One approach to improving your life is to take a personality test.
One useful mental model for understanding theories of personality is the OCEAN personality model, where we can describe a person’s character by five dimensions. OCEAN is the Rolls Royce of personality models, with psychologists able to map each factor into an actual biological brain function.
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OCEAN personality model
The OCEAN personality model consists of the following:
a) Openness to New Experiences
Openness to New Experiences measures how much you prefer novelty over the familiar. Folks with high openness to new experiences tend to be more intellectual and have more aesthetic interests. Those with less openness to new experiences tend to be more conventional in outlook.
You can assess a friend’s openness by looking at the books on his bookshelf. If the books are on varying subjects, you may be dealing with someone with high openness to new experiences.
b) Conscientiousness
Conscientiousness measures how neat, orderly and dependable you are. Conscientiousness measures your industriousness and orderliness. Folks who lack conscientiousness tend to be disorganised and can be flaky and late for appointments.
c) Extroversion
Extroversion measures how outgoing and friendly you are. Extroverts tend to be very enthusiastic and tend to assert themselves. Introverts tend to be meek.
If you are energised when dealing with people and crowds, you are highly likely to be an extrovert. If you are energised when alone, you are likely to be introverted.
d) Agreeableness
Agreeableness measures how trusting you are and how much you get along with others. Agreeable people exhibit compassion and politeness, while disagreeable people tend to be more antagonistic.
e) Neuroticism
Neuroticism measures how vulnerable you are when faced with emotional disturbances. Neurotic people can be impulsive, have volatile personalities, and may also withdraw from interactions. On the opposite side of the spectrum are folks who tend towards emotional stability
When it comes to personality, psychologists often say that there are no correct personalities, and we should accept ourselves for who we are. But according to a paper from The Journal of Financial Planning in October 2021 entitled OCEAN : How does Personality Predict Financial Success, finance success comes easier with specific personalities.
How does personality affect Financial Success?
We will examine financial success in four dimensions and see what kind of personality correlates to financial success :
i) Financial Literacy
Financial Literacy measures how much you know about personal finances. In an increasingly complicated world where folks have to manage family finances and understand the workings of the stock markets along with the crypto space, this is a critical trait to ensure that you can grapple with contemporary issues of personal finance.
Psychologists discovered that high openness to new experiences, conscientiousness, and agreeableness correlate with more potent financial literacy. In contrast, extroversion and neuroticism tend to associate negatively with financial literacy.
I can confirm this finding on the ground. Students of investment courses tend to be polite, punctual and highly open to new financial ideas and approaches.
ii) Risk Tolerance
Risk tolerance measures how much volatility an investor can tolerate. A high-risk tolerance would mean that the investor can stomach bitcoins’ volatility, which can be as high as a standard deviation 7-10 times of a balanced portfolio. Investors with low-risk tolerance will always be drawn to bonds, annuities and REITs.
The paper discovered that neurotic people might not necessarily have a low-risk tolerance when it comes to risk tolerance. It is also hard to conclude that openness to new experiences can say much either.
The only predictor of high-risk tolerance is extroversion. High agreeableness and conscientiousness are correlated negatively with risk tolerance.
If you are the kind of person who sells hedge funds to accredited investors, it may be helpful to start in a nightclub. Also, the folks who sign up for the Early Retirement Masterclass, which has a dividend investing bias, tend towards introversion.
iii) Income
Income measures the earnings potential of a person.
Folks who are conscientious and extroverted are the most highly paid in society today. While no findings are made for agreeableness, neurotics and folks open to new experiences tend to have lower incomes. At the moment, having a high income is more biased towards more conventional individuals, I guess that the negative income biases are likely coming from folks who work in aesthetic careers.
This gels with the experience on the ground, organised salespeople, show up on time, and follow up aggressively will always be able to earn more money than even the most highly qualified professionals.
iv) Net Worth
Having a higher income is no guarantee of a higher net worth. Wealth requires a different set of personality traits.
When it comes to holding onto wealth, only conscientiousness has a solid relationship to net worth. It would help if you were diligent enough to work and save your money. Even though extroverts tend to earn more money, they may not be able to retain it. Folks who are neurotic and have a high openness to new experiences negatively affect their net worth.
Wealth will always be attracted to someone careful and disciplined. It also helps to be emotionally stable and have conventional tastes.
A comedian once joked that Singaporeans will always be rich and live a very long life, but they will never be half the kind of fun Westerners do.
Summary
In summary, some personalities find it easier to attract financial success. If you can learn a bit about your character, you might be able to figure out which compensating mechanisms make your financial lives a bit easier. This study finds that conscientiousness is probably the most critical trait overall. You can improve your conscientiousness by looking for budget apps, to-do list apps, and grammar checkers to at least function more like a conscientious person.
