How We Act with Money: The 9 Key Financial Behavioural Traits and Thought Provoking Insights

1.0 Introduction

When you think about financial planning, “behavioural traits” probably aren’t the first thing that come to mind. While it’s true that financial planning involves numbers and projections (the “what” and “how”), a large part of the process also depends on how we tend to behave with money (the “why”).

If you’ve ever invested in mutual funds or completed a risk or investment profile, you’ve already engaged in a behavioural finance exercise. Those questionnaires that ask how you’d react to a 20% drop in your investments are designed to surface behavioural tendencies like risk tolerance. Even at a basic level, this helps tailor your investment strategy beyond a one-size-fits-all approach.

At Kinridge, we take this further. While risk profiling is part of our process, we aim to develop a deeper understanding of each client’s financial behaviours. This helps us anticipate how you might respond in different scenarios, assess whether a strategy is truly suitable, and build a financial plan that reflects your unique personality.

As part of our approach, we assess your standing across nine key financial behavioural traits. These insights help us understand not just what you do with your money, but why you do it. That allows us to offer advice that is more aligned, more personal, and more effective.

While there are many financial behaviour traits, there are nine financial behavioural traits that we deem to be essential, “key”, in determining financial personality.

The nine traits we focus on are:

• Risk Tolerance

• Loss Aversion

• Time Preference

• Overconfidence

• Herding Behaviour

• Mental Accounting

• Framing Bias

• Anchoring

• Emotional Regulation

While these tendencies are often referred to as ‘biases,’ people differ meaningfully in how strongly they express them, particularly under uncertainty, stress, or complexity. These differences tend to be stable enough to inform guidance, while still remaining responsive to context, learning, and experience.

2.0 The Nine Financial Behaviour Traits

2.1 Risk Tolerance

Risk tolerance is your willingness to accept uncertainty in financial decisions. It’s not something that is random. Your risk tolerance is shaped by stable traits (like personality and age), situational factors (like market volatility), and experience. Studies show it predicts real-world behavior, such as how much stock people hold or how they react to losses.

For example, someone with high risk tolerance might stay invested during a market dip, expecting long-term gains, while someone with low tolerance might sell early to avoid further loss.

Source: (Hemrajani, Rajni, Khan, & Dhiman, 2023)

2.2 Loss Aversion

Loss aversion is the inclination to feel the pain of losses more strongly than the pleasure of equivalent gains. It’s a well-documented bias in behavioral economics, supported by decades of research. This trait can distort decision-making across markets.

For example, investors may hold onto losing stocks to avoid realizing a loss, even when selling would be the smarter move. In real estate, sellers often overprice homes to avoid losses, reducing market efficiency. Loss aversion shapes behavior in ways traditional models often overlook.

Source: (Yang, 2023)

2.3 Time Preference

Time preference describes how people weigh immediate rewards against future benefits. Those with lower patience or stronger present bias tend to favor short-term gratification, even at the expense of long-term gains. This bias is scientifically measured through discounting tasks and has been linked to real-world outcomes.

For example, individuals with high present bias are more likely to overspend and carry credit card debt, while those with greater patience are more likely to save, invest, and maintain healthier habits, shaping long-term financial and personal well-being.

Source: (Horn & Kiss, 2020)

2.4 Overconfidence

Overconfidence is the tendency to overestimate one’s financial knowledge or decision-making ability. It’s driven by cognitive biases like self-attribution, optimism, and illusion of control, and is scientifically linked to increased risk-taking. Research shows that overconfident investors often trade more frequently and take larger positions, believing they can outperform the market.

For example, someone might ignore diversification and concentrate their portfolio in a few stocks, expecting outsized returns. However, this behavior often leads to greater volatility and inconsistent performance.

Source: (Abdin, Qureshi, Iqbal, & Sultana, 2022)

2.5 Herding Behavior

Herding behavior is the drive to follow the actions of others when making financial decisions. It has been shown to influence market dynamics, especially during periods of uncertainty. Research confirms that herding can lead to asset bubbles, volatility, and contagion across markets.

For example, during a market rally, investors may buy into rising stocks simply because others are doing so, even without strong fundamentals, which can inflate prices and increase the risk of sudden corrections.

Source: (Choijil, Méndez, Wong, Vieito, & Batmunkh, 2022)

2.6 Mental Accounting

Mental accounting is the habit of treating money differently depending on its source or intended use. People often divide finances into mental categories like “savings,” “fun money,” or “emergency funds,” which can lead to irrational decisions. Research shows this bias affects how individuals spend, save, and invest.

For example, someone might splurge a tax refund on luxury items while carrying credit card debt, even though using the refund to pay down debt would be more financially beneficial. These mental “buckets” shape real financial behavior.

Source: (Silva, Moreira, & Bortolon, 2023)

2.7 Framing Bias

Framing bias is the tendency to make different financial decisions depending on how information is presented rather than on its actual content. Research shows that investors respond differently to gains versus losses, even when the underlying data is the same. This bias can distort risk perception and lead to mispricing in markets.

