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Know your financial personality

Jordan E Goodman’s unique insight to investor psychology and its impact on financial decisions is a very interesting read. A good dose of financial planning advice ensures that his book has practical utility.

Kamya Jaiswal | Print Edition: January 24, 2008

Money sure has a high emotional quotient. It can make you feel just about anything—greedy or generous, despair or delight. And it is extremely personal—your relationship with money. To have it ripped in the open and that too in a book on finance, is definitely unexpected.

What have your feelings about money got to do with your investments? Everything, according to Jordan Goodman. And he is convinced enough to write a 350-pager—Master Your Money Type—on it. But one can’t help being sceptical.

Master Your Money Type
Master Your Money Type

Price: Rs 560
Pages: 356
By: Jordan E Goodman
Published by: Warner Business Books

Especially when the book starts off with a discussion about your “emotional partnership” with money, accordingly slots you into a money type and promises to resolve all financial distresses by working on your attitude towards money.

Where is the talk about insurance and discussion on retirement planning? All there, and in great detail. Taking off from investor psychology, Goodman has covered a lot of ground. Investors in each “money type” have common personality traits. Consequently, they are more likely to make specific financial mistakes.

And in finding their solutions there is hardly any aspect of financial planning that is left untouched. Now let’s reassess the abiding argument of the book—the correlation between how you feel about money and how it affects your financial decisions.

Goodman has taken great care to establish this link with the help of case studies, survey results and expert quotes. In fact, his arguments are so accurate that readers may squirm—seeing themselves act and feel just as the author says. Analysing the motivations that define an investor’s attitude towards money is a sensitive theme.

There is always the fear of being judgemental and thus alienating the reader. But Goodman adroitly walks the thin line of describing behavioural shortcomings without sounding preachy. So while talking about the spending urges of a “debt desperado” or the thrill-seeking nature of “high rollers”, he is never self-righteous.

Instead, he guides investors to “shifts of thinking” to make them less rigid and hence receptive to different ways of handling money issues. He constantly iterates that investors shouldn’t try to change their financial personalities but leverage their strengths and control the weaknesses. Aiding this unique approach is a well-thought out narrative structure.

After identifying the emotional and financial characteristics of investor categories, Goodman gives real-life examples of such people. Not just their financial crises; emotional hang-ups of every case study are dealt with in detail. For instance, Ken, an “ostrich” in his late 40s, has spent most of his life establishing a career.

Now that there is some professional stability he wants to start investing but feels incapable of handling money. The psychoanalyst in Goodman first examines why Ken has built an emotional wall despite doing well in life. Then he suggests ways to wiggle out of this passive attitude towards money.

Wrapping up the analysis is financial advice about how to make up for lost time by investing through automatic plans and bonds. Within this broad structure, Goodman experiments with many narrative formats. Worksheets, quizzes, tables, and questionnaires make it necessary for you to sit with a pencil while reading the book.

Goodman spends considerable time explaining how to interpret the results of calculators, quizzes and worksheets. What does it mean if your debt to income ratio is 36? What is the way out when the cost of educating your children is higher than your savings? This book helps you get out of such financial conundrums.

And if you want to know more, at the end of every chapter is a list of books and websites for reference called “resources”. Since this book caters to an American audience, there are some investment issues that Indian readers might not relate with. However, they are few and it is easy to draw parallels with investment instruments available in our country.

But should you make the effort at all? Is it useful to know your “money type”? Will it improve the way you manage money? The answer is–yes. Goodman’s premise is not impractical. In fact his approach is what financial planners today attempt to have. They consider it important to understand the concerns and needs of their clients before formulating acustomised financial plan.

Goodman goes a step further to look into their psyche and find out what compels people to make mistakes and what inhibits them from changing their investment style. The combination of a financial planner, psychoanalyst and an engaging writer has my vote. Investors of all ages and income levels must pick this up to overpower their financial demons.

Goodman’s Money Types

Category
Who they are Weakness Strategy
StriversWant to be rich and
successful in others’
eyes, passionate about
their investments
Overestimate
earnings and
underestimate
expenses
Be honest
about income,
fix concrete
financial goals
Ostriches
Confused, embarrassed
and guilty about money,
not consumed about
making more
Procrastinate
money problems,
not confident of
handling money
Save and
invest through
automatic
plans
Debt
Desperadoes

Take on too much debt,
over spenders—
especially through
credit cards
Want instant
gratification of
acquisition
Limit expenses,
reduce
number of
credit cards
Coasters
Don’t want to change
financial status, tend
towards complacency
Don’t diversify
investments and lose
out on opportunities
Make detailed
savings plans
High Rollers
Love taking on very high
risk, think losses can
easily be evened
Don’t face the
downside of risk and
deny its effects
Invest for the
long term
SquirrelsWorry too much about
money, save a lot but
don’t invest all of it
Live way below means,
accumulate assets but
do not have lot of
liquid money
Increase risk
appetite and
invest more

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