New Study Shows Ties Between Personality, Estate Planning

What You Need to Know

Agreeableness is associated with leaving unequal bequests to children, new research finds.
In addition to influencing bequest intentions, certain personality traits appear to be associated with better overall financial health.
Ultimately, it is worth an advisor’s time to study up on the psychology of financial planning.

Clients who display the well-studied personality traits of agreeableness and extraversion have a higher likelihood of engaging in more nuanced legacy planning that results in unequal distributions of wealth to their children, while those who are introverted appear likelier to divide their estate evenly among multiple heirs.

This is the central conclusion in a paper set to be published in the Certified Financial Planner Board of Standards’ Financial Planning Review. According to the paper, understanding the relationship between well-researched personality traits, such as conscientiousness, extraversion and agreeableness, can have substantial practical value, especially given the fact that implementing such insights is relatively easy and inexpensive for financial planners.

The paper also suggests these personality traits carry some degree of useful predictive power when it comes to clients who are creating and executing plans for spending down their wealth in retirement and leaving a legacy to the next generation.

According to the authors, knowledge of such traits can help both the advisor and the client more deeply understand their preferences for leaving either equal or unequal bequests to the next generation — and how such choices can affect satisfaction in retirement and the perceptions of younger heirs.

The analysis was put together by Matthew Sommer, a senior leader in the specialist consulting group at Janus Henderson, and HanNa Lim, an assistant professor of personal financial planning at Kansas State University.

According to Sommer and Lim, a little psychological insight can go a long way when advisors are helping clients with the potentially fraught task of setting lifestyle expectations in retirement and deciding how to divide their wealth as part of a legacy plan. Ultimately, Sommer and Lim argue, it is well worth a retirement-focused advisor’s time to study up on the psychology of financial planning.

Why Split an Estate Unequally?

As the authors point out, within the United States, individuals have significant flexibility to define their retirement lifestyle and to decide whether to leave a bequest to their children. And, if they decide a legacy is important, they also have great freedom to decide the relative amounts each potential heir receives.

While the majority of individuals intend to divide their estate equally, a “nontrivial” percentage intend to leave unequal bequests, the authors explain. They cite various studies that show approximately 20% of individuals plan to leave unequal bequests.

According to Sommer and Lim, the established literature identifies various reasons for unequal bequests, including the desire to assist those children who have the greatest need and to “repay” children who provided emotional or physical help. Other influential factors appear to be the presence of stepchildren or adopted children, as well as the amount of contact with different children over time.

Sommer and Lim say their contribution to this literature is the undertaking of an analysis of the way well-researched personality traits can help explain why parents may choose to divide their estate unevenly among their children — or spend down all their assets while living.

As the pair explain, one of the most widely accepted frameworks for describing personality traits (and the conceptual framework used for the new study) is the five-factor model. The five-factor model categorizes personality traits into the domains of openness to experience, conscientiousness, extraversion, agreeableness and neuroticism.

As Sommer and Lim point out, the original purpose of the five-factor model was to provide counselors and other mental health professionals a tool to better understand their patients’ emotional, interpersonal, experiential and motivational styles. Since its creation, however, the five-factor model has been used to investigate numerous topics, ranging from the association between personality traits and relationship quality to the relationship between such traits and financial well-being.

The authors say their new paper stakes out and seeks to answer the following question: “Was there a relationship between parents’ personality traits and the intention of leaving unequal bequests to their children?”

Setting Up the Analysis

To explore this question, Sommer and Lim draw on the 2016 wave of the University of Michigan’s Health and Retirement Study survey series, which collects data from about 20,000 U.S. household members ages 50 and older every two years.

The population of interest consisted of respondents with at least two living children and a written will that included any of the children, resulting in a useful final sample of 1,229 individuals. As Sommer and Lim spell out, a binary logistic regression model was used to investigate the association between each personality trait and the intention to leave unequal bequests.

According to the authors, approximately 17% of respondents intended to leave unequal bequests to their children, while 83% intended to leave equal bequests. Among the former group, 85% did not include all the children in their will and 15% included all the children but the will provided for an unequal division.

Based upon the conceptual personality trait framework discussed above, this study’s five main hypotheses are as follows:

There is a positive relationship between openness and the intention to leave unequal bequests to children.
There is a negative relationship between conscientiousness and the intention to leave unequal bequests to children.
There is a positive relationship between extraversion and the intention to leave unequal bequests to children.
There is a negative relationship between agreeableness and the intention to leave unequal bequests to children.
There is a positive relationship between neuroticism and the intention to leave unequal bequests to children.

Who Leaves Unequal Bequests

According to Sommer and Lim, this study’s first hypothesis predicted a positive relationship between openness to new experiences and unequal bequests. The hypothesis correctly predicted the direction of the relationship, but the results were not significant.

This finding is surprising, the authors say, as highly open individuals are nonconformists and original thinkers.

“If the majority of adults leave equal bequests, it would be reasonable to anticipate that respondents with high levels of openness would not select the most popular choice, but instead explore less utilized ideas and concepts such as unequal bequests,” the paper states. “In this case, however, no evidence was found to support this hypothesis.”