Personal Finances And Hierarchy Of Human Needs

Abstract

There are certain mechanisms, known to managerial experts, used to enhance the performances of human resources within firms. Overview of efficient theories used in contemporary managerial techniques will lead us to possibilities of implications on management of personal portfolios. Personal finances, as very underestimated field of study, are usually left to be managed by common sense of each individual. In this survey we will investigate possibility to apply efficient managerial techniques on management of personal finances. This kind of application itself is not new but her purpose was to increase sale of services and products produced by financial institutions. Our intention is to select modality that will increase performances of personal incomes by motivating each individual to optimal allocation of its money. Major difference between this survey and similar surveys consists of basic approach and goals which are financial instead of marketing goals. [PUBLICATION ABSTRACT]

Headnote

Abstract

There are certain mechanisms, known to managerial experts, used to enhance the performances of human resources within firms. Overview of efficient theories used in contemporary managerial techniques will lead us to possibilities of implications on management of personal portfolios. Personal finances, as very underestimated field of study, are usually left to be managed by common sense of each individual. In this survey we will investigate possibility to apply efficient managerial techniques on management of personal finances. This kind of application itself is not new but her purpose was to increase sale of services and products produced by financial institutions. Our intention is to select modality that will increase performances of personal incomes by motivating each individual to optimal allocation of its money. Major difference between this survey and similar surveys consists of basic approach and goals which are financial instead of marketing goals.

Key words: personal finances, theory of motivation, portfolio management,

Introduction

This survey will explore possibilities of improvement in field of management of personal portfolio by implementing basic efficient rules of management. Our focus will be on motivation theories that are found efficient in contemporary management.

Main idea is to help individuals to increase there managerial skills in management of there personal portfolios. The successful manager is one who provides his or her employees with the opportunity to satisfy their own needs and if we apply this axiom on personal finances management, we can say that financially successful individual is one who provides to his/hers household members with the opportunity to satisfy their own financial needs.

First chapter is dedicated to overview of contemporary motivation theories which will lead us to the selection of most appropriate theory to be applied on Personal Finances management. Motivation theories differ on where the energy is derived and on the particular needs that a person is attempting to fulfill, but most would agree that motivation requires a desire to act, ability to act, and having an objective. There are numerous theories of motivation. We will describe six theories with special emphasis on Maslow s Need Hierarchy Theory.

Second chapter intents to explain some basic issues connected to Personal Finances and to emphasize importance of rational governing of Personal Finances. In order to do so we had to look some statistical researches from EU zone. Although Europe if lingering behind USA when it comes to Personal Finances, which can be witnessed by number of study programs that include teaching Personal Finances, there is strong evidence that there is a necessity of reinforcement of current study programs with some theoretical and practical knowledge from this specific field of study.

Third chapter will serve us to consolidate basic postulates and findings from first two chapters. Maslow's theory and Maslow's theory of human needs is inevitable in all considerations which analyzes the individual and the decisions that individual makes. Exceptions are not financial decisions an individual makes and they are also consistently associated with Maslow's theory.

Finally we will withdraw some conclusions that derive from our theoretical overview.

1. MANAGEMENT BASED ON THEORY OF MOTIVATION

Understanding what moves an individual to action is crucial in a description of manager's job. A manager's job is to get people to do things because they want to do them. The successful manager is one who provides his or her employees with the opportunity to satisfy their own needs. Motives are inner needs or desires and these can be conscious, semi-conscious or unconscious (John Adair, 2004.) Motivation begins with the needs that exist within us Motivation can be defined as that which makes people act or behave in the way they do. In a work environment, it is sometimes viewed as the difference between what people can do and what they will do. Organizational scientists and practitioners have long been interested in employee motivation. This interest derives from the belief and evidence that there are benefits from having a motivated workforce (Locke & Latham, 1990; Meyer & Allen, 1997; Pinder, 1998). Theories of work motivation evolved out of more general theories of motivation (see Steers, Porter, & Bigley, 1996) and have largely been applied to explain task performance (Miner, 2003.). People sometimes make the mistake of trying to motivate others on the basis of faulty assumptions about their future behavior. We observe behavior and draw conclusions from it, but very often we do not know what the motivating factor is. Much information has been published and theories put forward about motivation. We shall consider some of them in this article. Why do we need to learn about motivation? Because motivation offers several importances to the organization and to the employees: higher efficiency, reduce absenteeism, reduces employee turn over, improves a corporate image, builds good relations, improves morale, reduces wastages and breakages, reduces accidents, facilitates initiative and innovation. Many theories have been set forth to explain employee motivation (see Kanfer, 1 990; Pinder, 1 998). None of these theories are complete, but most of them make meaningful contributions to our understanding of what is obviously a complex process. Locke (1991, 1997) noted that each of the different theoretical orientations offers a unique perspective and can be combined to form a general model. A simplified description of the motivation process is described by Locke (1997). Goal setting is among the most dominant theories of work motivation (Miner, 2003). At the heart of the motivation process is goal setting. Presumably all consciously motivated behavior is goal-oriented, whether the goals are self-generated or assigned by others. Naturally occurring goals derive from the activation of basic human needs, personal values, personality traits, and self-efficacy perceptions shaped through experience and socialization.

