Human behavior may not be logical at times, but it can be predictable, even in areas of spending, saving and investing. (Photo: Shutterstock)
It's not exactly in your genes, but according to a new study from DNA Behavior International, behavioral patterns can shed light on the reasons behind investors' spending, saving and goal-setting actions.
“An investor's decisions and actions may sometimes seem like wild cards,” Hugh Massie, CEO of DNA Behavior International, is quoted saying, “but the truth is that with each decision, goal or emotion, their behavior is predictable.”
Massie adds, “We call this a person's financial DNA. And by learning and leveraging that, we can improve and accelerate the results clients achieve with their financial advisors.”
From a cohort composed of 50 percent men and 50 percent women, from 19 to 87 years of age and with incomes ranging from $18,000 to $589,000, the study (illustrated in a video ) resulted in over 60 insights into people's financial behavior.
DNA Behavior identified four different types of spenders/investors. It christened the two top spending groups as “influencers” and “initiators,” and found that they seek out experiences and are more goal-driven than others in the study. Topping their discretionary spending is dining out.
In contrast, “stylish thinkers” are among the lowest spenders, dropping an average of 30 percent less than the top two groups.
The study found that higher risk-takers live in more affluent neighborhoods; they also borrow more for homes, while lower risk-takers have more equity in their homes. And while higher-risk groups earn more on average, the top earners in the absolute are in the lower middle range of risk-takers.
By applying its assessment tool in the aggregate instead of individually, to identify risk profile, behavioral biases, spending patterns and goals-based planning preferences, the study aimed to help financial advisors, wealth managers and other financial professionals identify the clients who need attention, as well as how and when to provide that attention. That in turn enables them to accelerate their own performance as well as that of client portfolios.
Massie says in a statement, “Using validated methodology to identify things like how likely a client is to delegate financial planning, how likely a client is to save/spend, how a client sets/pursues goals, and how emotional will a client become, for instance, in the face of market upswings and downswings, we continue to demonstrate that advisors and their clients can best protect and build wealth through the added edge of this deeper information.”
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Marlene Satter
Marlene Y. Satter has worked in and written about the financial industry for decades.
