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Financial Planning > Behavioral Finance

This ‘Big 5’ Personality Trait Is Linked to Wealth, New Research Shows

By John Manganaro

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What You Need to Know

  • A new analysis adds to the evidence that conscientiousness is positively correlated with greater savings and investments.
  • The influence of other commonly studied personality traits on financial outcomes appears to be more mixed, but they still matter in the planning process.
  • Ultimately, any given client’s dominant personality traits will have implications for how advisors approach the planning process.

The commonly analyzed personality traits of agreeableness, neuroticism and extraversion are all associated with lower lifetime wealth accumulation, according to a new paper set to be published in the Certified Financial Planner Board of Standards’ Financial Planning Review.

The analysis, penned by Mark Fenton-O’Creevy, a researcher at The Open University Business School, and Adrian Furnham, of the BI Norwegian School of Management, also shows conscientiousness is correlated with greater savings and investments.

In fact, Fenton-O’Creevy and Furnham find that conscientiousness is far and away the most important personality trait associated with wealth accumulation. This is no surprise, the authors explain, as those who are conscientious have a preference for following rules, setting careful plans and maintaining a high degree of organization and diligence with respect to important tasks.

The research suggests that those with this trait achieve meaningfully more wealth and financial stability, both during their years in the workforce and during retirement. Importantly, the finding holds when accounting for educational attainment and other variables.

While the researchers say this baseline finding is important in its own right, from a practical point of view, the more useful part of their analysis for financial advisors is the extensive consideration of each of the “Big Five” personality traits that are commonly studied by psychologists and scholars of behavioral finance. These are neuroticism, conscientiousness, agreeableness, extraversion and openness.

At the end of the day, the authors conclude, these personality traits all have an influence on client choices about wealth accumulation, and they should be factored into any holistic financial plan.

Neuroticism Reduces Risk-Taking

As the authors spell out, neuroticism concerns habitual levels of emotional volatility and anxiety. Its opposite is emotional stability and calmness.

“Those high on neuroticism are particularly prone to anxiety and acutely sensitive to risks,” the authors explain. “A key way in which neuroticism can affect financial behavior is through its expression as lower emotional stability and anxious avoidance of risk.”

For example, in experimental studies cited by the authors, researchers have found that neuroticism significantly influenced behavior in an experimental asset market. That is, more neurotic individuals make choices to hold less risky assets in their financial portfolios than less neurotic individuals.

The key insight for financial planners is that, while greater risk-taking is not always appropriate, many neurotic people may allow their fear of volatility to lead them to invest in overly conservative portfolios. This can be especially problematic for those with middle incomes and greater longevity.

The authors go on to cite additional prior surveys that show higher levels of neuroticism to be inversely associated with trading performance, including among investment management professionals.

Conscientiousness Is King

As generally defined by psychologists, conscientiousness relates to a person’s preference for following rules, working hard, organizing tasks carefully and ensuring important tasks are completed in a timely fashion.

As noted, conscientiousness is the personality variable most consistently associated with work and career success, and the correlation holds after taking into account educational attainment and important cognitive variables.

According to Fenton-O’Creevy and Furnham, conscientiousness is also associated with effective financial planning. Both the new survey and prior research show the trait is also negatively correlated with young adults’ levels of financial distress.

The authors point to one “interesting” prior survey showing conscientiousness to be positively associated with wealth, but the relationship was only significant at the lower end of the wealth continuum. This suggests that those with less wealth but greater degrees of conscientiousness are able to make the most of their current situation and avoid common financial pitfalls.

Ultimately, Fenton-O’Creevy and Furnham find, people with this trait are likely to treat the management of their finances seriously and bring a diligent approach to saving and investing. As such, they can make ideal clients for financial planners who like to take a collaborative approach to client service.

Agreeableness Is Less Instructive

The trait of agreeableness concerns the extent to which a person is warm, cooperative, trusting, motivated to help others and willing to act in their interests.

According to Fenton-O’Creevy and Furnham, the evidence on agreeableness and financial behavior is weaker and less consistent than for neuroticism or conscientiousness.

Some prior research has suggested that, across Western cultures, lower agreeableness is actually weakly associated with business career success.

The researchers propose that a person’s level of agreeableness is likely to have differential effects in different kinds of work roles and industries — and thus has a diluted influence on wealth accumulation and long-term financial outcomes.

Extraversion Is a Double-Edged Sword

As the authors explain, extraversion concerns sociability and assertiveness. Broadly speaking, extroversion is also associated with impulsiveness.

According to Fenton-O’Creevy and Furnham, there is some evidence that extraversion is associated with career success, especially in occupations involving important interpersonal components. As such, there is also some evidence of a modest positive relationship between extraversion and income.

“However, there is also evidence that the impulsiveness element of extraversion leads to an association between extraversion and some adverse financial outcomes,” the authors point out.

First, there is evidence that higher extraversion is associated with lower savings and higher debt. Additionally, prior research has examined the role of personality traits in pension decision-making and found extraversion correlated with non-participation in private pensions and with lower contributions when participating.

Despite this, other reports have found extraversion to be positively associated with wealth accumulation. Ultimately, like agreeableness, the research shows extraversion to be a less clear-cut factor with respect to wealth accumulation and retirement stability compared with conscientiousness.

More Open Clients Take Less Care

“Openness” concerns active imagination, preference for variety, intellectual curiosity and willingness to challenge authority, the authors explain. It is the personality factor most strongly associated in the research literature with intellect and intelligence.

According to Fenton-O’Creevy and Furnham, some prior research has found a positive association between openness and investment bank trader performance. On the other hand, research has also suggested a positive association between openness and overtrading among private market investors.

Taking the balance of the literature into account, openness seems to be weakly but negatively correlated with saving via personal pensions. And while multiple analyses have found openness to be associated with greater care in choosing financial products, it is also associated with less planning ahead and lower ability to make ends meet.

What Advisors Should Know

Fenton-O’Creevy and Furnham say their new survey data adds to the evidence suggesting personality traits may have an important influence on choices about wealth accumulation and on the care with which financial planning is carried out.

“First, our results suggest that the most important personality factor for wealth accumulation is conscientiousness,” the authors write. “People high on this trait are likely to treat the management of their finances seriously and bring a serious and diligent approach to saving and investing.”

According to Fenton-O’Creevy and Furnham, the associations of other personality factors with wealth accumulation are more modest, but they may, nonetheless, have implications for how to best advise individuals about their finances.

For example, the results suggest that extroverted, agreeable clients who are low on conscientiousness may need additional support to make regular savings. Extroverts, on the other hand, may be more prone to impulsive spending on physical items — thereby reducing capacity to invest.

Clients who are high on agreeableness may be keen to balance taking care of their own financial future with providing help to others in their kinship and friendship networks, the authors say. This is a legitimate goal, but it could affect lifestyle and spending decisions in retirement, for example.

“Their high trust may also make them more vulnerable to financial scams and more predatory financial products,” the authors warn.

Naturally, clients high in neuroticism may need greater support with managing the anxiety of investing in risk-bearing assets and in managing the emotions induced by market volatility.

In the end, the authors say their results add to “a rather mixed picture of research results on personality and financial outcomes.” They suggest further research might usefully explore which contextual factors moderate these relationships, potentially explaining contrasting findings.

(Image: Adobe Stock)

John Manganaro

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