1.1. Concept of Motivation

Motivation has been a difficult concept to properly define, in part because there "are many philosophical orientations toward the nature of human beings and about what can be known about people". (Pinder, 1998, Dewsbury, 1978, Kleinginna and Kleinginna, 1981). Pinder (1998) provided the most satisfying definition of work motivation: Work motivation is a set of energetic forces that originates both within as well as beyond an individual's being, to initiate work-related behavior, and to determine its form, direction, intensity, and duration. Managers need to create an environment that will allow employees to motivate themselves. People do things for reasons. These reasons are called motives. Everything an employee does is to satisfy a motive. If an employee fails to do something, it is generally because he or she does not see any personal advantage in doing it; it does not satisfy some specific motive. There are two noteworthy features of motivation definition. First, motivation is identified as an energizing force - it is what induces action in employees. Second, this force has implications for the form, direction, intensity, and duration of behavior. It explains what employees are motivated to accomplish, how they will attempt to accomplish it, how hard they will work to do so, and when they will stop. Concepts of motivation are somewhat abstract. To analyze factors that influence motivation, six motivation theories will be discussed in this article. Figure 1 shows a conceptual model of motivation (Hassan Ali Halepota, 2005). At point A, a person has needs and tries to fulfill those needs. At point B, the person finds the sources of fulfilling those needs. At point C, he engages or motivates himself to achieve tasks to fulfill his needs. At point D, once he achieves his goal, new needs or variations of those original needs will be achieved. In this way, he will remain motivated.

1.2. Motivation Theories

The term "motivation" derived from the Latin word movere, meaning to move (Kretiner, 1998). Motivation theories differ on where the energy is derived and on the particular needs that a person is attempting to fulfill, but most would agree that motivation requires a desire to act, ability to act, and having an objective. There are numerous theories of motivation. We will describe six theories with special emphasis on Maslow s Need Hierarchy Theory.

1.2.2. Douglas Mc Gregor: Theory X And Theory Y

In The Human Side of Enterprise, (1987, Penguin) McGregor stated that managers who use the carrot and stick approach held a set of propositions he called Theory X: He also concluded that workers treated as if they fitted Theory X were unlikely to perform effectively and he suggested that a new set of propositions should be considered. Theory of X assumes Maslow's lower level needs dominate in employees. Whereas Theory of Y, assumes Maslow's higher level needs dominate in employees.

1.2.3.McLelIandDsTheory of Needs

According to David McClelland, regardless of culture or gender, people are driven by three motives: · achievement, · affiliation, and · influence.

McClelland identified three types of people, and suggests in Human Motivation that each of us fit into one of the following:

* Achievement motivated: desire for excellence, likes doing a good job, wants a sense of accomplishment, wants to advance in career, needs feedback.

* Authority motivated: likes to lead, to give advice, wants prestige and job status, enjoys influencing people and activities, likes their ideas to predominate.

* Affiliation motivated: likes to be popular and well thought of, desires friendly relations, interaction, dislikes being alone, likes to help other people, is a team player.

According to McClelland, the presence of these motives or drives in an individual indicates a predisposition to behave in certain ways. Therefore, from a manager's perspective, recognizing which need is dominant in any particular individual affects the way in which that person can be motivated. People with achievement motives are motivated by standards of excellence, delineated roles and responsibilities and concrete, timely feedback. Those with affiliation motives are motivated when they can accomplish things with people they know and trust. And the power motive is activated when people are allowed to have an impact, impress those in power, or beat competitors. Since McClelland's first experiments, over 1,000 studies relevant to achievement motivation have been conducted. These studies strongly support the theory.

