The idea that culture and economic merit are linked to a certain degree has been a prevalent approach to understanding why certain cultures and societies prosper more than others.
While a wide range of factors, including geographical ones, can and do influence economic output, how cultural factors manifest themselves in economic activity is nonetheless very interesting to observe.
The prevalence of a particular mindset can have major implications on the success and general characteristics of a society.
For instance, economies that are characterized by a growth mindset tend to go through periods of intensive economic and productivity growth. On the other hand, such societies may also go through major downturns as well.
Economists and sociologists study the implications of cultural factors on individual mindsets in order to understand the characteristics and reasonings behind the economic performance of particular economies.
Fixed and growth mindsets – what are they and how are they different?
When discussing the mindsets of individuals, people often distinguish between a fixed mindset vs a growth mindset, which are derived from deeper cultural characteristics of a particular society:
- A fixed mindset is characteristic of a conservative society that favors the status quo and is generally risk-averse. Individuals with such mindsets tend to favor more measured risk-taking and prefer fixed-income investments and value stability over rapid growth
- A growth mindset is generally characteristic of more liberal and change-oriented culture. Such individuals have a higher risk tolerance and may prefer financial instruments that are more volatile and have a higher potential upside
Cultural factors can greatly influence the formation of individual mindsets, based on the character traits and attitudes that are encouraged by the society and its culture.
These differences manifest themselves in a variety of ways, from what and when individuals invest in, to when they retire, how many hours they work a week, and much more.
We will discuss the differences in financial decisions between individuals with growth and fixed mindsets in greater detail below.
How does an individual mindset affect financial decisions?
To better understand how the differences between individuals with growth and fixed mindsets may differ from one another in terms of financial decision making, we must first understand the core points of contention between the two cultural norms.
A more conservative culture with fixed values is more likely to have a focus on stability, a predictable routine, favoring the status quo and choosing short-term gains over long-term prospects.
Conversely, a growth-oriented culture has a higher appetite for risk-taking and is more adaptable to changing circumstances.
Risk vs Stability
Individuals with a fixed mindset are characterized by an overwhelming desire for stability, which is a trait most often associated with blue-collar workers that save up over their lengthy careers to eventually reach a comfortable retirement.
While this may also be accepted by growth-oriented individuals, they are much more likely to take risks and enter into ventures with a higher risk of failure and huge potential upside.
This difference also often manifests itself in accordance with the demographics and age structures of a particular society, as young people are more likely to take on risks and seek out new opportunities.
Adaptability vs Routine
People with a growth mindset also tend to be more adaptable as they change their circumstances (and often their geographical location) fairly often in search of better opportunities.
On the other hand, a fixed mindset favors a more predictable routine and a comfort zone that may either manifest itself as stability and confidence on the positive side, or laziness and conformity in the negative.
Long-term vs Short-term
A fixed mindset often lends itself to a focus on more immediate demands and needs, which stimulates short-term decision making.
Such a mindset can sometimes manifest itself as a somewhat pessimistic, or cautious attitude towards the future and anxiety towards potential outcomes of major decisions.
Conversely, an individual with a growth mindset is broadly more optimistic and is more likely to make long-term future plans and structure their financial decisions around a long-term approach.
Fixed and growth mindsets in investments and trading
One aspect of life that greatly illustrates how the differences between the fixed and growth mindsets manifest themselves are personal finances and investments.
For example, someone with a fixed mindset may be more self-conscious and risk-averse, which is why such individuals may choose to excessively diversify their investments and choose fixed-income investments over growth-oriented instruments, such as stocks and cryptocurrencies.
Conversely, individuals with a growth mindset are more likely to take risks and choose higher short-term upside over lower, but predictable returns.
These differences are not irreversible however, and are rooted in demographics, just as much as they are in cultural factors.
Overall, studying the cultural history of a particular society could be key to understanding why a growth mindset takes precedence over a fixed mindset, or vice versa.
