MSE’s Academy of Money
MSE’s Academy of Money

Start this free course now. Just create an account and sign in. Enrol and complete the course for a free statement of participation or digital badge if available.

Free course

MSE’s Academy of Money

4 Your personality can seriously affect your spending

Have you ever thought about how much your personality and approach to risk-taking affect your spending and other financial decisions?

In Video 2 Mark Fenton-O’Creevy, Professor of Organisational Psychology at The Open University Business School and an expert in behavioural finance, introduces the way behavioural biases affect personal financial decisions.

A warning before you watch the video: the content does include details of someone receiving a serious head injury.

Download this video clip.Video player: Video 2
Skip transcript: Video 2 Mark Fenton-O’Creevy

Transcript: Video 2 Mark Fenton-O’Creevy

Mark Fenton-O’Creevy
So I want to start off by introducing you to a chap called Phineas Gage. Phineas Gage was a railway worker and they used to make tunnels, they’d drill holes in the rock and then they’d have tamping iron which they used to compress the blasting powder with, and sometimes what would happen; as they were compressing the blasting powder is a spark would trigger the blasting powder, which would shoot the rod out with quite high speed and that’s what happened to Phineas Gage and it went straight through his head. It took out a very particular part of his brain that is responsible for emotional processing. So that was a very early example of how we started to get to learn about what bits of the brain do. It used to be that psychologists treated cognition, thinking and emotions as two completely separate processes. Different people studied them. But what we’re learning more and more through neuroscience is that cognitions and emotions are completely intertwined and that as humans, emotions are a very important part of our thinking processes. A quite simple way of thinking about how emotions and thinking come together is the dual process model of cognition. If we have a situation, we’ve got to make a decision, a sort of classical way of thinking about this might be: well there’s some facts, we’ve got some options for making decisions, we can represent the future in some way, maybe do a bit of internal modelling of what’s going to happen. Going on in parallel with that though, is a completely different process. It’s the activation - and biases is perhaps the wrong word but if you like, pre-existing scripts for deciding; based on our emotional experience of comparable situations. And the first process in blue is quite slow and this process is like that - perceiving is deciding. But what about consumers? we’ve got responses from about 110,000 people across the UK on their psychological and emotional relationships with money. So one of the things we did is we looked at people’s impulsive buying behaviour. And in a lot of the marketing literature this impulsive buying gets talked about as if it were mostly a good thing. Actually there’s good evidence that people who are very impulsive buyers are often doing this as a not very effective way of regulating their emotions. They’re not good at managing bad emotions, going shopping turns out to be a form of emotion repair. It turns out that people who are impulsive buyers are typically much more likely to get into financial trouble. They are for example about three times more likely to go bankrupt. It’s also the case of course that retailers invest significant resources in engaging with impulsive shoppers. There’s a lot of effort goes into: how can we get the impulsive spend? We need an investment into education, which promotes emotional literacy about money. We also looked at a series of scales, which measure people’s attitudes to money. People see money as power, money as love, money as freedom, money as security. Money as love tends to be the female vice, money as power tends to be the male vice. There are quite strong gender differences here. Again we find a strong relationship to financial outcomes. Those who see money as security are much more likely to have a positive financial earn. So a final observation to finish with. Policy makers often seek to influence behaviour by providing information. Firms, through their advertisements, often seek to influence behaviour through engaging with emotions. Guess who is more pessimistic about influencing consumer behaviour? Thanks very much.
End transcript: Video 2 Mark Fenton-O’Creevy
Video 2 Mark Fenton-O’Creevy
Interactive feature not available in single page view (see it in standard view).

Activity 6 Impulse buying

Timing: Allow approximately 5 minutes for this activity

As you heard from Mark Fenton-O’Creevy, there are good reasons why we sometimes make bad decisions about spending money, even if we’re smart about most other things in life.

Do you consider yourself to be an impulse shopper?

What do you think are the factors driving this behaviour? If you’re not an impulse shopper, think back to Video 2 and what you may have learned about the reasons for impulse shopping in it.

You can type text here, but this facility requires a free OU account. Sign in or register.
Interactive feature not available in single page view (see it in standard view).

Answer

Most of us have bought on impulse at some point in our lives.

Those of us who routinely spend money on impulse may be doing this to try and regulate their emotions. The driving forces may be coming from within the mind rather than just being the result of people succumbing to the (external) forces of marketing by retailers.

AOM_1

Take your learning further

Making the decision to study can be a big step, which is why you'll want a trusted University. The Open University has 50 years’ experience delivering flexible learning and 170,000 students are studying with us right now. Take a look at all Open University courses.

If you are new to university level study, find out more about the types of qualifications we offer, including our entry level Access courses and Certificates.

Not ready for University study then browse over 900 free courses on OpenLearn and sign up to our newsletter to hear about new free courses as they are released.

Every year, thousands of students decide to study with The Open University. With over 120 qualifications, we’ve got the right course for you.

Request an Open University prospectus