Financial decisions made by individuals and organizations alike can be driven by a large variety of factors. An increasingly significant factor affecting financial decisions is culture. How an individual or collective is influenced by the values, norms, and behaviors of their particular culture can heavily affect how and why financial decisions are made. Whether this be through traditional beliefs about money, societal norms, or simply personal values, culture is proving to be a powerful influence on financial decisions.
What is Culture?
Culture is the body of values and norms shared by members of a particular society. It mostly manifests itself through language, literature, beliefs, and customs unique to that society. Culture includes an individual’s values and beliefs, including their sense of identity, as well as their sense of entitlement, motivation and attitude. Cultural influences have a fundamental impact on how we think and act; as an individual’s understanding of cultural norms and beliefs can dictate their financial decisions, creating different benefits and detriments for them and others.
Types of Cultural Influence
There are many different types of influences that culture has on financial decisions. Three of the most prominent are:
Traditionalism
Traditionalism is a concept that’s been around for centuries. It is defined as the belief in and adherence to traditional values and practices. When it comes to finance, traditionalism has a large influence on how decisions are made. Traditional beliefs of how money should be acquired, invested and spent can all play a role in how financial decisions are made. For example, in some cultures it is traditional to save rather than invest, or even to donate a certain portion of their earning to charitable causes.
Normative Influence
Normative influence is based on the social norms and behaviors that have been established by society. Norms act as a cue to action and provide individuals with a shared understanding of what is right and wrong when it comes to making financial decisions. This can include, for instance, what is normal or expected when it comes to spending, saving and investing. It can even dictate how much debt individuals can take on and how risky investments should be. Normative influence has a strong hold over personal financial decisions, offering social acceptance and inclusion for those who abide by those normative standards.
Personal Values
Personal values are the individual’s beliefs and preferences which greatly influence how they make their financial decisions. Values, such as religion, family, career and health, can highly influence how much one is willing and able to spend on certain things, how much money should be set aside and how it should be invested. Additionally, motivation also plays an important role in financial decisions. The desire to enhance long-term financial security or achieve short-term luxury can influence decisions as well.
Beneficial and Detrimental Cultural Influences
Culture has a significant impact on how financial decisions are made. Each type of cultural influence discussed can have both beneficial and detrimental effects.
Benefits of Traditionalism
Traditionalism is beneficial in that it can often lead to more prudent financial decisions. The time-tested advice of following certain values and beliefs can be helpful when making a financial decision. This advice can often be more easily accepted in a traditionalist society, as it is seen as an absolute norm and standard.
Benefits of Normative Influence
Normative influence can also be of benefit because it can act to prevent reckless spending or investment decisions. Adhering to societal standards can provide boundaries and rules for responsible financial decisions to be made which can be beneficial in the long run.
Benefits of Personal Values
Personal values can also be beneficial in the sense that it allows individuals to prioritize their spending and investment decisions according to what is important to them. Making decisions based on personal values provides one with a sense of autonomy and control over their financial future.
Detrimental Effects of Traditionalism
The main detrimental effect of traditionalism on financial decisions is the risk of falling prey to outdated beliefs or strategies that may not actually be in the individual’s best interest. Long-held beliefs in a culture can often blind an individual to more modern strategies and ideas on handling their finances.
Detrimental Effects of Normative Influence
The main drawback of normative influence is that it can lead to unadventurous, safe decisions. Adherence to a particular societal standard can also lead to individuals feeling like they are missing out if they don’t partake in similar, more high-risk investments.
Detrimental Effects of Personal Values
The main downside to basing financial decisions on personal values is that they can conflict with more traditional strategies. For example, if traditionalism influence tells an individual to save more money and personal values determine that investing in a long-term project is more important, this can cause inner conflict and an inadequate response to financial decision-making.
Cultural influences are a powerful force when it comes to financial decisions. Every type of cultural influence can have both beneficial and detrimental effects on how and why these decisions are made. Whether this be traditional beliefs about money, societal norms, or personal values, being aware of these influences can help us make better, more informed decisions about our own finances.