1.2.4. Equity theory

People are motivated by their need for fair treatment. Justice consists of a balance between a worker's inputs in a given situation (e.g., ability, seniority) and its outcomes (e.g., money, promotions). Equity exists when output/input ratios for the individual employee and the reference source (e.g., co-worker, profession) are equal. Individuals compare their job inputs and outcomes with those of others and then respond so as to eliminate any inequities. This theory of motivation canters around the principle of balance or equity. According to this theory level of motivation in an individual is related to his or her perception of equity and farness practiced by management. Greater Ihe fairness perceived higher the motivation and vice versa. In this assessment of fairness, employee makes comparison of input in the job ( in terms of contribution) with that of outcome (in terms of compensation) and compares the same with that of another colleague of equivalent cadre.

1.2.5. Victor VroomDs Expectancy Theory

In recent years, probably the most popular motivational theory has been the Expectancy Theory (also known as the Valence-Instrumentality-Expectancy Theory). Although there are a number of theories found with this general title, they all have their roots in Victor Vroom's 1964 work on motivation. Vroom's theory assumes that behavior results from conscious choices among alternatives whose purpose it is to maximize pleasure and minimize pain. The key elements to this theory are referred to as Expectancy (E), Instrumentality (I), and Valence (V). Critical to the understanding of the theory is the understanding that each of these factors represents a belief. Vroom's theory suggests that the individual will consider the outcomes associated with various levels of performance, and elect to pursue the level that generates the greatest reward for him or her. Expectancy refers to the strength of a person's belief about whether or not a particular job performance is attainable. Assuming all other things are equal, an employee will be motivated to try a task, if he or she believes that it can be done. A number of factors can contribute to an employee's expectancy perceptions:

* * the level of confidence in the skills required for the task

* * the amount of support that may be expected from superiors and subordinates

* * the quality of the materials and equipment

* * the availability of pertinent information

If an employee believes that a high level of performance will be instrumental for the acquisition of outcomes which may be gratifying, then the employee will place a high value on performing well. Vroom suggests that an employee's beliefs about Expectancy, Instrumentality, and Valence interact psychologically to create a motivational force such that the employee acts in ways that bring pleasure and avoid pain. People elect to pursue levels of job performance that they believe will maximize their overall best interests (their subjective expected utility). This theory helps explain why a lot of workers aren't motivated on their jobs and merely do the minimum necessary to get by. It states that an employee is motivated to exert a high level of effort when he or she believes effort will lead to a good performance appraisal. A good appraisal will lead to organizational rewards like a bonus, a salary increase or promotion; and the rewards will satisfy the individual's personal goals. One possible source of low motivation is the belief by the employee that no matter how hard he or she works, the likelihood of getting a good performance appraisal is low. Many employees see the performance-reward relationship in their job as weak, because organizations reward a lot of things besides just performance. So, if salary is allocated on the basis of seniority, length of service, being co-operative or 'sweet talking' the boss, employees are likely to see the performance reward relationship as being weak and demoti vating. The rewards also need to be tailored to individual employee needs.

1.2.6. The motivator hygiene theory

Motivation-Hygiene Theory, also known as the Herzberg's Two Factor Theory, was derived from a study designed to test the concept that people have two sets of needs:

