The Real Reason Why You're Bad With Money

Hint: It’s not because you’re dumb, lazy or naïve.
October 11, 2018, 1:00pm
An image of two people smiling and hugging next to an image of a hand holding several pennies
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“Pay yourself first” is a popular mantra among personal finance gurus. It means stashing some money away in savings before you pay the landlord or take your friend out for lunch. And it makes perfect sense considering that few of us are saving enough money in the first place.

Unfortunately, in many cases this advice falls on deaf ears. That’s because some people’s financial decisions are driven less by the perceived benefits of a fat bank account than by how much they can help others around them. These people have a higher degree of the personality trait known as agreeableness, meaning they are more likely to be altruistic, kind, and trustworthy than the rest of us. Agreeable people make great friends, but they’re also more likely to be bad with money.

Photo by Stocksy / David Smart

“Agreeable people are much more likely to pay for your lunch,” said Sandra Matz, a professor at Columbia Business School and lead author of a new study out today in the Journal of Personality and Social Psychology that sheds light on why some people are better with their money than others. “Because they care less about money, they are more prone to money mismanagement.”

Nice people are bad at saving money

The study found that “agreeableness is negatively related to savings,” adding that “this relationship might be partly mediated by the fact that agreeable people assign less value to money than do their disagreeable counterparts.” The authors reached their conclusions by analyzing data from more than three million people via online panels, surveys, bank account data, and other publicly available information in the United States and United Kingdom.

Previous studies have found a link between high levels of agreeableness and lower income and credit scores. The thinking has been that agreeable people make less money because they don’t want to make waves by demanding more money, and their credit scores suffer because they are more likely to help others out in a jam—to their own detriment.

The new study looked specifically at savings rates, debt, and the likelihood of falling behind on financial commitments. It found that agreeable people tend to save less than those with other dominant personality traits—including conscientiousness, extraversion, neuroticism, and openness to experience. It’s unclear, however, whether agreeable people are more likely to have debt than other personality types. “The results for debt are more inconclusive than the others. We sometimes find the relationship, and sometimes we don't,” said Matz. “What we still see is that it mostly affects agreeable people with low incomes.”

Income also plays a big role in the likelihood of defaulting on financial commitments, with agreeable people in higher income brackets less likely to do so than those in lower ones. “Higher levels of agreeableness are more strongly associated with higher bankruptcy rates for those living in areas with lower average incomes, compared with those areas populated by individuals with higher average incomes,” the authors wrote.

Changing how you think about money

So how do agreeable people keep from falling behind their more selfish friends? One way may be to focus more on how getting your finances in order will help you provide for your loved ones. That’s because agreeable people are much more likely to help others before attending to their own needs. According to a 2016 study published in the Personality and Social Psychology Bulletin, “agreeableness was the dimension of personality most closely associated with emotional reactions to victims in need of help, and subsequent decisions to help those individuals.”

Perhaps the main takeaway from the study is that people relate to money differently depending on their personality type. “We can’t talk to everybody in the same way,” said Matz. “We have to think about how we can talk to people who don’t really care about money.”

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