Building Financial Capability by Pakanui Tuhura

Over the last 12 months the budget advice sector has reviewed the services offered by budget services around the country and this has resulted in a greater focus on developing client potential, responsibility and accountability by learning how to make sound decisions around money that will be best for themselves and their families long term. So how do budget advisers make sound money decisions?

One of the tools used is summarized in Maslow’s 5 Tier Hierarchy of Needs which seeks to explain what motivates people in their everyday lives and decision making. Starting with the primary tier of Physiological need motivators such as food, shelter, warmth and the rest works its way through tier 2 Security and Safety, tier 3 Belongingness and Love, tier 4 Self-esteem to the final tier of Self-actualization or achieving full potential. The first two tiers are sometimes referred to as our ‘Basic needs’ as they deal with physical motivators that allow us to continue to live. The next two tiers are our psychological motivators as they deal with our relationships with others and how we see ourselves. The final tier is a need for self-fulfillment. The important thing Maslow found was that people dealt with basic needs first then moved to psychological needs and then pursued self-fulfillment if they wanted to prosper.

Budget Services have known this from the very beginning and when we provide advice we first deal with how well our clients are meeting their basic needs then we look at what people want to achieve. Sometimes there isn’t enough money in the household to get past tiers 1 and 2 but the client insists on spending on items for tier 3 or 4. Few of our clients come to us for self-fulfillment but it would be nice to have people come in, tell us they have too much money and how do we think they should spend it. My immediate thought would be to become a philanthropist and donate to worthy causes and then bask in the glow of having done something outside of the loop, but I don’t think it will ever happen.

The wonderful thing about tiers 3 and 4 is that you don’t need money to achieve them. How we relate to family and others around us and how we view ourselves certainly shouldn’t relate to our bank balance but somehow it does in today’s society where spending on the latest gadget, app or access to social media networks is crucial to “belong”. Frankly I don’t buy into it, preferring to socialize with friends and family face to face rather than online groups. Don’t get me wrong, the online social media is a wonderful tool for connecting distant family and friends but it shouldn’t come at the cost of meeting basic needs.

I think you can do a lot worse than considering Maslow’s hierarchy when deciding on where you want to spend your money. Consider where you are in the tier system and then spend your money where it is most appropriate with any leftover going to higher tiers.

Pakanui Tuhura
Manager –   Rotorua Budget Advisory Service