There is no such thing as a compartmentalized personal finance decision. We make money decisions surrounded by countless influences.
I wrote this post to help folks better understand the choices they make or their spouses make. In understanding, perhaps you can better diagnose the origin of some of your choices. Understanding will hopefully lead to more empathy and grace for yourself and your partner when mistakes are made.
This post explains the PPCT Model (Process-Person-Context-Time), the interplay between individuals and their environments over time. I promise not to get too wonky, but there is a science behind the structure of the ideas I am sharing.
Here's how each component of the PPCT model can relate to personal financial decision-making:
Our Interactions and Experiences Influence our Choices
The Process of the PPCT model refers to a person's interactions and experiences within their environment. Financial decision-making could include the behaviors and practices around managing money, such as budgeting, saving, and investing. These processes can be influenced by interactions with financial advisors, family discussions about money, or even engagement with financial education.
We know that well constructed financial education in schools leads to commonly expected patterns of responsible financial decisions. Similar findings include employer based financial education programs, often structured as "Just in Time" financial education (or information).
Hopefully, our Modern Husbands Podcast and Modern Husbands Newsletter subscribers make better financial decisions based on what they are learning or reading.
What is modeled in our upbringing might have shaped a strong foundation of financial responsibility, or it could have been full of financial traumas that has created a twisted relationship with money.
Personal Traits Impact Financial Choices
The Person component of the PPCT model looks at individual differences in personal traits, including financial knowledge, attitudes toward money, risk tolerance, and other personality traits that influence financial behavior.
Personal motivations, goals, and past experiences with money play crucial roles in shaping how one manages their finances. Setting financial goals with your spouse is a powerful exercise if you stay laser focused on reaching your goals together.
Personality traits also play a heavy hand in the financial choices we make. Take for instance those of us who are tightwads or spendthrifts. Tightwads hate to spend, unlike those who are highly frugal and simply love to save. On the other hand, a spendthrift is a person who spends money in an extravagant, irresponsible way.
One of my favorite conversations surrounding our personal was with Dr. Scott Rick, a behavioral economist at the University of Michigan. Dr. Rick wrote the book Tightwads and Spendthrifts: Navigating the Money Minefield in Real Relationships.
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The Context of Financial Choices
The Context of the PPCT model considers the external environment surrounding the individual, including social, familial, economic, and cultural contexts. For example, an individual's financial decisions can be influenced by societal norms regarding debt, the economic stability of the community, or the financial behaviors modeled by family and peers.
The Context of our choices is categorized as follows:
Macrosystem
A macrosystem is a broad culture of shared values, resources, lifestyles, and social patterns. Consider the striking spending differences and available resources today compared to the American culture depicted 150 years ago.
Exosystem
An Exosytem is the influence of external systems on the individual. The media and politics are two common external systems that influence us.
Politics has become tribal, meaning political parties are treated more like our favorite sports teams, to which we will remain fiercely loyal, no matter who is leading them or how badly they are performing. Politics have morphed into an umbrella of shared values with friends and family who often stick together with their political identities, celebrating or experiencing sorrow together.
If the facts fail to support our views or contradict what our tribe believes to be true, we can lie to ourselves or put our heads in the sand. Either way, doing so invites fraud into our financial planning.
We have written these two past posts designed for couples to decipher the truth about the current state of personal finances in America and an overview of the economic plans of each candidate:
Moreover, much of the media has morphed into a pick-your-politics series of channels failing to inform us truthfully. Before reacting to what you see in the media, consider whether the reporting is reliable and unbiased.
Click here to access the live Interactive Media Bias Chart.
Mesosystem
A Mesosystem is the interactions between microsystems. Take, for instance, how you interact with money in your marriage. You likely purchase things in your marriage that you otherwise wouldn't if you were single.
Microsystem
A Microsystem is the relationship between the individual and the immediate environment. Using Amazon as an example, you might be more willing to purchase a product with two quick clicks rather than pulling money from your bank account, driving to make the purchase, and then driving home.
How Time Influences Financial Decisions
The Time component of the PPCT model refers to the life stage and historical period in which financial decisions are made. Decisions might vary based on age, such as saving for retirement in later years or managing student loans in early adulthood.
It's commonly accepted that we are more prone to making choices that immediately impact us, oftentimes referred to as instant gratification.
Additionally, broader economic conditions at specific times, such as during a recession or boom, can impact financial decisions and opportunities. Take for instance the fact that savings rates skyrocket during recessions because people are scared.
Wrapping it Up
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