By: Bertie Nel, Head of Financial Planning and Advice at Momentum

As the year draws to a close, many South Africans eagerly anticipate their year-end bonuses and thirteenth cheques, ready to reward themselves and their families for a year of hard work. But with the season’s excitement comes the temptation to overspend, be it gifts, holidays, or celebrations.

However, Head of Financial Planning and Advice at Momentum, Bertie Nel suggests research about the way we manage our spending suggests that how we spend our money is more tied to our personal financial habits than we think.

The science behind money personalities

Research by Momentum’s Head of Behavioural Finance, Paul Nixon, sheds light on how our money personality plays a significant role in our spending habits. Integrating behavioural science with financial decision-making, he points to the marshmallow experiment, first conducted by psychologist Walter Mischel in the 1960s, to explain delayed gratification.

In the experiment, children were given the choice of one marshmallow immediately or two if they waited 15 minutes. The findings were profound: children who resisted immediate gratification tended to perform better in school and achieved greater success later in life. Nixon believes the concept of delayed gratification also applies to financial decision-making for households.

“Money personalities, much like the impulse control observed in the marshmallow experiment, reflect how we approach spending, saving, and investing,” says Nel about Nixon’s research. “Understanding your own financial behaviours gives you more control over how you manage your spending.”

Nixon’s research, combined with the insights from Momentum’s Money Attitudes Assessment (3MAA), identifies three traits that influence our approach to money:

· Prudence – This trait determines whether someone is more focused on future goals or prone to impulsive spending. A high level of prudence often correlates with better financial planning and saving, making it easier to resist the urge to splurge on the holidays.

· Anxiety – Those with high levels of financial anxiety may experience stress about their financial stability and, as a result, may make poor spending decisions during times of uncertainty. Learning to manage this anxiety through strategies like diversifying investments, can offer peace of mind and reduce the temptation to overspend during the holidays.

· Prestige – A desire for financial status can drive people to overspend in pursuit of social recognition. Those with high prestige are more likely to view money as a symbol of success and may make purchasing decisions based on appearances. Recognising this trait is key to avoiding financial stress caused by unnecessary spending.

“Understanding your money personality is so crucial these days, especially when it comes to managing your finances effectively this holiday season, whether you are eligible for a bonus or thirteenth cheque or not,” says Nel.

He suggests becoming more goal-oriented, practising self-control, and understanding your relationship with money to help you avoid impulse spending.

For example, individuals with high levels of anxiety about money may benefit from stress inoculation techniques or visualising the positive outcome of saving for future goals. Those who lean towards a higher level of prestige may want to focus on long-term happiness and security rather than short-term purchases to impress others.

Tips for managing spending based on your money personality

Become more goal-oriented: Focus on long-term objectives, such as saving for retirement or paying off debt.

Practice the "pain of paying": This strategy helps individuals recognise the psychological impact of spending money, making it easier to resist temptation.

Visualisation: Visualising the rewards of saving rather than spending can help reinforce prudent financial decisions.

Diversify your investments: This will reduce financial anxiety and improve decision-making, especially during times of uncertainty.

Stress inoculation: Learn how to cope with financial stress to avoid making impulsive decisions.

Communicate about finances: If you share financial responsibilities with family, having open discussions about money expectations can prevent conflict and miscommunication.

Understanding your money personality

By recognising your financial habits and preferences, Nel believes South African households can take control of their year-end spending and make informed choices that align with their unique long-term financial goals.

“As we all prepare to put our feet up and get festive, understanding how our personalities influence our financial choices is key to making better, more informed financial decisions,” concludes Nel.