• 5-Minute Article
  • |
  • Dec 12, 2022

Consider What Factors May Shape Your Financial Choices

Learn how your background and other influences can affect the way you view your finances.

Learn how your background and other influences can shape the way you view your finances

Updated: April 10, 2024

Questions this article can help answer:
  • How might my family or cultural background influence how I view money?
  • How can working with a financial professional help me make better decisions based on my goals?
  • What other factors could impact my financial decisions without me knowing it?

When you consider what you want your retirement to look like, what factors impact your choices? The way people approach financial decisions can be influenced by social and psychological factors – sometimes unknowingly.1 Understanding what may be affecting your financial decisions and talking about those factors with your financial professional can help you make informed choices to achieve the best results.

Friends and Family Impact Your Financial Choices

Surveys have shown that over one-third of people still get much of their financial advice from their family or their social network.2 As you think about your goals, your vision of retirement, and any concerns about money that you may have, ask yourself if you have shared your financial considerations with colleagues, friends, or loved ones.


Source: Poll: Most Americans learn about finances from friends and families. CreditCards.com, April 5, 2021.

The reliance upon outside sources for making financial decisions, even unconsciously, extends to friends, neighbors, co-workers, and even social media.2 However, everyone has different needs, different levels of income, and different expenses – all of which may impact what goals you prioritize and how you pursue them. Ultimately, your strategy should be specific to you and your goals.

Cultural Factors: Collectivism vs. Individualism

There are two primary types of cultural influences that may impact someone’s views on money – collectivism and individualism.

Collectivist attitudes:3
  • Most often associated with “Eastern” societies 
  • Typically value financial goals that prioritize caring for others, e.g., placing a higher value on caring for or providing for extended family in retirement
Individualist attitudes:3
  • Typically found in “Western” societies
  • Often value personal goals and financial achievement, e.g., prioritizing travel or expenses for their home in retirement
Potential Considerations Related to Collectivism and Individualism

Being aware of social and cultural influences may help you evaluate your goals to help ensure you’re planning based on what’s most important to you while still considering other types of scenarios. For example, if caring for extended family is a priority for you, ensure your financial planning supports that goal. You may need a plan for how to help a child or aging parent financially if the need arises. Your financial professional may be able to provide ways to prioritize saving for your goals while incorporating scenarios you may not have considered.

4 Psychological Barriers to Positive Financial Decisions

Friends and loved ones are only two of the factors that influence how people make financial decisions. Researchers have discovered that certain psychological factors also affect how people make financial decisions – often without even knowing.1 Here are a few of the most common ones:4

1. Confirmation Bias

Confirmation bias is the tendency to process new information as validation of a pre-existing opinion, or the tendency to seek out and show preference for information that supports one's original beliefs. For example, if a client only takes their financial professional’s investment recommendations when the recommendations align with the client’s preconceived beliefs.

2. Anchoring Bias

This bias refers to the tendency to be heavily influenced by, or anchored to, past references or pieces of information. An example is a person who becomes hyper-focused on past stock prices in order to predict future market movements.

3. Hindsight Bias

Another psychological factor to be aware of is what researchers call hindsight bias. This is when a person believes they could have predicted an outcome, after an event has already occurred. This bias has the potential to lead to overconfidence in one’s investment knowledge and could result in poor or risky financial decisions.

4. Loss Aversion

Loss aversion occurs when a person would rather avoid a loss than experience a gain. Simply put, the pain of losing is perceived to be greater than the pleasure of gaining. Some investors may try to avoid a loss altogether even if it’s associated with an allocation based on their risk tolerance. An example of this is selling a stock at the first sign of bad news instead of waiting for a potential recovery.

Making Unbiased Financial Decisions

If you feel like any of these family, cultural, or psychological factors impact your attitude toward making financial decisions, you’re not alone. Talk to a financial professional about how you view your finances and what might be influencing those views. Research has suggested that investors who are conscious of their biases may act more rationally.3 A financial professional may be able to help you determine the strategies that best fit your needs and introduce options you may not have considered.