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Financial Planning > Trusts and Estates

New Study Shows Ties Between Personality, Estate Planning

By John Manganaro

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What You Need to Know

  • Agreeableness is associated with leaving unequal bequests to children, new research finds.
  • In addition to influencing bequest intentions, certain personality traits appear to be associated with better overall financial health.
  • Ultimately, it is worth an advisor’s time to study up on the psychology of financial planning.

Clients who display the well-studied personality traits of agreeableness and extraversion have a higher likelihood of engaging in more nuanced legacy planning that results in unequal distributions of wealth to their children, while those who are introverted appear likelier to divide their estate evenly among multiple heirs.

This is the central conclusion in a paper set to be published in the Certified Financial Planner Board of Standards’ Financial Planning Review. According to the paper, understanding the relationship between well-researched personality traits, such as conscientiousness, extraversion and agreeableness, can have substantial practical value, especially given the fact that implementing such insights is relatively easy and inexpensive for financial planners.

The paper also suggests these personality traits carry some degree of useful predictive power when it comes to clients who are creating and executing plans for spending down their wealth in retirement and leaving a legacy to the next generation.

According to the authors, knowledge of such traits can help both the advisor and the client more deeply understand their preferences for leaving either equal or unequal bequests to the next generation — and how such choices can affect satisfaction in retirement and the perceptions of younger heirs.

The analysis was put together by Matthew Sommer, a senior leader in the specialist consulting group at Janus Henderson, and HanNa Lim, an assistant professor of personal financial planning at Kansas State University.

According to Sommer and Lim, a little psychological insight can go a long way when advisors are helping clients with the potentially fraught task of setting lifestyle expectations in retirement and deciding how to divide their wealth as part of a legacy plan. Ultimately, Sommer and Lim argue, it is well worth a retirement-focused advisor’s time to study up on the psychology of financial planning.

Why Split an Estate Unequally?

As the authors point out, within the United States, individuals have significant flexibility to define their retirement lifestyle and to decide whether to leave a bequest to their children. And, if they decide a legacy is important, they also have great freedom to decide the relative amounts each potential heir receives.

While the majority of individuals intend to divide their estate equally, a “nontrivial” percentage intend to leave unequal bequests, the authors explain. They cite various studies that show approximately 20% of individuals plan to leave unequal bequests.

According to Sommer and Lim, the established literature identifies various reasons for unequal bequests, including the desire to assist those children who have the greatest need and to “repay” children who provided emotional or physical help. Other influential factors appear to be the presence of stepchildren or adopted children, as well as the amount of contact with different children over time.

Sommer and Lim say their contribution to this literature is the undertaking of an analysis of the way well-researched personality traits can help explain why parents may choose to divide their estate unevenly among their children — or spend down all their assets while living.

As the pair explain, one of the most widely accepted frameworks for describing personality traits (and the conceptual framework used for the new study) is the five-factor model. The five-factor model categorizes personality traits into the domains of openness to experience, conscientiousness, extraversion, agreeableness and neuroticism.

As Sommer and Lim point out, the original purpose of the five-factor model was to provide counselors and other mental health professionals a tool to better understand their patients’ emotional, interpersonal, experiential and motivational styles. Since its creation, however, the five-factor model has been used to investigate numerous topics, ranging from the association between personality traits and relationship quality to the relationship between such traits and financial well-being.

The authors say their new paper stakes out and seeks to answer the following question: “Was there a relationship between parents’ personality traits and the intention of leaving unequal bequests to their children?”

Setting Up the Analysis

To explore this question, Sommer and Lim draw on the 2016 wave of the University of Michigan’s Health and Retirement Study survey series, which collects data from about 20,000 U.S. household members ages 50 and older every two years.

The population of interest consisted of respondents with at least two living children and a written will that included any of the children, resulting in a useful final sample of 1,229 individuals. As Sommer and Lim spell out, a binary logistic regression model was used to investigate the association between each personality trait and the intention to leave unequal bequests.

According to the authors, approximately 17% of respondents intended to leave unequal bequests to their children, while 83% intended to leave equal bequests. Among the former group, 85% did not include all the children in their will and 15% included all the children but the will provided for an unequal division.

Based upon the conceptual personality trait framework discussed above, this study’s five main hypotheses are as follows:

  • There is a positive relationship between openness and the intention to leave unequal bequests to children.
  • There is a negative relationship between conscientiousness and the intention to leave unequal bequests to children.
  • There is a positive relationship between extraversion and the intention to leave unequal bequests to children.
  • There is a negative relationship between agreeableness and the intention to leave unequal bequests to children.
  • There is a positive relationship between neuroticism and the intention to leave unequal bequests to children.