For example, an investor might view a stock more favorably when its performance is framed as a gain over time rather than as a recovery from a previous loss.

Source: (Xie, Zhang, & Gao, 2023)

2.8 Anchoring

Anchoring is when we rely too heavily on initial information when making financial decisions. This bias can distort judgment even when the anchor is arbitrary or outdated. Research shows it affects investment choices, pricing, and risk management.

For example, an investor might refuse to sell a declining stock because they are anchored to its original purchase price, even when market conditions suggest it is time to exit. Anchoring can lead to suboptimal outcomes by limiting objective reassessment of financial information.

Source: (Wang, 2023)

2.9 Emotional Regulation

Emotional regulation is the ability to manage emotional responses during financial decision-making. Scientific studies using brain imaging show that regulating negative emotions can reduce risky behavior by activating areas of the brain responsible for cognitive control.

For example, an investor who can calm their anxiety during a market downturn is more likely to avoid panic selling and stick to a long-term strategy. This ability helps individuals make more rational choices by reducing the influence of fear or excitement on financial outcomes.

Source: (Morawetz, Mohr, Heekeren, & Bode, 2019)

3.0 Financial Behaviour Insights

How does this enhance financial planning in practice? Often, a financial plan comes with a list of tasks you need to complete to implement it. This is the action plan. These tasks might include things like transferring fifteen thousand dollars from your savings to your TFSA, purchasing life insurance, or contributing five hundred dollars every two weeks to your RRSP.

These are standard recommendations, and they often work. But the real challenge lies in following through. For example, someone with a high time preference may place more value on using that money now for something enjoyable rather than saving it for a goal that is fifteen years away. In that case, committing to a regular savings plan may feel unrealistic or even frustrating.

By understanding a person’s financial behaviour traits, and by extension, their financial personality, we can offer solutions that are more personalized and more likely to succeed.

Take a couple where one partner has a low time preference and the other has a high time preference. One is focused on the future, while the other prefers to enjoy the present. In this case, the savings strategy needs to reflect both perspectives while still moving them toward their shared goal of retirement.

One way to do this is by setting up automatic monthly RRSP contributions that are consistent but manageable. This supports the long-term thinker who values structure and steady progress. At the same time, a small portion of each contribution can be directed into a flexible spending account. This gives the present-focused partner a sense of immediate reward while still contributing to their future.

By balancing structure with flexibility, we can honour both partners’ natural tendencies and create a plan that is not only effective but also sustainable.

4.0 Conclusion

The financial behaviour traits discussed in this article are not an exhaustive list. They represent the nine key traits that we at Kinridge consider essential in shaping an individual’s financial personality.

By understanding the degree to which each trait is present, we can gain meaningful insights into a person’s financial behaviour. These insights allow us to deliver more personalized financial planning and provide advice that aligns with each client’s unique financial personality.

5.0 Sources

Abdin, S. Z. ul, Qureshi, F., Iqbal, J., & Sultana, S. (2022). Overconfidence bias and investment performance: A mediating effect of risk propensity. Borsa Istanbul Review, 22(4), 780-793. https://doi.org/10.1016/j.bir.2022.03.001

Choijil, E., Méndez, C. E., Wong, W.-K., Vieito, J. P., & Batmunkh, M.-U. (2022). Thirty years of herd behavior in financial markets: A bibliometric analysis. Research in International Business and Finance, 59, 101506. https://doi.org/10.1016/j.ribaf.2021.101506

Hemrajani, P., Rajni, Khan, M., & Dhiman, R. (2023). Financial risk tolerance: A review and research agenda. European Management Journal, 41(6), 1119-1133. https://doi.org/10.1016/j.emj.2023.10.004

Horn, D., & Kiss, H. J. (2020). Time preferences and their life outcome correlates: Evidence from a representative survey. PLoS ONE, 15(7), e0236486. https://doi.org/10.1371/journal.pone.0236486

Morawetz, C., Mohr, P. N. C., Heekeren, H. R., & Bode, S. (2019). The effect of emotion regulation on risk-taking and decision-related activity in prefrontal cortex. Social Cognitive and Affective Neuroscience, 14(10), 1109–1118. https://doi.org/10.1093/scan/nsz078

Silva, E. M., Moreira, R. de L., & Bortolon, P. M. (2023). Mental accounting and decision making: A systematic literature review. Journal of Behavioral and Experimental Economics, 107, 102092. https://doi.org/10.1016/j.socec.2023.102092

Wang, B. (2023). The impact of anchoring bias on financial decision-making: Exploring cognitive biases in decision-making processes. Studies in Psychological Science. Retrieved from https://www.pioneerpublisher.com/SPS/article/view/412

Xie, J., Zhang, B., & Gao, B. (2023). Market framing bias and cross-sectional stock returns. PLoS ONE, 18(8), e0290500. https://doi.org/10.1371/journal.pone.0290500

Yang, Y. (2023). The impact of loss aversion on people’s behavior in different markets. Advances in Economics, Management and Political Sciences, 14, 345–352. https://doi.org/10.54254/2754-1169/14/20230851