• 5-Minute Article
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  • Dec 12, 2022

Consider What Factors May Shape Your Financial Choices

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

Learn how your background and other influences can shape the way you view your finances
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 influence my financial decisions without me even knowing it?

When you consider what you want your retirement to look like, what factors impact your choices? Research shows that the way people approach financial decisions can be influenced by social, cultural, and psychological factors – often without them even knowing it.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.

People and Culture

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, consider these questions:

  • Have you shared these with your loved ones?
  • Have you discussed these with your friends or colleagues?


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

The reliance on outside sources for financial decisions, even unconsciously, extends to friends, neighbors, co-workers, and even social networks.2 But even within your own network, 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 needs to 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 – collectivist and individualistic.

Collectivist attitudes3:

  • Are most often associated with people from “Eastern” societies 
  • Typically value financial goals that prioritize caring for others; for example, someone from a collectivist culture may place a higher value in retirement on caring for or providing for extended family 

Individualistic attitudes3:

  • Are typically found in people of “Western” societies
  • Often value personal goals and financial achievement; for example, they may prioritize travel or 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 all types of scenarios. For example, if caring for extended family is important to you, ensure your financial planning covers your financial situation and includes achieving the goal of caring for others. If your priority is traveling, you also 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:

1. Paradox of Choice

The paradox of choice theory says that the more information people are presented with, the more they struggle to make a decision. Think about restaurant menus as an example. Some restaurants offer only a few selections of main courses and appetizers, while others have multiple pages of options. Having more choices can often cause decision paralysis. The financial equivalent would be struggling to prioritize financial goals because you have too many that you’re trying to achieve.

2. Conservatism Bias

Conservatism bias is a cognitive bias where people prioritize original, pre-existing information over any new data. One financial example would be if your financial professional were to tell you that a certain sector had been performing well, but you dismissed any potential investment in that sector because you had a preconceived notion about that sector’s ability to provide return on investment.

3. Status Quo Bias

Simply put, status quo bias means that a person is prone to not changing their behavior. Examples could include:

  • Opening an account but then not setting it up in a way that will help you reach your unique goals
  • Not updating previously set financial goals, even as life circumstances evolve

4. Theory of Excessive Optimism

Another psychological factor to be aware of is what researchers call the theory of excessive optimism. This is when people assume the best-case scenario will always happen. One example of this would be assuming a 7% return on your investments every single year and not accounting for the possibility of bear markets. Another common way this can present itself is in planning for health care expenses. Some people may assume they’ll stay healthy for a long period of time, not accounting for the fact that health care needs and expenses typically increase as you age.4

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 your 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 Your financial professional may be able to help you determine strategies that best fit your needs and introduce options you hadn’t considered.