How Personality Effects Your Retirement Spending!
by Tracy E. Hill, Ph.D.
According to a study recently published by The Journal of Psychology and Aging, this is a first look at how personality effects our retirement spending rather than focusing on the technical issues of retirement spending. Technical issues previously addressed in other studies have included issues such as perceived life expectancy or economic issues with regard to spending. I guess the first question is, “how do you define personality?”
In the world of psychology, there are many ways to determine personality. However, the four major theories include psychoanalytic perspective with an emphasis on the unconscious mind and childhood experiences, the humanistic perspective which focuses on psychological growth, free will and personal awareness, the social cognitive perspective which emphasizes self-efficacy, environmental influences and observational learning and lastly, the trait perspective which focuses on identifying, describing and measuring one’s traits. The last one, is the personality determination that researchers Dr. Sarah Asebedo and Dr. Christopher Browning (Texas Tech University) concentrated on for their research on any correlation between retirement spending and personality.
Okay, so maybe by now you don’t really care. But I’m a psychology geek and a Silver Sager so I find this all fascinating! Stay with me and dig in a bit more.
The trait perspective of personality believes that if you understand a person’s traits, you can differentiate one person’s personality from the next. Although of course, many of us have similar personality traits. British-German psychologist Hans Eysenck (1916-1997) suggested that there are three dimensions of personality a) extravert-introvert, b) emotional stability-neuroticism and c) psychoticism. He believed these traits were genetic and part of one’s nervous system. Although I love this theory and one of the great psychological experiments with monkeys; this is not the theory that Asebedo and Browning chose. American-British psychologist Raymond Cattell (1905-1998) asserted that individuals have 16 different personality traits which fall along a continuum and it is each person’s rating on the scales that determine their overall character. These traits ranged included social boldness, privateness, perfectionism, apprehension and 12 more. Although this theory was widely used, it’s a bit cumbersome. Consequently, Asebedo and Browning bagged this theory as well. It should be noted that the late Dr. Cattell was the father of a widely used and known concept: fluid versus crystallized intelligence as well as factor and multivariate factor analysis. A brilliant psychologist. That leaves us with the renowned Big Five Personality Traits theory by American psychologists Dr. Paul Costa (1942 – ) and Dr. Robert Roger McCrae (1949 – ). This easy to use and remember (“OCEAN”) theory is applied to describe aspects of an individual’s personality in which to categorize them into one (or more) of the five big traits: Openness, Conscientiousness, Extraversion, Agreeable or Neuroticism. Back in graduate school, we used to love ‘crabbing’ (OCEAN, get it?) our family, friends and the like.
Openness is a person who was more inventive, curious and open to experiences rather than being cautious, consistent or closed to new opportunities.
Conscientiousness was defined by an individual who is efficient and organized rather than careless or easygoing.
Extroversion is more forthright. A person who is extroverted is more energetic and outgoing versus someone who is more reserved and prefers to work solo.
Agreeableness is characterized by an individual who is more, well agreeable rather than a person who is more disagreeable, detached or challenging.
Neuroticism was defined by a person who was more sensitive and nervous rather than someone is more secure and confident.
This all sounds easy to use, right? In fact, it’s not as easy as it seems and takes practice to get it right. Try using OCEAN on some of your loved ones.
I digress. Let’s get back to retirement and spending. Our two Texas Tech researcher’s piggy backed on data that was excavated from the National Institute on Aging’s Health and Retirement Study, conducted by the University of Michigan (funded by NIH and SSA) in 2012 and again in 2014. The data was gathered on 3,600 participants with an average age of 70; however, every participant they retrieved information from were Silver Sagers. Nearly half the participants were male (47%) as female (53%), although nearly all were white (91%). The researchers found (using Cattell’s multivariate factor analysis) that individuals with higher levels of Conscientiousness and Extroversion withdrew from their retirement portfolios at a lower rate than those who were higher on Openness, Agreeableness, or Neuroticism. In another words, if you’re organized and efficient as well as outgoing and energetic, you probably save more and spend less. Additionally, the researchers found that people who had: i) some college education or more, ii) paid off their mortgage and were still homeowners, iii) a bequest motive (wanting to leave money upon one’s demise) and iv) employment income were all correlated with lower withdrawals from their income portfolios. Interestingly, Conscientiousness and Financial Literacy (another factor not associated with the Big 5) were the strongest predictors and of those who would spend less in retirement.
The study was not suggesting that you shouldn’t take that trip to Hawaii with your grandchildren or buy a second home closer to your children. It’s simply making a correlation between personality traits and spending money, and what that might look like for you. So, spend sensibly, save smartly and enjoy your silver years!
Photo by Joel Vodell (Australia).