* their needs as animals to avoid pain

* their needs as humans to grow psychologically

Intrinsic factors are related to job satisfaction, while extrinsic factors are associated with dissatisfaction. Hertzberg identified the following true motivators as contributing to high morale and job satisfaction: achievement, recognition, responsibility, promotion, prospects and nature of the job. He also noted these 'hygiene' factors whose absence or inadequacy in a job produces poor performance and dissatisfaction: higher authority policy, pay, type of management, working conditions, relations with colleagues and fringe benefits. Hertzberg's research led him to the conclusion that the 'hygiene' factors were rarely high motivators. People tend to take fringe benefits and good working conditions for granted, but when they are removed they had a highly demotivating effect. A salary increase had a short-term motivating effect when it was felt to be deserved, but rarely did the effect last very long, while what was felt to be an unfair salary was a long-lasting demotivator. Herzberg's study consisted of a series of interviews with employees. From the results Herzberg concluded that the replies people gave when they felt good about their jobs were significantly different from the replies given when they felt bad. Certain characteristics tend to be consistently related to job satisfaction and others to job dissatisfaction. Intrinsic factors, such as work itself, responsibility and achievement seem to be related to job satisfaction. Respondents who felt good about their work tended to attribute these factors to themselves. On the other dissatisfied respondents tended to cite extrinsic factors such as supervision, pay, company policies and working condition. Herzberg proposed that his findings indicated the existence of a dual continuum: the opposite of "satisfaction" is "No satisfaction" and the opposite of "Dissatisfaction" is "No Dissatisfaction. According to Herzberg, the factors leading to Job satisfaction are separate and distinct form those that lead to job dissatisfaction. Therefore, managers who seek to eliminate factors that can create job dissatisfaction may bring about peace but not necessarily motivation. They will be placating their workforce rather than motivating them. As a result, conditions surrounding the job such as quality of supervision, pay, company policies, physical working conditions, relations with others and job security were characterized by Herzberg as hygiene factors, when they're adequate, people will not be dissatisfied; neither will they be satisfied. If we want to motivate people on their jobs, Herzberg suggested emphasizing factors associated with the work itself or to outcomes directly derived form it, such as promotional opportunities, opportunities for personal growth, recognition, responsibility and achievement. These are the characteristics that people find intrinsically rewarding.

1.2.7. MaslowDs Need Hierarchy Theory

Maslows hierarchy of Need is a general theory of motivation. Maslow theorizes that people have five classifications of needs which act as motivators. At each level there are needs that must be met prior to moving to the next level and its corresponding needs. These classifications are (see figure 2.) 1) physiological needs; (the lowest levels of needs in Maslow's hierarchy; the essentials required for simply staying alive: food, water, shelter), 2) safety and security needs; ( freedom from physical harm, a continuing, dependable income), 3) social and belongingness needs; belonging to a group ( either family, friends, or at work), 4) ego, status, and self-esteem needs; 5) self-actualization needs (doing something interesting and fulfilling, being the best you can be, enjoying the coming together of all parts of your life).

Thus, as man's physiological needs are adequately fulfilled he will develop safety needs. As these are fulfilled man will seek to fulfill social needs, and so on up the need hierarchy. Man is constantly seeking to fulfill some need ( Vincent C. Brenner, Claude W. Carmack and Mark G. Weinstein, 1971). During his career, Abraham Maslow, who was born in New York in 1908, was prominent for rebelling against psychoanalysis and the animal -centered studies in behaviorism (Wren, D. ?., & Greenwood, R.G. 1998) . In fact, he proposed that psychology should focus on the entire person and how people act. He eventually became one of many pioneers in humanistic psychology, which came to be labeled, "psychology as the third force. " What is instructive about this revolution is that it marked the advent of applied psychology and theoretical and systematic understandings of variables that affect humans in the contemporary workplace. Above all, Maslow believed that humans aspire to self-actualized states (Ramlall, S., 2004). Writing in the Psychological Review in 1943, Maslow stated (Ott, S. J. (1996).), "human needs arrange themselves in hierarchies of prepotency That is to say, the appearance of one need usually rests on the prior satisfaction of another more proponent need. Man is a perpetually wanting animal. Also, no need or drive can be treated as if it were isolated or discrete; every drive is related to the state of satisfaction or dissatisfaction of drives.'" (Ikwukananne I. Udechukwu, 2009). Some basic assumptions have been presumed to underlie this theory. First, unsatisfied needs stimulate behavior, while satisfied needs are not motivators. Second, peoples needs range from the most basic (e.g. physiological) upward to more complex need levels (e.g., self-esteem). Third, individuals must, at least minimally, satisfy a lower level of need before moving upward and activating a new area of need (Robert L.Berl, Nicholas C.Williamson, and Terry Powell, 1984.) Maslow's Need Hierarchy Theory provides both; a theory of human motives by classifying basic human needs in a hierarchy, and a theory of human motivation that relates these needs to general behavior. As a theory of motivation, Maslow utilized the two concepts of deprivation and gratification to provide the dynamic forces that linked needs to general behavior. He used the deprivation concept to establish "dominance" within his hierarchy of needs. He postulated that deprivation or dissatisfaction of a need of high prepotency will lead to the domination of this need over the organism's personality. Following the satisfaction of a dominating need, the second element of the dynamic force in Maslow's Theory will then take place. Relative ratification of a given need submerges it and "activates" the next higher need in the hierarchy. The activated need then dominates and organizes the individual's personality and capacities so that instead of the individual being hunger obsessed, he now becomes safety obsessed. This process of deprivation - domination - gratification - activation continues until the physiological, safety, affiliation and esteem needs have all been gratified and the self-actualization need has been activated. In a later work (Maslow, A. H., 1965.), Maslow modified the gratification/activation idea by proposing that gratification of the self-actualization need causes an increase in its importance rather than a decrease. Maslow also acknowledged numerous exceptions to his theory. Notably, he pointed out that long deprivation of a given need may create a fixation for that need. Also, higher needs may emerge not after gratification, but rather after long deprivation, renunciation or suppression of lower needs. Maslow emphasized again and again that behavior is multi -determined and multi-motivated. From this general approach Maslow dealt with a wide range of consequences to his theory (Mahmoud A. Wahba, 1974). Although this theory has the most frequent application and has also been the standard for discussion on what human beings want out of life, has sometimes been criticized on philosophical, methodological and hierarchical grounds (C. P. Alderfer, 1969; L. Berkowitz, 1969; R. P. Campbell, M. D. Dunnette, E. E. Lawler III, and ?. E. Werch, Jr., 1970,; D. T. Hail and D.Nougaim, 1968, ; J. G. Hunt and J. W. Hill, 1969).

