Internal factors are those that come from within people themselves. The key internal factor that affects someone’s choices is their own personal set of values, beliefs and attitudes.
Internal factors are those that come from within people themselves. The key internal factor that affects someone’s choices is their own personal set of values, beliefs and attitudes. These may change with circumstances and as the person passes through the stages of the life cycle, but they will probably not change significantly, as beliefs and values tend to be fairly stable. Values, beliefs and attitudes affect the way people manage their money.
Sometimes, our perception of a situation is influenced by our own experiences. These will also be affected by our own values and attitudes. Our values, for example, may tell us that a risk to the well-being of people is more important than a risk to property, and this could affect how much of a priority we give to buying insurance products. In particular, many people perceive a higher risk in something they are particularly anxious about than in something they don’t much worry about.
A financial example could be a person’s attitude to saving for their old age. When they are young, they probably do not find it important: they are more interested in immediate expenses or perhaps in saving up for a car or their own home. They feel that their retirement is so far away that it is not worth worrying about it now. As they get older, however, they begin to realise that they have not saved much and their attitude becomes more positive; because retirement is nearer, it seems more important to them.
Attitudes to risk are also important. Risk is the likelihood that a particular event will happen or that people might gain or lose from buying a particular financial product. Different people have different attitudes to risk.
External factors are those that are not within your control but are imposed from outside.
Major factors include:
Many people are influenced by trends and fashions, and these can sum up the mood of the times. For example, if people are worried about the future because the global economy is not performing well and there are few jobs, they may want to be more careful with the way they spend their money than they would when the outlook is good.
Trends also influences what people buy – for instance, some people like to have the latest smartphone. Current trends and fashions tell us something about the attitudes and values that people hold and can influence the decisions and choices that they make.
Trends are also found in the area of financial services, and they affect:
Social networking sites, such as Facebook and Twitter, are major influences on attitudes. They reveal what other people – especially peers – are doing and what is, or is not, fashionable, and they do it in a much faster way than ever before. It is easy to be influenced by such information.
Achieving Financial Awareness
Life Cycles
A personal life cycle attempts to summarise the key phases which all individuals go through during their lifetime matched with their changing financial needs
Needs, Wants and Aspirations
Needs are essential, ‘must-have’ items that everyone must have to survive
Money Value
Prior to making the decision of borrowing money, it is important to first decide not to buy the things that we want