Conscientiousness appears to play a crucial role in money management and wealth accumulation, according to new psychology research published in Financial Planning Review. The findings provide evidence that individuals who are more diligent, organized, and hardworking tend to have higher levels of wealth, even after accounting for education and other factors.
The rationale behind this study was to examine the relationship between personality traits and an individual’s wealth, measured by factors such as property, savings and investments, and valuable physical items. The researchers aimed to explore the influence of personality traits on wealth accumulation beyond the well-established demographic factors of age, income, and education.
“I first became interested in the psychology of financial behavior when studying traders in investment banks, and discovered just how important personality and emotions were to trader performance,” said study author Mark Fenton-O’Creevy, a professor of organizational behavior at The Open University Business School and creator of the Emotional Finance blog.
“More recently I have conducted substantial research on consumer finance, with an especial interest in how personality, attitudes and emotions affect financial behavior. Much of my work is motivated by balancing the considerable amount of poor advise people get, especially via social media, with good research based insights into what matters.”
The researchers focused on the “Big Five” model of personality, a framework used to understand and measure people’s personalities based on five key traits. These traits are openness to experience (curiosity and open-mindedness), conscientiousness (organization and responsibility), extraversion (sociability and energy), agreeableness (cooperativeness and empathy), and neuroticism (emotional stability).
Each person falls somewhere on a spectrum for each trait, and these traits help describe how individuals differ from one another in terms of their preferences, behaviors, and emotions.
To conduct the study, the researchers conducted a secondary analysis of a U.K. sample derived from two existing datasets. The first survey provided measures of personality, while the second survey assessed attitudes towards money and provided data on wealth measures and demographic variables. The combined dataset included responses from 3,240 participants.
The researchers examined the correlations between personality traits, demographic variables, and the wealth measures of property, savings and investments, and physical items. They also conducted multivariate tests to determine the overall effect of the independent variables on wealth.
Older individuals with higher incomes tended to have greater wealth. Gender and education also showed modest but significant correlations with wealth.
Regarding personality traits, conscientiousness was consistently positively related to all three wealth measures, indicating that individuals who were more diligent and organized tended to have higher levels of wealth.
Surprisingly, conscientiousness had a higher correlation with wealth measures compared to gender or education. Although education had a positive and significant correlation with conscientiousness, the relationship was relatively low. This suggests that while education and conscientiousness both contribute to better-paying jobs, it is likely the latter that is associated with how money is invested and spent.
“We were somewhat surprised that personality came out as more important than level of education in wealth accumulation,” Fenton-O’Creevy told PsyPost. “Whilst education has important associations with income level, it may be that conscientiousness is more helpful in managing spending and care with savings and investment.”
On the other hand, neuroticism was negatively related to wealth, suggesting that individuals with higher levels of emotional volatility and anxiety tended to have lower levels of wealth. The data also suggested that neuroticism was negatively associated with work success, a major source of income. The unstable nature of neurotic individuals may hinder their ability to manage wealth effectively.
The study also found that extraversion had a modest but significant correlation with income. However, when it came to wealth, extraversion showed a modest but significant inverse relationship with savings and investments, but a positive relationship with wealth held in physical items. This finding suggests that extraverts may be more impulsive in their spending and make poor investment decisions.
The researchers also found mixed results for other personality traits. Agreeableness showed some associations with wealth but was less consistent. Openness had varied relationships with different aspects of financial behavior and outcomes.
The study’s findings have implications for financial planners, advisors, and government institutions. Understanding the relationship between personality and financial outcomes can help tailor financial advice and services to individuals’ needs.
“First, nobody should take from this that if you want to improve your financial situation, you should change your personality,” Fenton-O’Creevy explained. “Personality changes only very slowly across the life course. Rather, the insights form this study may help those offering financial advice to tailor their advice to the personality of their clients.
“So, for example whilst if a client is high on conscientiousness, that is helpful. However, for example, our results suggest that extrovert, agreeable clients who are low on conscientiousness may need additional support to make regular savings and extroverts may be more prone to impulsive spending on physical items reducing capacity to invest.”
“Clients who are high on agreeableness may be keen to balance taking care of their own financial future with providing help to others in their kinship and friendship networks,” Fenton-O’Creevy told PsyPost. “Their high trust may also make them more vulnerable to financial scams and more predatory financial products. Clients high in neuroticism may need greater support with managing the anxiety of investing in risk bearing assets and in managing the emotions induced by market volatility.”
Overall, the study provided insights into the influence of personality traits on wealth accumulation, highlighting the importance of conscientiousness and the potential negative impact of neuroticism. The findings contribute to the growing body of research exploring the role of psychological factors in financial behavior and wealth outcomes.
“Whilst this is only one study, the finding about the importance of conscientiousness seems to fit well with other research and the sample is fairly good,” Fenton-O’Creevy said. “However, a study like this is only a snapshot in time and it is hard to be sure if the associations we find are causal. For that you need to collect data on the same people over multiple years.”
“Our results add to a rather mixed picture of research results on personality and financial outcomes. Further research might usefully explore which contextual factors moderate these relationships, potentially explaining contrasting findings.”
The study, “Personality and wealth“, was authored by Mark Fenton-O’Creevy and Adrian Furnham.