Hey, big spender, do you have the means to get by?
Whether you are careful with cash or cannot stick to a budget depends on how your brain is hard-wired, reports Neasa MacErlean
Saturday 07 August 2010
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
* Citizens' Advice: Call your local centre or visit www.citizensadvice.org.uk
* National Debtline: Call 0808 808 4000 or visit www.nationaldebtline.co.uk
- 1 Sofyen Belamouadden murder: The inside story of a crime that horrified Britain
- 2 How to turn off/stop 'seen by' on Facebook: Disable it to make your chats seem less passive aggressive
- 3 Company breaks open Apple Watch to discover what it says is 'planned obsolescence'
- 4 'We're not heroes, just tourists': Swedish police officers on holiday stop vicious assault on New York subway
- 5 Buckingham Palace guard who attacked passers-by in 'most most violent piece of CCTV footage' police officer had seen walks free
The sickening truth about food banks that the Tories don't want you to know
Migrant boat disaster: Ukip candidate mocks victims in sickening Twitter post
Nigel Farage wants the BBC to stop making programmes like Doctor Who, Strictly Come Dancing, and Top Gear
Global warming: Scientists say temperatures could rise by 6C by 2100 and call for action ahead of UN meeting in Paris
General Election 2015: Britain would become a 'communist dictatorship' under Ed Miliband and Nicola Sturgeon, claims wife of Michael Gove
Rupert Murdoch berated Sun journalists for not doing enough to attack Ed Miliband and stop him winning the general election
iJobs Money & Business
£50000 - £55000 per annum: Ashdown Group: Business Analyst - Financial Service...
£18000 - £23000 per annum + OTE £45K: SThree: At SThree, we like to be differe...
£20000 - £25000 per annum + competitive: SThree: Did you know? SThree is the o...
£22000 - £24000 per annum: Recruitment Genius: This is an opportunity to join ...
Day In a Page
This six-bedroom home is set amongst three acres of grounds. Currently a large family home, Clift Hill has potential to make a B&B, subject to change of use permissions.
A former period coach house, Glebe Farm Stable is now a three-bedroom cottage with a double car barn, office, kennels and an outbuilding that's currently used as a gym.
Set sail for this four-bedroom farmhouse in Cowes. With five acres of land and an indoor pool, this home oozes character. There is even potential to let a one-bedroom annexe.
Surrounded by woodland, this five-bedroom manor house has plenty of outdoor storage space in the form of three converted loose boxes, two smaller outhouses and a woodstore.
This four-bedroom detached home comes with a double carport, useful workshop, garden and two walkways that offer views of the adjacent countryside.
With space for an equestrian business, a greenhouse for growing your own veg, a wine store and a gym; this five-bedroom home has all the ingredients for a country retreat.
This four-bedroom home has exposed brick chimneys and a vaulted ceiling in a breakfast room that's ideal for summer entertaining - the doors open to the patio and garden.
The decked roof terrace of this two-bedroom flat is perfect for summer drinks while large windows and ample storage space make for a light and spacious interior.
Surrounded by approximately 15 acres of grounds, this six-bedroom grade II-listed home has been extensively refurbished yet retains many period features.
This four-bedroom home comes with a two-bedroom cottage and commercial office, with planning to extend, in a stunning courtyard setting.
In a pretty Norfolk village, this four-bedroom family home is surrounded by landscaped gardens, with even a self-contained annex for guests.
A few miles from the seaside at Perranporth, this four-bedroom farmhouse sits amongst nine acres of idyllic grounds - including a lake and two barns used as holiday lets.
This five-bedroom home is arranged over three floors of a converted Victorian hospital, offering spectacular views of the Pentland Hills - only three miles from the city centre.
This four-bedroom detached home comes with grounds that span to approximately 2.5 acres, as well as two large patio areas and a double garage.
This four-bedroom cottage is a Grade II-listed town house, well-located for the thriving market town of Nailsworth.
A four-bedroom apartment on the ground floor of a stunning period property in North Yorkshire, with two kitchens and a large south-west facing garden.
This high-spec two-bedroom home is part of a smart collection of new flats at Beaufort Park and has a large decked balcony that's perfect for summer drinks.
Capitalise on the fabulous views of Trevone Bay by taking two homes and creating one spacious boutique B&B. Just a cliff-top walk from Padstow.
Overlooking a golf course, this six-bedroom Edwardian detached home spans four storeys and retains many period features including the original, operational servants' bells...
On the edge of the city, this six-bedroom home comes with an outdoor swimming pool and a large garage block that has annexe potential.
In a Grade II-listed manor just outside of Bath, this three-bedroom home is arranged on two floors with a skylight in a vaulted roof line.
Open the living room's bi-fold wooden doors to reveal a retro-style kitchen, and a conservatory leading to a paved garden at this three-bedroom home.
A Grade II-listed, four-bedroom home, in a charming Somerset village, with a two-storey studio that could be converted into a holiday cottage
A modern four-bedroom Victorian home, within walking distance to the high street
A luxury apartment in the Gothic mansion of Wyfold Court in Kingwood, offers six bedrooms spread over three floors and a turret
This school conversion, near Stockwell Tube, oozes New York loft style. The one-bedroom flat features double height ceilings and exposed brick work
This six-bedroom Georgian home is on three floors with open fireplaces, a two-oven Aga, an annexe, and cottage gardens with outbuildings and a car barn
High Crest House covers an impressive 9384sq ft, with almost three acres of grounds including a tennis court and summer house enclosed by electric gates
A six-bedroom farmhouse with separate accommodation in converted stables. Situated in the village of Church Aston, within walking distance to the market town
A two-bedroom flat with under-heated walnut floors and bespoke built-in storage. The Tube and Clapham Common are a short stroll away
A refurbished seven-bedroom townhouse with staff quarters, cinema room, superb gym, steam room and plunge pool
A minimnalist four-bedroom home designed to the highest spec, featuring glass walls and a kitchen space lit by a glass roof
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
A boutique mews house, set around a central courtyard, with three bedrooms and a private roof terrace
A four-bedroom farm-conversion with three bathrooms and two reception rooms