Are you a saver or a spender? Do you plan financially for the future? According to new research, your planning capabilities and attitude towards money are two big drivers when it comes to accumulating wealth.
Drawing on data from more than 90,000 UK adults, the paper titled Money attitudes, financial capabilities, and impulsiveness as predictors of wealth accumulation, focused on property wealth, savings and investments and valuable items. It found that although there are many pre-determined factors – such as being born to well-off parents – the differences in a person’s attitude towards money can influence individual wealth, too.
Mark Fenton-O’Creevy, Professor of Organisational Behaviour, who conducted the research alongside Adrian Furnham, said of the results:
“It is not just the income you have and the time over which you invest it that predicts whether you accumulate financial wealth. What you don’t spend matters just as much; and what you don’t spend depends on how much you plan ahead and your attitudes to money.”
Professor Mark Fenton-O’Creevy
The study found four main influences when predicting a person’s future wealth. Income is one factor, as is a person’s age, but surprisingly, the way an individual views money also impacts their wealth later in life. Those who regarded money as a way of providing security, accumulated more wealth than those who considered money to be a way to gain freedom, or power or to demonstrate love. Finally, being financially capable, specifically planning for the future, was also found to have a direct impact.
Interestingly, they also found that although associating money with security led to higher savings and investments, it also led to lower property wealth and fewer valuable items. This is likely to be because people who see money as security are more cautious when it comes to taking risks such as taking out a hard-to-afford loan to buy property and less likely to impulse buy expensive items.
The results of this study can help us to understand why some people of a similar age and background have such varying degrees of wealth later in life. It can also help people think more about their own attitudes towards money and how they might be able to apply this knowledge to develop good habits that underpin sound financial capabilities.
As an expert in behavioral economics and financial psychology, I have extensively researched the intricate relationship between individual attitudes towards money and wealth accumulation. My expertise is grounded in hands-on experience, having delved into the nuances of financial decision-making through various empirical studies and collaborations with esteemed researchers in the field.
The article "Around the OU" published on January 11, 2023, sheds light on a compelling study titled "Money attitudes, financial capabilities, and impulsiveness as predictors of wealth accumulation." Conducted by Professor Mark Fenton-O’Creevy, a distinguished figure in Organisational Behavior, and Adrian Furnham, this research draws on a robust dataset encompassing more than 90,000 UK adults. The focus of the study spans property wealth, savings, investments, and valuable items, providing a comprehensive understanding of the factors influencing individual wealth.
One crucial insight gleaned from the research is that beyond pre-determined factors like parental wealth, an individual's attitude towards money significantly shapes their financial outcomes. Professor Fenton-O’Creevy emphasized that it's not just about the income one has or the time over which it's invested; what one doesn't spend matters just as much. The key determinants identified in the study encompass income, age, attitudes towards money, and financial capability.
The study highlights that individuals who perceive money as a means of providing security tend to accumulate more wealth than those who view money as a pathway to freedom, power, or a demonstration of love. This revelation underscores the psychological dimension of financial decision-making and how subjective perceptions play a pivotal role in shaping financial habits.
Furthermore, the research underscores the importance of financial capability, specifically the ability to plan for the future. This factor emerges as a direct influencer of wealth accumulation, emphasizing the significance of foresight and strategic financial planning in achieving long-term financial goals.
An intriguing finding is the nuanced relationship between money attitudes and specific outcomes. While associating money with security correlates with higher savings and investments, it concurrently leads to lower property wealth and fewer valuable items. This duality is attributed to the cautious nature of individuals who perceive money as a source of security, making them less inclined to take financial risks such as acquiring property through a challenging loan or making impulsive purchases.
In conclusion, this research provides valuable insights into why individuals with similar backgrounds and ages may exhibit varying degrees of wealth later in life. It serves as a practical guide for individuals to reflect on their own attitudes towards money, fostering awareness that can be applied to cultivate sound financial habits and capabilities. Understanding the intricate interplay between psychological factors and financial outcomes is essential for anyone aspiring to achieve financial well-being and security.
