|How you think about money can have lead to poor financial planning and investments.|
In the Allianz study, the "overwhelmed" personality made up the largest segment of its respondents (32%) and, demographically, tended to have the lowest income and education level. One-third had been affected -- directly or indirectly -- by job loss, and they have a limited amount of investible assets. "This group tends to have high credit card debt and meager assets," the study says. "As a group, they tend to be somewhat pessimistic ... feel unprepared for retirement" and are "unsure of when, or if, they will be able to retire." Allianz also describes this population as, financially speaking, "in survival mode." All this angst doesn't seem to be helping people with this personality trait get on track. "
A similar segment -- 7% of those surveyed -- were "distracted" personalities, many of whom are in their late 40s or early 50s and likely to be married with young children. "Caught up in the complexity of modern life, they tend to not focus on financial planning, thinking of retirement as being far off and even hard to imagine," is how the Allianz study describes them. They tended to have the highest income level of those who took part in the survey, the second-largest level of investible assets and live in more expensive homes in metropolitan areas. Although many saw their net worth drop significantly as a result of the economic downturn and cut back on spending, most have not changed their financial plans or reevaluated their overall financial strategy. Allianz found that respondents displaying this personality trait expect to retire in their early 60s but would prefer to do so in their early 50s. Most are counting on getting full Social Security benefits and they rely on 401(k) plans more than any other group. "They are worried that their savings will not be adequate for retirement, but they don't have a plan for growing those savings," the study assesses. "This group plans to live in the present and externalize big decisions -- for example, wanting government to solve the country's financial problems." The positive trait this grouping exhibits is that they are open to working with a financial planner and either already do so or plan to. "They recognize the need to invest smarter, but have not yet made the commitment to do so," the study says. Whereas the 'overwhelmed' have given up on trying to develop a financial strategy, this group just never seems to get around to it. "They are the lowest users of financial advisers," Libbe says. "We think about the 'distracteds' as people who make a lot, but they are just putting money away wherever and however
The 2004 Merrill Lynch study delved into what it called "competitive investors," those who "enjoy investing and try to beat the stock market." Even when knowledgeable and experienced, their sporting approach to risk set them up for failure. They can have a hard time letting go of losing investments and often put too much of their portfolio into one stock or investment. "Not surprisingly, competitive investors also tend to chase hot stocks," the study says, adding that they "are most likely to be overconfident and greedy." "All that enthusiasm for investing can be a detriment if left unchecked," it says. In a worst-case scenario, investing becomes akin to gambling, filled with risky day trades, penny stocks and other adrenaline-pumping pursuits of maximum profits. Libbe says that risk tolerance can often fall along gender lines. "When we separated out the men from the women, as a generalization, the women tended to be the ones who were conservative while their husbands liked to watch TV or talk to their neighbors about what stocks they were buying and what strategies they were employing," she says. "During volatile markets, these women were saying, 'OK, he's had his fun, we're not doing that anymore.' They went from an extreme where a spouse was being a little more aggressive in the markets in order to achieve some growth and then, as they got closer to retirement or they saw their portfolios go down, they were were just moving totally towards cash. Of course, neither extreme is the right answer."
A study last February by the MetLife's ( MET) Mature Market Institute and the Scripps Gerontology Center at Miami University looked at how various characteristics affect retirement decision-making. Among those archetypes were what it called "wood knockers," those who "think about the unexpected but rely on hope." "They choose optimism and sound something like this: 'Today we don't have any such plans, knock on wood,'" the study says. "They allow themselves to think about possible unexpected scenarios, but they are good at turning these around, creating hope-filled scenarios that don't require planning: 'I'd like to think things will stay peaceful, calm and sane for a few years ... that we will have no crisis health-wise, that the economy will get better so things will seem more secure for everyone.'" It refers to this as living in a "fantasy land" that can preclude necessary planning for an unknown future. The overconfident
Hubris has brought many high-flying dreams crashing to the ground. When it comes to financial planning, overconfidence can be disastrous. MetLife's study cautions against being a "Plan B-er," those who "regard themselves as fully awake to future risks but hold on to a contingency plan, or the idea of one, as a protection against trouble ahead." "They are realistic about the possibility of an unexpected scenario, but they are prone to inflated ideas about their capacity to handle them," it says. "When their resources are not enough, Plan B-ers expect to cope, to adapt, to 'pull back,' to be 'OK.' In these cases, 'plans' are not necessarily carefully calculated strategies; instead they are often vaguely characterized adaptive scenarios. 'We're flexible. We'll go with the flow. We're willing to downsize if we need to.'" These fall-back plans could ultimately be characterized as life-changing desperation scenarios: "I'd have to liquidate my house; I would have to go back into the workforce, if they'd have me." Libbe says finance-related characteristics can be a blend of nature and nurture. In many cases, people mimic the approach and outlook of parents or other influential people in their lives. These personalities are not written in stone, however. People can always change and learn from their mistakes. -- Written by Joe Mont in Boston. >To contact the writer of this article, click here: Joe Mont. >To follow the writer on Twitter, go to http://twitter.com/josephmont. >To submit a news tip, email: firstname.lastname@example.org.
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