Who Leaves Unequal Bequests

According to Sommer and Lim, this study’s first hypothesis predicted a positive relationship between openness to new experiences and unequal bequests. The hypothesis correctly predicted the direction of the relationship, but the results were not significant.

This finding is surprising, the authors say, as highly open individuals are nonconformists and original thinkers.

“If the majority of adults leave equal bequests, it would be reasonable to anticipate that respondents with high levels of openness would not select the most popular choice, but instead explore less utilized ideas and concepts such as unequal bequests,” the paper states. “In this case, however, no evidence was found to support this hypothesis.”

One possible explanation for these findings may be that open individuals are more likely to use lifetime gifting as a mechanism for providing unequal shares to their children, the authors posit.

As predicted by the second hypothesis, a negative relationship was indeed found between conscientiousness and the intention to leave unequal bequests, although the effect size was once again small. The authors suggest that individuals with low levels of conscientiousness may not fully grasp the potential ramifications of their present decisions compared to highly conscientious individuals who carefully plan their future.

According to the authors, in closely knit families, highly conscientious parents appear unwilling to divide their estate unevenly among their children. The analysis also found a negative relationship among single respondents.

This study found more support for the third hypothesis. That is, a positive relationship was found between extraversion and the intention to leave unequal bequests — but only when the “demographics” and “closeness with all children” variables were controlled. Put another way, the full model suggests that introverts were more likely to divide their estate evenly among  children.

Similar to conscientiousness, however, the effect size for this personality trait was fairly small. The authors argue that extroverts may be very confident in their ability to leave an adequate inheritance to all their children, regardless of the how inheritance is divided.

According to the authors, the most puzzling result of the study was a positive relationship identified between agreeableness and unequal bequests — and the fact that agreeableness had the largest effect size in the overall analysis.

“Hypothesis four is based upon the premise that highly agreeable individuals wish to avoid conflict and resentments,” the authors explain. “If unequal bequests are associated with family disharmony, then a negative relationship was anticipated. One possible explanation for this finding may be that a highly agreeable parent is more easily influenced by children who lobby for a large share of the estate.”

According to the researchers, agreeableness was also positively related to unequal bequests among women, suggesting that the connection between this personality trait and unequal bequests may be subject to gender differences.

Lastly, no support was found for the fifth hypothesis. As the authors explain, a positive relationship between neuroticism and unequal bequests was anticipated because individuals with high levels of this trait can be rash, impulsive and vindictive.

“These emotions and behaviors may prompt the use of a lower inheritance as a form of punishment against children who disobey their parents’ instructions or who fail to fulfill their obligations,” the paper states. “Surprisingly, this study found a negative relationship between neuroticism and leaving unequal bequests, although the results were not significant.”

One possible explanation is that neurotic individuals do not expect to leave an inheritance, the authors posit, and they therefore may commonly default to equal division upon death.

Other Takeaways for Advisors

According to the authors, in addition to influencing bequest intentions, certain personality traits have been found to be associated with better overall financial health.

For example, conscientiousness has been found to be positively related to higher lifetime earnings, a greater sense of financial responsibility, and more frequent monitoring of accounts. On the other hand, the researchers point out, conscientiousness has been found to be negatively associated with holding credit card debt.

Agreeableness has been found to be negatively associated with a higher net worth. Sommer and Lim suggest the reason for the negative relationship is likely because highly agreeable people value money less — not because they tend to have a more cooperative or negotiating style.

Regarding the ability to manage wealth, other analyses have found that conscientiousness was negatively related to spending, while openness was positively related to spending. The authors point to one study from 2019 showing that conscientiousness had a direct negative relationship on retiree portfolio withdrawal rates.

“When measuring the impact of personality traits through financial self-efficacy and emotional affect, higher levels of extraversion and conscientiousness were indirectly associated with lower withdrawal rates,” the authors note. “Openness, agreeableness and neuroticism were indirectly associated with higher withdrawal rates.”

Finally, the authors note that personality traits have also been linked to financial help-seeking behavior. They point to one 2014 study of older adults which found conscientiousness was negatively associated with seeking financial help from any source, while agreeable individuals often sought financial help from family.

(Image: Shutterstock)

John Manganaro

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