Due to the simplicity of implementation and use of Maslow's hierarchy of needs we believe that it is very easy to apply it to the different areas of human functioning. One of these areas is certainly an area of Personal Finances. Such as the theory of motivation is based on the gradual satisfaction of human needs from lower to higher needs, so does the same hierarchy could be easily applied on personal finance thus allowing the person to first meet their basic financial needs prior than passing on those higher-ranked.

2. PERSONAL FINANCES IN EUROPE

In process of forming high quality educational programs in field of Finances most underestimated field of study in majority of European countries is definitely the field of Personal Finances (Buljan Barbaca, Matosevic Radie; 2010). Majority of population is left on its own when it comes in creating there financial policy. Necessity of academic and complex approach to this field of study has been recognized in long time ago in USA. In USA financial theoreticians have gone one step further and have established (Schuchardt, Bagwell, Bailey, De Vaney, Grable, Leech, Lown., Sharpe, Xiao; 2007) a collaboration between experts from different field of study in order to find optimal solutions for individual finances.

Although Europe is lingering behind USA when it comes to Personal Finances, which can be witnessed by number of study programs that include teaching Personal Finances, there is strong evidence that there is a necessity of reinforcement of current study programs with some theoretical and practical knowledge from this specific field of study. True some statistics we will try to explain why we think that Personal Finances in Europe need to be approached in completely different way. Current financial crises made households change approaches towards time preference of consumption. Trends of big growth of personal loans from the beginning of new century have been changed in recent years of crises. Time preference of consumption is nothing else but a desire of immediate consumption although we don't have any money to spend today. Perception of "cheep money" that can be borrowed from the bank and hunger for immediate consumption, led to drastic increase of personal loans. But the financial crisis had inevitable changed some habits of EU inhabitants. These changes have resulted with the data presented in figure 3 showing how households in Europe changed their habits considering the borrowing practice.

From data presented in figure 3 it is highly visible that households are decreasing level of loans. We might consider it as a positive trend but essentially it is a result of financial crisis. Households have lower credit ranking so they don't have possibility to take more loans. There is not sufficient capacity within financial sector to absorb such increasing risks coming from the households with members that are left unemployed or live under a threat of losing their job tomorrow.

Weaker economies have been affected more by all negative side effects of financial crises so the implication of financial crises is more visible in these economies. In figure 4 we will see how the trend of decreasing of households loans is in specific countries.

As we can see from presented data SEE countries have suffered more obvious changes of trend. Romania for example had biggest rate of growth in 2006 but in 2009 it has changed in negative rate of growth. Not knowing the whole story we could conclude that the Romanian households just as majority of European households are becoming more rational in governing there personal finances, but it would be completely wrong.

Confirmation of these theses is to be found in increasing number of Personal bankruptcies in majority of European countries and introduction of the institute of Personal Bankrupt into legislative frame of countries that previously didn't have it. Regulations on personal bankruptcy procedure are going to be applied on bankruptcy of every physical entity, entrepreneur, private entity or consumer. In compliance with the suggested Law, over-indebted individual as well as creditors will be able to file for personal bankruptcy. Bankruptcy debtor will be represented by a trustee.

