the achievers or hoarders at the lower end of the risk scale may baulk at the mere idea of it. Think of the poor children who are mismatched with his or her parents, like Saffy, the hoarder daughter of thrill-seeker Edina in Absolutely Fabulous.

What matters with a mismatched couple is finding a balance. Koh remembers one couple where he was obsessed with saving for their retirement and his wife, an achiever, was desperate to have a new kitchen. "They had no mortgage and had money to invest [but] he was too worried about spending all that money." Koh created a retirement plan. The couple then agreed to a budget, which allowed them to save for the kitchen within their overall plan. Both were happy with that approach.

The antidote to mismatched money personalities is to set up a conference where the husband and wife lay everything on the table and work out joint goals and a spending plan involving compromises. "Providing they stick with it, and there are no arguments, they should achieve their goals," says Koh.

The spending plan will often involve splitting income into several categories, leaving both parties a sum of pocket money for their own spending. If the system is then followed, both parties are happy.

Dealing with mismatched money personalities requires both parties to want to sort the issue out. Jill Porter, who is a financial recovery counsellor at Clarity Financial, sees clients who have been sent to her by a partner, but can't see a problem. One "society" client who was happy to spend $5000 on a pair of boots couldn't understand why her husband thought she had a spending problem. Clients who don't want to be there simply sabotage the process, Porter adds.

Understanding their personality isn't enough for some people. Porter went through her own journey when she accepted that she was a shopaholic. She completed a "Money Autobiography" through the US-based Financial Recovery Institute, which helped her understand where her money behaviour had come from. The autobiography goes right through life looking at where money attitudes orginated and how they relate to current financial patterns.

Kiwis don't like to be told that they need psychological help, although Matthews says it is a financial adviser's duty to tell clients that.

Risk tolerances and investing are also a problem for mismatched couples. Once the couple has accumulated money to invest, one may believe that equities are the only way to go, while the other can only sleep at night if the money is on a term deposit.

A financial adviser will run risk-tolerance tests on husband and wife. In some cases, it may mean taking a conservative approach to investing the bulk of the money, but allowing the risk-taker some white-knuckle investments to satisfy his or her yearnings.

There are some instances where it might be worth each partner having a separate investment portfolio or separate money - providing they realise that overall it's both of their money when it comes to retirement (or business failure).