To keep things simple, we will look at them through the lens of three of our 20 financial-personality dimensions:
- Impulsivity – an investor’s tendency to make decisions emotionally and on the spur of the moment.
- Confidence – an investor’s confidence about their ability to make good financial decisions.
- Financial comfort – an investor's confidence in and satisfaction with their overall financial situation.
Imagine Amy and Bob are each sitting on surplus cash. What would work best to get each of them invested?
Amy has high impulsivity, high confidence, and low financial comfort. Amy is the most ‘Spock-like’ of the three, and therefore the easiest for most advisers to deal with. Her high impulsivity and low financial comfort means she sees a need for action, and if given good, conventional reasons to do so, thanks to her high confidence, she likely will.
A combination of high impulsivity, high confidence, and low financial comfort can be dangerous, because it can tempt people into reckless action on the back of misplaced hope in well-sold, but not well-evidenced promises.
Meanwhile Bob has low impulsivity, high confidence, and high financial comfort. Bob’s issue is likely to be that he is sitting too comfortably to begin. He can understand the benefits of investing his cash, has no great reason not to, but is always putting it off.
A sense of urgency is difficult to engineer, particularly for someone who is not impulsive. Bob finds immediate action uncomfortable; ‘later’ is a more compelling time to act than ‘now’.
However, just as we are more motivated to start the diet on Monday, or the exercise program in January, it is easier to commit our future self to discomfort, than to take it now.
Bob needs a pre-commitment strategy: to be guided through setting up a concrete plan of future investment actions (eg investing amount X at time Y). It is important Bob’s involved in its creation, he should have some control over the dates and investment amounts.
It is worth remembering here that financial comfort is an investor’s satisfaction with their overall financial situation.
On paper, Amy and Bob have identical financial situations, but they perceive them differently. It is in this perception – in a person’s participation with their financial situation, rather than in some artificial model of a supposed ‘objective’ state – that an individual’s personal financial experience has practical meaning.
Efforts to encourage clients to invest surplus cash tend to focus on calculations over comfort. Yet very few clients respond to the former without first having established the latter. Moreover, get the comfort right and the need for the calculations may simply disappear.