A personal bankruptcy is a debt solution for very serious financial problems. Bankruptcy laws mean that the family home will become part of any bankruptcy assets. The main shortcomings of personal bankruptcy are to be found in following points:

* Financial scrutiny- Personal finances will be heavily scrutinized by the Official Receiver.

* Bankruptcy Restriction Order-. Those that are deemed to have acted recklessly could be subject to a Bankruptcy Restriction Order (BRO). This includes losing money through gambling, speculation or spending money that a debtor was never in a position to pay back. A person guilty of any of these bankruptcy offences can be held accountable for up to 15 years.

* Loss of the family home- The Official Receiver will expect a property to be sold for the best available price so that the proceeds can be distributed to creditors.

* Not all debts can be written off- Taxes owed to the Inland Revenue, money gained through fraud, child support and student loans cannot be eliminated through personal bankruptcy.

* Credit report- Bankruptcy has grave ramifications for a credit report and will show for several years (6 years in UK and 10 years USA).

* Future credit applications- When applying for more than £500 of credit, it is necessary to inform the lender about being declared bankrupt in the past.

* Professional exclusion- Professional people, such as accountant, lawyers, police and local government officials will lose their job (it is a practice in UK). This can make financial survival difficult.

* Negative publicity-. All insolvencies are advertised in a local newspaper (in UK also in the London Gazette). It also appears on the government's insolvency register.

Personal bankruptcy may seem like a Utopian debt solution, but as we have shown previously there are a number of reasons why it should be avoided. Nevertheless in figure 5 we can see that such a dangerous solution for the personal debt is becoming more and more popular in EU.

These countries are chosen because there are available statistics for them with relevant 1 0 year period. Other countries establish institute of Personal Bankruptcy just recently which also confirms increased need for such instrument.Experts from all over the world have recognized the need of developing different tools that should help individuals in efficient dealing with there finances. In chapter 3. we will explore possibility of application of motivation theory on decrees of financial managerial skills.

3. MOTIVATION IN PERSONAL FINANCES

Maslow's theory and Maslow's theory of human needs is inevitable in all considerations which analyzes the individual and the decisions that individual makes. Exceptions are not financial decisions an individual makes and they are also consistently associated with Maslow's theory.

According to Du and Kamakura (2006, ? 122), distribution and manipulation of financial products, determinates the position where the individual is with respect to financial maturity. It is this selection of instruments can determine the manner in which the individual is positioned in terms of their personal financial ratings. Kamakura explains that there are several levels of financial maturity with regard to the selection of financial products that individuals use. The division is performed as follows:

1st level on the scale of financial maturity is the level of basic products:

- Bank account,

- Savings / deposit account

- Credit card

- Mortgage and

- Loans.

2nd level on the scale dealing with products that are used for risk management and creating cash reserves:

- Life Insurance,

- Pension funds and

- Time savings.

3rd level on the scale of financial maturity of capital markets products are:

- Stocks and bonds,

- Foundation and

- Personal portfolio.

4th level of risky securities that constitute their primary purpose other than to have the property that became tax relief:

- Government bonds.

In his previous work, the Kamakura (1991,p 330) explains how the processes of deregulation in the industry of financial instruments affected by the globalization of financial markets created necessity of redesigning products for the retail sector. Competition for customers from the household sector is no longer conducted solely within the banking sector but occurs homogeneously financial market in which banks compete, but also other financial institutions such as insurance companies, leasing companies and banks etc. The transformation of the banks into financial department stores (Rose; 2005) has prompted the need, and consequently the activities of financial institutions that will contribute to better positioning in the emerging market conditions. Most scientific papers including the one just proposed by Kamakura arose from the need to financial institutions adapt to new global conditions, the expanded market. In researches performed by marketing experts they use very usually Maslow's theory. Very interesting is how Kamakura divides financial instruments in terms of ensuring the financial freedom of the individual. His division is presented in Figure 6.

In the base group of risk management instruments are placed life insurance policies and investment in pension funds, cash reserves and key financial products such as current accounts, etc. At a higher level are hedging against inflation, and at the highest level are the instruments that the individual is protected from risk and taxes.

