Why consumers have such complicated spending and saving habits - Sarah Coles

Considering money personality types can feel about as useful as those ridiculous personal-detail-harvesting apps that ask banal questions about food or holidays and then declare you’re a bulldog, or a sunflower, or a cup of tea. However, bear with me, because if we know the traits we have, and why, it can help us make better financial decisions. The number of money personalities there are to choose from will depend on the expert you ask, but there are five types that regularly emerge. Unsurprisingly ‘spenders’ is one of them. They may tend to overspend, spend on impulse, and buy things they can’t afford. They might also live with regrets about spending too much, and face debts as a result.

There are all sorts of reasons that we might spend too much. Sometimes it’s because it feels good to spend and we’re hooked on the endorphins. This may be why we spend to ‘reward’ ourselves after a tough day at work. Alternatively, it might be about what we buy, and a need to own the best of everything from fashion to property so we can feel proud of what we’ve accumulated. We might be salving our insecurities, and shopping so we feel better about ourselves. Or we might spend too much treating others, because we’ve tied up our sense of self-worth with making other people feel good.

Emotional reasons for spending will always fall short of achieving what we want. Instead, we need to look at the root cause, and separate that from our spending decisions. We then need to establish a structure to control emotional spending – which forces us to draw up a budget.

There are no surprises for guessing that ‘savers’ are the second personality type. They might be frugal supersavers, coupon-clippers and yellow-sticker hunters. They might struggle to part with money, even for things they really need. They may also have amassed savings, but are too worried about risk to invest. It’s fairly common for people in this position to turn a blind eye to the fact they’re losing money after inflation in savings accounts. There may well be very sound and sensible reasons for becoming a committed saver – especially if you’re living on a lower income. However, if it means you’re not buying things you need and can afford, or it stops you from doing sensible things like investing for the future, then it’s worth exploring why you’re doing it. It may owe something to how tight money was at a particular point in your life – especially if there was a shortage of cash growing up. You may also be following – or rejecting – the approach of your parents.

If you’re hoarding for emotional reasons, you can put things in place to override your traits. You might automate payments into investments or pensions, so you take the right amount of risk without having to focus on it. You might split your savings into pots and name them after the things you need – so you have a holiday fund and a new car fund, which gives you permission to spend on the things you need.

The third personality type is the ‘hurriers’. They’re sometimes called gamblers, because this group is far more likely to try to get rich quick by opting for risky investments. Unfortunately, it can mean making poor investment decisions and making big losses – something that hits the hurriers hard. People tend to assume hurriers are impatient or greedy, but while this may be the case for some, for others it’s driven by desperation or hopelessness, because they can’t see any other way of meeting their life goals.

These emotions are perfectly understandable, but we know from our research that taking too much risk will tend to work against people. We need to take the right amount of risk. The answer is to commit to regular savings and investments into a more diverse set of investments, and make a date to check your performance no more than once a month – so your investments have an opportunity to grow gradually over time.

The fourth type is the avoiders – who don’t engage with money matters at all. This can land you in an awful lot of trouble, from overspending to missing bills and running up debts. You might not have the savings you need, and you may not be putting money aside for later in life. The root causes are as varied as the human race. Some people have horrible memories of being bad at maths, some have given themselves permission not to engage because it’s not interesting enough. Some are too afraid – and every terrible consequence of being in the dark puts them off even more. Some have simply handed it over to someone else in their life, on the grounds it’s too much to think about.

If this is you, the first steps are the hardest, because you need to work out where you stand, get to grips with money, and try to rebuild. If you’ve run up debts while hiding from your finances, and tackling it alone feels impossible, you can get help from a debt charity like StepChange or Citizens Advice.

The final personality type is the anxious. If they’re short of cash, they constantly worry about it. If they have plenty, they may struggle to make financial decisions, so they overthink themselves to a stand-still. If they invest, they can fall prey to switching and changing because they’re worried about their investments falling – which could mean selling at the bottom or racking up trading fees.

When you’re short of money, it’s only natural to worry about it. The only real option is to draw up a budget and try to build any financial cushion you can, so you don’t have to worry about unknown threats. When you have plenty of money and are still anxious, you may have to look closer at what’s driving this emotion. Again it can stem from being short of cash in the past. It might have come from having made mistakes, or feeling under pressure not to let anyone down. It may be because you’re worried about a lack of control – both in money terms and in other aspects of life. It’s worth understanding and addressing the underlying issues, because tackling them through the money is both ineffective and potentially damaging.

Of course, none of us fall neatly into any one of these boxes. I, for example, am both a saver and a spender – because I refuse to spend money on things I really need for fear of running short of cash, and yet want to spend a small fortune on Christmas presents for the kids. I’m also always anxious about money after years as a single parent on a variable income. It has taken a great deal of careful thought and planning for me to be spend on the things I need, and control spending on the children.

There’s a real power in knowing who we are, and understanding what drives us. It can help us make better financial decisions and plans for the future. Of course, if you give me your personal details and tell me your ideal holiday or favourite food, then I can tell you if you’re a sunflower or a bulldog too.

Sarah Coles is head of personal finance and podcast host for Switch Your Money On Hargreaves Lansdown