When it comes to handling money, humans can be divided into two groups – we emphasise either the present or the future in our thoughts. "If you are not on a long-term plane, your money is going to be for today," says Dr Michael Carroll, a visiting psychology professor at Bristol University.
People who live for the present will tend to spend what they earn as soon as they get it. They will not put money into a pension when they are young, they won't save regularly, they might well over-borrow and they won't have a "plan B" for emergencies.
However, they could still be highly gifted. Sportsmen such as footballer George Best, snooker champion Alex "Hurricane" Higgins and boxer Mike Tyson all took their chosen disciplines towards genius level but spent their fortunes and struggled to pay their bills. Indeed, Higgins's funeral last Monday was financed with money that friends had raised for his dental treatment that was never carried out.
People who live more for the future, however, will tend to live within their means, set money aside for rainy days and are more likely to pay down their mortgage early, to distrust credit cards and to have contingency plans worked out in case lightning strikes. Dolly Parton, the country singer from "dirt poor" Tennessee roots who became a successful businesswoman and philanthropist, is a good example of this type, as is the actor and careful investor Sir Michael Caine, who was born into poverty in London's East End.
The majority of us strike a balance. "Most people do OK most of the time," says Toby Clark, head of finance at the research organisation Mintel. Its latest survey suggests that only 8 per cent of us admit to being "not very financially organised" and only 13 per cent say we find it hard to save regularly. The psychological basis for poor money management seems to be borne out by statistics and the experience of advisers. The Mintel research shows there are very well-off people who do not handle money well; then there are those with nothing who make ferocious efforts to get by.
"You get some people who can save under any circumstances," says Danny Cox of Hargreaves Lansdown, an independent financial adviser.
Garry Spencer, a retired financial adviser, recalls high-earning, professional clients who had credit cards maxed to their limits and who always teetered on the verge of disaster. Family background "isn't a dictate but it has an influence", explains Dr Carroll.
While many of us copy our parents' behaviour, there are numerous exceptions. People rebel in both directions, so spendthrift parents can have disciplined children and vice versa. Many people will learn from their first lesson of getting into a serious mess through debt. "Usually, if somebody does it once, they don't do it again," says Mr Spencer.
However, there is a hard core of people who signal fairly early on that they live for the present and will not change. "Some people don't care," Mr Spencer adds. When he sees people getting into cashflow problems two or three times, he starts to suspect they will perpetuate that behaviour. "The amount of times I have got people out of trouble ... and then, three years later, they are in the same trouble again."
He says he hears a common refrain. "They say, 'I'm an only child' or 'I've got an inheritance coming'. I find that quite sad." He also believes that people tend to be attracted to others with similar approaches to themselves. "If there is one person stopping it, it wouldn't happen on the whole," he says.
Dr Carroll believes people who over-emphasise the present can change their behaviour, becoming more mature and better able to withstand life's vagaries. "We are the only group of animals that plan for the future," he says, explaining that the ability to plan is located in the frontal cortex of the brain. "If you live in survival mode, your mind cannot access that part of your brain. If you want to change, often the way [to do so] is, when you feel safe and secure, allow yourself to think of the future."
So, those who have a tendency to overspend could try to find moments in their life when they feel particularly safe, and then try thinking about how they could save for something they want in the long-term – for example, sending a child to university or taking a trip to India. If they feel particularly relaxed after work finishes on a Friday, for instance, they could do it then. Or, if they have a trusted friend who makes them feel reassured, they could ask to discuss it with them.
Living too much for the present can have dreadful consequences. Dr Carroll was called in to advise the employees of a bank who were struggling with fears about the recession, debts and redundancies. Before he managed to speak to them, two staff committed suicide.
"They went into survival mode, and the only way out was death," he says. "Much of our fear is manufactured fear – you have got to do away with that. If I had been able to speak to them I would have said, 'You manufactured your fear. But there was a time when you didn't have money and you were fine'."
As we get older, many of us get slightly better at managing our finances. "You change over your lifetime," says Mr Cox. "As you mature, you are more likely to think about future events."
The Mintel statistics reveal that younger generations are worse with their cash than older people. While 18 per cent of 18- to 24-year olds say they are "not very financially organised", that proportion drops to 3 per cent among over-65s. Mr Clark, of Mintel, thinks this is only partly explained by the notion that each generation matures financially as it ages. "There has also been a cultural shift," he says. "The old maxim 'neither a borrower nor a lender be' does not exist anymore."
Mr Spencer agrees that developments such as the credit-card boom and house-price inflation have encouraged younger people to exceed their means. "The baby boomers are probably the last of the cautious generations," he says.
Planning ahead is going to become more important, however. The dying days of final-salary pension schemes and the end of "jobs for life" mean we cannot rely on our employers to take care of us. But some people are, clearly, stepping up to the challenge and thinking for themselves. Nationwide says it has seen the number of people overpaying their mortgages increase by more than a third in the past two years.
Getting rid of debts, such as a mortgage, is not just a sensible step but something that liberates people who are able to do it. They need to worry much less about the effects of losing their jobs, for instance. In fact, 80 per cent of National Lottery winners rate the "removal of money worries, pressure and stress" as one of the best aspects of winning a jackpot.
'We're not rich, but I was worried we could become poor'
"When I first met my husband, I found him extremely attractive," recalls Ella (not her real name). "He seemed very strong – a bit like John Wayne. Now I realise that part of that strength was his attitude to money. He was not flashy. That gave me a sense of comfort.
"We aren't rich but what worried me was the possibility that we could become poor. Like everyone else, we have been tested in the past few years. He is not going to lose his job but he is not going to get much in the way of pay rises either. I lost most of my work [as a freelance translator] two years ago. I was dreadfully upset at losing my income and independence, and he was anguished for me. We had some rows at that stage. I did get more work and now I am earning more than him. He is happy to see me OK again.
"We touch base on money issues at least three or four times a week, although it is in a jokey way. He asks me frequently if we are "richer or poorer" through my income and spending. But the serious side of this is we have a feel for how the joint finances are going. We overlap on 90 per cent of our approach. We went to the Lake District out of season on holiday this year and, without even discussing it openly, we knew that was the right level of expenditure. I pay a friend to do the ironing, and he thinks that is extravagant. And he can go to the supermarket with a list of two items and come back having spent £60.
"My sister inherited some wild genes and maxed on credit cards. She married someone like her but they have a daughter now and spend less. My brother is like me, but his wife could buy a dress for £1,000. He is getting her off that. My parents were so different – he was cautious, she was over-generous – that they split up."
* Consumer Credit Counselling – Call 0800 138 1111 or visit www.cccs.co.uk
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