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The psychology of banking

On understanding the motives of bankers and clients in the banking business using knowledge of psychology…

Since financial markets are going through rapid change and considerable turmoil, I thought I should do a psychology of banking. I’m going to get away from all of economics and just focus on what it means to be a banker or an investor from a psychological perspective. Of course, the driving force in banking is money, and banks thrive in a consumer culture. Banks have various functions, from stabilizing an economy to stabilizing a person’s credit history, and banks may have a business, investment, savings, retail, private, or mortgage focus. There are two ways in which the psychology of banking could be framed. One way is to understand the psychology of the banker and the other is to get inside the mind of the client or client/investor. Banking is like any other business, but the only difference between banking and other businesses is that, in the case of banking, bankers and customers deal directly and only with money and this can have a significant impact on the importance they place on their banking. Money is something primitive and raw, it’s almost like an object that stimulates some kind of basic need, and the prospect of dealing with raw money is exciting and intimidating.

The banker:

The banker’s psychology is based on his personal, social and political need for money. The banker is concerned above all with his own earnings, with how much more is added to his account and it is almost an addiction. Just as a merchant or store owner is obsessed with available goods, the banker will be obsessed with money that he can lend, borrow, or do business with. The dire need to make more money is what drives bankers in the first place. This could be considered a ‘personal’ need and a desire for money to largely satisfy personal desires. Presumably any business or investment banker or broker or anyone in the financial sector will have a healthy or unhealthy personal need for money. Of course, we all need and love money, but bankers are more focused on money.

Secondly, the banker, being in love with money, focuses not only on his money but also on other people’s money. It is essential to understand that money is still the main object of a banker’s attention and that the smell of money can cause him to have a rather altruistic approach, so there is a general or “societal” need to protect and nurture other people’s money as well.

Third, the banker has a greater political need, whether to handle/control his own money or other people’s money, and this ‘political’ need would stem from understanding the economic condition of the country and realizing that he has an active role to play in stabilizing the economy.

While the primary personal need for money satisfies the basic drives of individuals, the social need to protect other people’s money is rather altruistic, and the political need to stabilize a nation’s economy is largely a need for power. Money for a banker thus serves his altruistic desires, his needs for power and his personal desires. This can almost be explained psychologically with a hierarchical Maslow model in which basic desires come first, followed by needs for power, and then altruistic needs. Considering this, any banker would be firstly interested in his own profits, secondly in the economy and stability of the nation and only lastly concerned with his clients and investors.

The clients:

The second aspect of the discussion is about how banking could help derive the psychology of customers, clients or investors. There are different types of customers and people have different priorities or expectations of banks and bankers. Clients may need a loan, need to invest or need to save depending on their age or the stage of life they are in. For example, young students and lower income people are interested in obtaining credit facilities through credit cards and loans and they consider banks as a support to cling to for their financial problems. Of course, borrowing is equally important for entrepreneurs and professionals, but the motivation may be different. The need for ‘indebtedness’ derived in turn from personal or professional needs would be the most important reason for banking among young people and young people, students, graduates or people who are between jobs or new jobs will be propelled to banking by their borrowing needs. In general, people between the ages of 18 and 30 tend to be less interested in interest rates and more interested in the loan facilities they can obtain with their credit cards or loans during this phase of their lives.

Young professionals and middle-aged people are often more bank-savvy and would seek to increase their already-earned money through investments. This is the group focused on better interest rates and better investment returns over direct lending unless absolutely necessary. Young and middle-aged professionals’ need for ‘investment’ can overlap with borrowing needs when buying a home or setting up a new business becomes a priority. However, this is again about investments, so people aged 30-55 are mainly looking for investments and bank support to meet their investment needs during the crucial ‘construction’ phase of their lives. Late midlife to old age is marked by an increased fear of life losses and the need to save for the future. We are tuned to worry about the future and mainly about old age and dependency. With the decline in physical strength and a productive working life being very real, we want to save for old age, which begins after age 50 and continues at least until age 70. Although this realization should come to us sooner, we generally don’t seem to manifest our savings needs until at least middle age. During late middle age, banking needs are primarily motivated by a need for “savings” and clients in their late middle age are looking to save their earnings and are not overly concerned with investments. This is a time when people begin to consciously withdraw from social and professional life, albeit very gradually. Older men and women simply want their money to be there when they need it during this ‘moving on’ phase of life.

Of course, during old age, the need to borrow, invest, or save gradually diminishes. The psychological phases described above are general and do not consider individual differences. Many people develop savings or investment needs early in life, and there may be social and cultural patterns in people’s banking and financial behavior. Considering a more subjective/individualistic point of view, the borrowing, saving and investment needs of any individual can be explained in an interesting way with the help of psychoanalysis. Freud suggests that we all go through oral, anal, phallic, latency, and genital phases of sexuality in our childhood and that our personality patterns are largely determined by whether we have effectively resolved conflicts during this period or simply stuck to a certain stage. Thus, anal retentive personalities are those who have an excessive need for control or precision, which is why these individuals are more likely to save from a very early age and even show extreme parsimony in matters of money or banking behavior. The anal expulsive personality is the one who wastes too much, so these individuals will be interested in going into excessive debt and can turn their credit history into a disaster. Oral aggressive personalities are the ones who are ambitious and have extreme investment needs and while this can be a positive aspect, bankers need to be aware of the more psychological aspects of people before lending too soon. Perhaps banks should psychologically test people before lending to understand which customers are likely to pay and which customers are likely to default, and perhaps then we can prevent bank disasters in the future.


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