- Behavioural finance
- Money personality
- Understanding risk profiles
- Issues associated with fear and greed
- Financial neuro-linguistic programming
How was the term finology derived?
Dick Wagner, one of the ‘fathers’ of the Financial Planning Association (FPA) wrote the words below relating to Finology:
In order to effectively study something, we must name it. The name must be accessible, pronounceable and logical. For example, no one would talk about “the stuff of our imaginations, our dreams, idiosyncrasies, habits and feelings.” Such a name would make study of the phenomena of human behaviour impossible. Rather, we have adopted the more logical and concise term “Psychology” to describe our study of ourselves, defined as:
1: the science of mind and behaviour
2a: the mental or behavioural characteristics of an individual or group
2b: the study of mind and behaviour in relation to a particular field of knowledge or activity
3: a theory or system of psychology
The word “psychology” is short, sweet, simple and to the point. Its definition and history are logical in creation and elegant in expression. It effectively enables the proper study of humanity’s behaviors.
Unfortunately, there is no similar word in commonly accepted existence to describe the study of individuals and money. The word “finology” will cure that lapse
Following the lead set by defining the word “psychology,” the appropriate definition of “finology” is:
1. The ontology of money and behaviour.
2. The study of mind and behaviour in relation to money and the money forces.
3. The theory or system of finology.
The word works. I believe it is noteworthy that the word “finance” has its origins in debt and one at a time transactions. It anticipates the notion that finance involves two or more individuals.
This word prepares the ground for a robust garden of knowledge. Tilling and harvesting that garden will help us practice the arts and crafts of finology. That, in turn will help how we, as human beings, relate to money and its awesome forces. (Wagner, www.worthliving.com)
Finology vs Behavioural finance?
Contrast finology as defined above with the brief definition of behavioural finance below:
Behavioural finance integrates ideas from the fields of individual and social psychology with classical financial theory to understand the performance of markets. The key idea of behavioural finance is that market participants do not always make decisions rationally and biases exist. (Investorglossary.com)
So while behavioural finance focuses on the relationship between individuals and the performance of markets, finology describes the relationship between financial planning and individuals and money.
Why is finology important?
- Finology focuses on the ‘soft skills’ of financial planning to help advisers understand how people think and react to information and advice. Finology can help an adviser understand how to save clients from themselves.
- By being able to better understand why clients think and act the way they do, an adviser will be able to better tailor advice and products to ensure the client has the most appropriate investment or insurance solution.
- The relationship between the adviser and client will become deeper and more meaningful and the level of trust will inevitably increase.