Although this pyramid has been constructed in order to help financial institutions to obtain better market positioning it can serve us to reach some goals in improvement of Personal Finances. If we transfer this pyramid into a level of skillfulness individual needs to obtain them then we can suggest a pyramid shown in figure 7.

Majority of individuals are skillful enough for usage of basic financial instruments which is enough for performing basic financial transactions. If the individual manages finances on this level it is almost certain that financial future for this individual in question is not in becoming rich. People who live there financial life on this level are very financially vulnerable. All negative impacts from surrounding such as a financial crisis can endanger individual's primary existence. Individuals who live there financial life on a second scale of proposed pyramid can survive some medium financial concussions but those who manage there finances on third level don't have to worry even in times of deep crises.

The goal is to encourage development of skills necessary to obtain higher level on proposed pyramid. Some authors are more concentrated on young population (Shim, Xiao, Barber, Lyons; 2009) and some authors explored possibilities of motivating a different population groups in changing their financial performances (Xiao, Noring; 1994) but they all tried to meliorate current condition in Personal Finances.

Conclusion

Taken in consideration all the set out facts we have come up with several conclusions;

- Personal Finances are very important field of study which is underestimated in EU zone.

- Financial indicators: growth rate of personal loans and growth of number of Personal Bankruptcy in last decade show how important is to educate people in this particular field of study.

- Managerial tools that are already proven in practice as efficient can be successfully implemented in Personal Finances in order to increase managerial skills of each individual.

- Personal Finances are the field of study with need to be observed from different aspects and with collaboration from the experts from different fields of study.

Necessary is also to encompass the story about importance of Personal Finances underlining that a society of financially successful individuals makes a financially successful society.

References

Recommended Readings

[1] Adair, J. iHandbook of Management and Leadership. Publisher: Thorogood.: London. Publication Year: 2004.,p.l56.)

[2] Alderfer, C. P., "An Empirical Test of a New Teory of Human Needs, Organizational Behavior and Human Performance, 4., 969, 142-75;

[3] Berkowitz, L, "Social Motivation," The Handbook of Social Psychology, ed. Lindzey, G. and Aronson, E.; R. P. Campbell, M. D. Dunnette, Massachusetts: Addison Wesley 1969.

[4] Beri, R.,. Williamson, L, Nicholas C, and Powell, T., Industrial Salesforce Motivation: A Critique and Test of Maslows Hierarchy of Need, Journal of Personal selling&SalesManagement, May, 1984. , page.33

[5] Brenner, V. C, Carmack, C. W and Weinstein, M. G., An Empirical Test of the Motivation-Hygiene Theory 1971.,p.(359-360)

[6] Brown, K. & Cullen, C: Maslow's hierarchy of needs used to measure motivation for religious behaviour Mental Health, Religion & Culture March 2006; 9(1): 99-108.

[7] Buljan Barbaca D., Matosic Radie M., (2010): «Rational governing of Personal finances as a result of teaching process», Economy Transdisciplinarity Cognition vol.3 (2010)., Bacau, Romania.

[8] Dewsbury, D. ?., Comparative animal behavior. New York: McGraw-Hill, 1978.

[9] Disney R.: Ageing and Saving, Fiscal Studies (1996) vol.17, no. 2, pp. 83-101.

[10] Du R.Y., Kamakura W.A.: Household Life Cycles and Lifestyles in the United States, Journal of Marketing Research, Vol. XLIII (February 2006), 121-132.

[11] ECRI, Lending to Households in Europe (1995-2009), ECRI Statistical Package 2010, ECRI, BrusellsFederal reserve, http://www.federalreserve.gov/pubs/oss/oss2/scfindex.html (acceded on several occasions)

[12] Gerhart M.: Consumers Bankruptcy Regimes and Credit Default in the US and Europe, CEPS, Working Document No. 318, 2009.

[13] Hail, D. T. and. Nougaim, D, "An Examination of Maelow's Need Hierarchy in an Organizational Settiiw,"Organizational Behavior and Human Performance, 3. ,1968, 12-35;

[14] Hal epota, H. A; Motivational Theories and Their Application in Construction, Cost Engineering Vol. 47/No. 3 March, 2005, p.15.

[15] Hunt, J. G. and Hill, J. W., "The New Look in Motivational Theory for Organizational Research, "Human Organization, 28 (Summer 1969), 100-109.)

[16] Ikwukananne, I., Udechukwu: Public Personnel Management Volume 38 No. 2 Summer 2009.

[17] Kamakura W.A., Ramaswami S.N., Srivastava R.K.: Applying Latern Trait Analysis in Evaluation of Prospects for Cross-selling of Financial Services, International Journal of Research in Marketing, Vol. 8 No.4, 1991,pp 330.

[18] Kleinginna, P. R, Jr., & Kleinginna: A. M. A categorized list of motivation definitions, with a suggestion for a consensual definition. Motivation and Emotion, 5., 1981., 263-291.

[19] Lawler, E. E. Ill, and Werch, K. E., Jr., Managerial Behavior, Performance and Effectiveness, Kew York: McGraw-Hill, 1970., pp. 340-85;

[20] Locke, F. A., & Latham, G. P. A theory of goal setting and task performance. Englewood Cliffs, NJ: Prentice Hall, 1990.

[21] Locke, E. A., & Latham, G. P. Building a practically useful theory of goal setting and task motivation: A 35 -year Odyssey. American Psychologist, 57., 2002., 705-717.

[22] Locke, E. A., & Latham, G. P.: A theory of goal setting and task performance. Englewood Cliffs, NJ: Prentice Hall. 1990.

[23] Locke, E. A., The motivation to work: What we know. In M. L. Maehr & P. R. Pintrich (Eds.), Advances in motivation and achievement (Vol. 10, pp. 375^12). Greenwich, CT: JAI Press, 1997.

[24] Locke, E. A:The motivation sequence, the motivation hub, and the motivation core. Organizational Behavior and Human Decision Processes,50., 1991., 288-299.

[25] Maslow. A. H. Eupsychian Management (Homewood, 111.: Richard D. Irwin/The Dorsey Press, 1965.

[26] McGregor, D., The Human Side of Enterprise New York McGraw-Hill , (1960).

[27] Meyer, J. P., & Allen, N. J., Commitment in the workplace: Theory, research, and application. Newbury Park, CA: Sage, 1997.

[28] Meyer, J. P.,. Becker, T. E, Christian, A conceptual Analysis and Integrative Model: Employee Commitment and Motivation, Vandenberghe Journal of Applied Psychology 2004, Vol. 89, No. 6, 991-1007, , p.991-992

[29] Miner, J. B. Organizational behavior theories: A quantitative review. Academy of Management Learning and Education, 2, (2003)., 250-268.

[30] Ott, S. J. , Orlando, EL: Harcourt Brace , Classical readings in organizational behavior, 1996.

[31] Pinder, C. C. Motivation in work organizations. Upper Saddle River, NJ: Prentice Hall, 1998. p.l 1

[32] Ramaswami S.N., Srivastava, R.K., Mclnish T.H.: An exploratory study of portfolio objectives and asset holdings, Journal of Economic Behavior and Organization, 19, 285-306.

[33] Ramlall, S., A review of employee motivation theories and their implications for employee retention within organizations, Journal of America Academy of Business, 5., 2004., 52-63.

[34] Rose S. P.: Menadzment homer cijalnih banaka (Banking management), Mate, Zagreb, 2005.str.16.

[35] Schuchardt J., Bagwell D.C., Bailey W.C., De Vaney S.A., Grable J.E., Leech I., Lown J.M., Sharpe, Xiao J.J.: Personal Finance: An Interdisciplinary Profession, Financial Consueling and Planning, Volume 18, 2007.

[36] Shim S., Xiao J.J., Barber B. L., Lyons A. C: Pathways to life success: A conceptual model of financial well-being for young adults, Journal of Applied Developmental Psychology, 2009.

[37] Steers, R. M., Porter, L. W., & Bigley, G. A. Motivation and leadership at work (6th ed.). New York: McGrawHill, 1996.

[38] Wahba, M. A, Baruch College, Lawrence G. Bridwelt, Maslow reconsidered: A review of research on the need hierarchy theory , Baruch College, The City University of New York 1974., p.517.

[39] Wren, D. A. & Greenwood, R.G.. Management innovators, New York: Oxford University Press, 1998.

[40] Xiao J.J.: Noring F.E.: Perceived Saving Motives and Hierarchical Financial Needs, Financial Counseling and Planning, Volume 5, 1994.

[41] Xiao J.J.: Patterns of Household Financial Asset Ownership, Financial Counseling and Planning, Volume 6, 1995.